Washington | Tony James, vice chairman of Wall Street private equity giant Blackstone and a Joe Biden donor, has questioned Australia’s decision to give early access to superannuation accounts and warned it was one of several consequences of the pandemic response that will lead to “a price to pay in the long term”.
Mr James, who commended Australia’s ability to always “make the right political decision quicker than we do”, said there was a “real dichotomy” between buoyant global financial markets and what he predicts will be a “very slow” real world economic recovery that may last until 2023 and leave some sectors “damaged forever”.
“What’s propping up the markets is this massive stimulus, essentially the lowest interest rates that the US has ever seen, and that’s inflating the value of financial assets almost disconnected from the fundamental of the economy,” Mr James said.
“So we’re we’re worried about that market when people realise the recovery will be slower, or if things don’t go as planned.”
He warned that many investors were making a “kind of fundamental assumption” that the pandemic is temporary and that a vaccine will be found and that those already infected by the disease will remain immune.
“I hope that’s true, I think it’s likely true, but it’s not for sure,” he said. “You could have this disease either roaring back in the fall for seasonal reasons or because immunity doesn’t last or the vaccines aren’t effective and have to go through another shutdown.
“That would be devastating for confidence and would create another huge leg down in the market. And it would be another added burden on the economy.”
One of Wall Street’s best-known investment titans and someone who has already been touted as a potential Treasury Secretary to Mr Biden, Mr James delivered the remarks on a video call hosted by Australian New York Consulate-General Alastair Walton. The interview was posted on the consulate’s Facebook page on Friday (AEST), a day after it was recorded.
Co-founded by CEO Stephen Schwarzman, a close confidant to President Donald Trump, Blackstone is one of the world’s biggest investors, with almost $US540 billion ($823 billion) in assets under management, including $US15 billion in Australia.
Mr James, a careful student of Australia’s retirement savings system, regards it a model that the US should follow and predicted on the call that the crisis may see it gain traction, “particularly if we have a change of government in the US”.
“I’m a great admirer of the Australian system,” he told Mr Walton, but warned the global economic shutdown will have “lasting, hugely negative, effects for savers I think just about everywhere, even in your country now people are able to invade, so to speak, their retirement savings for current needs”.
“That makes perfect sense in the short term, but there is a price to pay in the long term.”
In America “we were not as wise in setting up the system so people are invading, similarly” their accounts, raising doubts about the long-term viability of social security as a vehicle for adequate retirement for US workers.
Social security, which pays pensions to older Americans, is increasingly becoming inadequate, he said, and is already not enough to retire on, having once covered 40 per cent of what’s needed to 27 per cent at present.
“That’s going down and we’re going to need something else.”
Mr James said another development is that Americans have compensated for the lack of retirement savings by trying to work longer, something that may not be possible in a pandemic-afflicted world.
“For older workers, if it’s not safe to work there’s going to be a lot more forced retirements before you’re financially able to do that” when you have enough saved.
“There’s going to be a lot more people take early social security which in our country means they’ll get lower benefits. That’ll have lasting negative effects.”
Add to that a rising unemployment rate and there’s “a kind of perfect storm making the retirement problems we already had much much worse”.
“And frankly COVID is aggravating inequality that we already had in this country so therefore hitting the lowest half of workers the hardest.”
He warned that such “slowly-unfurling problems never seem to hit crisis pitch until they do” but acknowledged it wasn’t front of mind for most people.
“But it’s sneaking up on them inexorably and we’re going to wake up and go ‘oh my God, we’ve got a real problem’.”
Ideas for a universal superannuation system based on Australia’s example were detailed in a 2016 book co-authored by Mr James and economist Teresa Ghilarducci, Rescuing Retirement: A Plan to Guarantee Retirement Security for All Americans, which was picked up late last year by moderate Democrat presidential candidate Pete Buttigieg.
In the interview with Mr Walton, Mr James said he loved Australia both personally and professionally.
“Australia has the best of all worlds, in a way. It’s got an entrepreneurial Western business-like culture, people are creative, they get things done with a minimum of process and bureaucracy and so it’s kind of the best of the West.
“At the same time it’s on the doorstep of the East where you’ve got all those rapidly growing Asian markets that are naturally made for a lot of what Australia can do.”
He also said that it has benefited, despite the turmoil of the past decade from “really solid political leadership”.
“Australia always seems to make the right political decision quicker than we can do.
“And I think the result of that has been decades of steady expansion. COVID may put a little blip in that, but all-in-all it’s just exactly the kind of business environment we want to be a major stakeholder in.”
Mr James collected $US112.3 million in pay and dividends last year, according to Bloomberg News.
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