Milken Institute
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Shifting fortunes as nations seek the right formula for growth
By: Milken Institute
April 30, 2012
Monday's Global Conference lunch panelists were politely pugnacious in arguing over whether European austerity or the U.S. approach to growth would turn out to be the right policy move.

"We have time to get it right," said Starwood Capital's Barry Sternlicht. He was clearly worried about what he saw a gathering storm in Europe that could come barreling to the United States. "But we don't have forever . . . It's gonna be fixed in ripples or in a giant earthquake."

Sternlicht fired at multiple targets. High on his list were former and current Federal Reserve chairmen Alan Greenspan and Ben Bernanke; he said they have forced Americans into the stock market by holding down interest rates so low for so long. He saved his bull's eye shot for Bernanke, whom he accused of doing President Obama's bidding to get re-elected.

"His campaign manager appears to be Bernanke," Sternlicht said of Obama, adding that the housing woes we've already seen are just a warm up act is the Obama administration doesn't take corrective action by raising short-term interest rates to between 1 and 2 percent. The FedaEUR(TM)s current policy, he said, is "economic suicide."

"We are making the biggest mistake of my life," he said. Without the prospect of rising interest rates, potential homebuyers do not feel the urgency to buy and banks are not putting their money in investments.

Turning to Xi-Qing Gao, vice chairman and president of the China Investment Corp., Sternlicht gazed skyward and then unleashed. He told Gao that China "seduced" American shoppers into a kind of consumption addiction with artificially low prices on its exports made possible by a weak and fixed renminbi.

"It's a weak argument," Gao countered coolly. He said that the United States faces far more fundamental problems than a weak renminbi, which he noted is no longer fixed but floating within a range.

Clearly enjoying his position out of the line of fire was Brazilian investor Eike Batista, the wealthiest man in his country. He couldn't resist noting that Brazil is the worldaEUR(TM)s sixth-largest economy and gaining fast on France.

Batista said the key to his country's success was to control its own destiny by protecting both its resources and its talented workforce. He said both Brazil and Argentina are suspicious of China because of its labor and business practices. But unlike Argentina, he said, Brazil is not nationalizing its major companies and welcomes foreign investors.

Though Gao pointed out that Chinese workers are beginning to command higher wages (a shift that may affect China's competitive edge), Batista stated that Brazil would not ask its workers to accept Chinese-style working conditions. In case anyone was in doubt about what that means, Gao spelled it out bluntly: "No sweatshops."

Full video is available here.