Carlyle's Rubenstein Sees Opportunities Ahead
By Thomas Heath
So says David Rubenstein, one of the co-founders of The Carlyle Group. Rubenstein spoke at the National Press Club this morning about the current economic malaise, the Obama Administration and the local economy.
Rubenstein appeared on a panel with Joseph E. Robert Jr, of the JER Companies, and Tom Ridge, former secretary for Homeland Security. The program was sponsored by Deloitte accounting firm. Patton Boggs law firm, the public relations agency Qorvis Communications, and Bisnow on Business, a company that produces e-mail newsletters covering the local business community.
The most interesting part of the Rubenstein presentation, I selfishly thought, was his views on the impact that the current financial crisis and the incoming Obama Administration will have on the Washington economy. Rubenstein sees almost no limit to federal spending in years to come, with a stimulus package that is probably going to amount to somewhere between $700 billion and $1 trillion.
Rubenstein, who served in the Carter Administration, said when a new party takes power after years of being on the outs, there is a desire to act quickly on a range of issues. He cited the Democrats taking office after the Nixon-Ford years, after the Reagan-Bush years and now after eight years of George W. Bush.
"We have had eight years of Bush 43, you have pent up desires in the Democratic Congress and they are going to try and get those desires passed," Rubenstein said. "Historically, federal spending has been somewhere between 19 and 22 percent of (gross domestic product). Right now we are actually about 19 or 20 percent. We could go up with more spending and even beyond the $1 trillion deficit or stimulus package and still be below the 22 percent GDP mark."
The Carlyle chieftain said that the center of financial power is moving from New York to Washington, where many of the decisions that will guide the economy will be made in years to come. That is going to have a big impact on the Washington region, he said.
Because people around the country and around the world are going to want to influence, know about and be part of the decisions that are made here in coming years, there is going to be money to be made.
"Washington will again be the center of attention of the world," Rubenstein said. "Power is moving away from New York and moving to Washington. Washington will grow."
Among the big local beneficiaries from federal deficit spending will be the private businesses - "businesses that surround the government" - presumably from security agencies to financial firm.
Take Homeland Security.
"The Mumbai tragedy is going to make people in this country say, 'That could happen to us,' " said Rubenstein. "I think you will see a fair amount of that $1 trillion...go into additional homeland security related things. And as a result, that cottage industry will be places where people can make money.
"So to the extent that you can figure out where the federal governrment is going to spend money, and create companies associated with it, or work in those industries, I think you are going to do well."
The "influencers" are also going to do well. That includes lobbyists. So will lawyers, said Rubenstein. In other words, the influence peddlers who want to affect legislation and policy to their advantage.
"There's going to be a mass rush to figure out how to persuade members of Congress to spend the money for this or for that," Rubenstein said. "And to the extent that you can influence members of Congress, and ultimately the administration, in agreeing to get money spent where you want it to be spent, I think you will justify your existence and it probably will be good for the constituencies you represent.
"A massive amount of consulting and lobbying effort and legwork is going to be spent in trying to convince members that this one thing that you might want will change the world and make the economy better."
"When that money gets spent, when it's appropriated you actually have to do something with it, and there are going to be cottage industries built up around the new money."
Rubenstein also said the news agencies that report the goings-on in Washington will see a growing demand for their products as more and more people across the country and the world demand to know what is happening here that will affect their lives and businesses.
It's "boom times for news, public relations, lobbyists" and the rest of the inside-the-beltway crowd, Rubenstein said.
Rubenstein also said local real estate, the entrepreneurship community, including buyout firms like Carlyle, venture capital companies, tech startups and the rest of the investment community will also be positively affected by big new spending, but to a lesser extent.
Rubenstein said the concern of deflation - and the resulting chaos that can wreak - has killed any inhibition that the U.S. has about spending billions to keep the economy afloat.
"The desire to spend money and print money is going to be with us as long as people in Japan and China and Saudi Arabia keep buying these little pictures of George Washington that are giving them relatively modest interest rates. As long as people are buying them, we're going to print them."
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Posted by: DougPoretz | December 3, 2008 9:39 PM
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