Byline: Kenneth R. Timmerman, INSIGHT
The idea was floated first by former Treasury secretary Robert Rubin, now the chairman of Citigroup. Unless Congress scales back the Bush tax cuts, he argues in a new study, U.S. government budget deficits could lead to a crisis of confidence in the dollar and the stock market and potentially staggering losses for investors.
To conservative economist Bruce Bartlett, Rubin was "laying the groundwork for a political assault on President George W. Bush over his budget policies, hope[ing] to give the Democratic presidential candidate an issue to run on that could propel him into the White House."
But Wall Street sources say Rubin may have had other designs as well. A consummate insider who talked the market up when he was working for Bill Clinton, Rubin today could be trying to talk the market down. "This market is thin enough that if you made a big move all of a sudden you could move it," Bartlett tells Insight. "At some point, something could happen on its own, and then someone like George Soros could turn a minor blip into something else."
The Hungarian-born Soros is one of the world's richest men, with a fortune estimated at $7 billion earned in part from brazen assaults on world currency markets. He has gained political notoriety for providing $18 million to support a change in the U.S. campaign-finance laws and then using that change in recent months to offer more than $15 million to radical organizations dedicated to defeating Bush this November [see "Soros Resolves to Bring Bush Down," Dec. 9-22, 2003]. Asked recently by the Washington Post whether he would trade his $7 billion fortune to unseat Bush, Soros thought hard. "If someone guaranteed it," he said finally.
Investment adviser and author Don Luskin (www.poorandstupid.com) thinks investors should watch Soros carefully but calmly. "At least two of three conditions must be met for a speculative attack on the market to succeed," he tells Insight. "First and foremost, the speculators have to be right." When Soros sought to break the British pound by massive currency trades, he played into a market that knew the existing exchange rates were unsustainable. "So he speculated against the Bank of England, not against the whole damn world," Luskin says. "You can influence the market by the very act of betting."
Ideally, Luskin says, there should be technical market conditions that force other players "to take action triggered by what you did, independent of wanting to help you. …