Federal Reserve Chairman Ben Bernanke has found some strong support for his fears of a looming fiscal crisis from an unlikely source: Bill Clinton's Treasury Secretary Robert Rubin.

Bernanke is a Republican and Bush administration appointee.

In January, Rubin appeared on PBS's "Charlie Rose" television show, and made some surprising comments — comments I believe should have made major headlines in the business news sector.

Rubin told Rose that the U.S. faces "excruciating decisions" regarding what he sees as an increasingly unsound economy.In his wide-ranging Jan. 22 interview with PBS's Rose, Rubin asserted that this country is on the "wrong track on almost every front." Among Rubin's key points:

Average Americans are facing a troubling "economic insecurity."

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Rubin: "I think we face [huge] challenges. I think we can do very well in what is really a transformed global economic environment with the rise of China and India. But . . . I think we're on the wrong track on almost every front right now, regardless of how you allocate the political responsibility, and what I'd like to see the new Congress do — and I think they've gotten off to a very good start in this respect — is to address those challenges.

"I think we've got to re-establish sound fiscal conditions . . . so we have an environment conducive to growth, and also to avoid the dangers that, as [Federal Reserve Chairman] Ben Bernanke said very recently in his congressional testimony, [underlie] unsound fiscal conditions. I think that's a tremendous threat to the global economy. To our economy and the global economy . . .

"We're still the leader in the world — but our relative gap over others is beginning to diminish for all kinds of reasons."

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The U.S. needs a strong dollar or else "something is going to give" — and that something could include an adjustment of the dollar.

Rubin: "I don't really think there's too many question about this — a strong dollar grounded in strong policy is very much in our country's interest, because [of] the exchange rate. Remember — the exchange rate between the dollar and other currencies is basically a way of expressing the rate at which we take our goods and services and exchange them for the goods and services of other people of other countries. And the more . . . goods and services we can get for the ones that we give, the better off our standard of living will be. Therefore, a strong dollar is very much in our interest . . .

"I think the dollar will do what it wants to do . . . If the current account deficit doesn't change, then at some point something is going to have to give. It seems to me that it's very likely there's going to have to be an adjustment of the dollar. The way to minimize the adjustment that you need is to have sound policy."

Entitlements are a "fiscal problem" that must be dealt with.

Rubin: "Entitlements are a problem not because people shouldn't be getting benefits, but because it creates very large fiscal issues. Once you recognize it to be a fiscal problem, then it seems to me what you should do is set up some kind of process, whatever it is, where everything is on the table. And it's not just the entitlements that are on the table, it's also our whole tax regime . . .

"What I think is that the president of the United States, the leaders of both parties, and the leaders of both Houses should set up a special process of some sort in which everything is on the table: revenues, spending, and federal programs including all the entitlements. And then they should take joint political accountability for what, Charlie, are going to be excruciatingly difficult political choices. And I have an instinct that our political process isn't going to be able to make the tough decisions we need to make."

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Our litigation system is broken and needs substantial overhaul to reign in costs and attract investments from aboard.

Rubin: "I believe we have to reform our litigation system . . . We have a system that is vastly more expensive for business and for economic activity with respect to litigation costs than the system in any other market-based economy in the world. Or I suspect any other economy in the world, actually. And it seems to me that what we need to do is have a litigation reform that will continue to give those who have been damaged the opportunity to get redress and appropriate redress, but doesn't have the enormous excesses that we have in today's system."

China and India on the Rise

Rubin and Rose also discussed the rise of China and India.

Rose: "[Rubin's Deputy Secretary] Larry Summers was right about a year ago when he gave a speech in which he said the rise of China and India is probably the most significant change in the global economic environment since the emergence of the United States over 100 years ago, and arguably even since the industrial revolution . . .

"But as you well know, they have big problems too . . . India, [has] a huge infrastructure problem. They have problems of what to do with the rural poor. In China [it's] the same thing. There is a huge environmental issue for them . . ."

Rubin: "Those two countries I actually know a little bit about. I even had the opportunity to spend a lot of time with private and public sector leaders from both countries.

"Last year my wife and I were in India . . . The prime minister invited us for lunch, because we know him from when he was finance minister. They have tremendous challenges, huge challenges; but every time I meet with the public and private sector leaders from those two countries, the sense I come away from with is that these people recognize their problems and they are committed to addressing them."

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Rubin also said the financial capital of the world may be shifting from New York to London due to regulatory pressures in the U.S. He noted: "IPOs aren't being done in this country . . . Our whole litigation regime causes companies not to want to go public here."

Surprisingly, Rubin has yet to endorse Sen. Hillary Clinton for the Democratic nomination for president in 2008, even though she was first lady during Rubin's tenure as Treasury secretary.

He had this to say, however, about Hillary's likely chief rival for the nomination, Sen. Barack Obama: "I think very well of Obama. I knew Hillary a lot better. I know Obama pretty well too, actually."

Editor's note:
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