'Is it a time-bomb?': Paul Singer's Elliott Management is sounding the alarm on the global economy

  • Billionaire hedge-fund manager Paul Singer sent a letter to clients stressing the need for economic growth. He also laid out why the US needs tax reform.
  • Singer was among the leading Republican critics of Trump during his campaign, and a website funded by Singer was reportedly involved in first funding the notorious Trump dossier.

Elliott Management, the hedge fund led by billionaire conservative donor Paul Singer, laid out in a private letter to clients why the developed world needs more growth to maintain social stability.

“The developed world needs more growth and a healthier balance between asset prices and middle-class employment opportunities and prospects,” Elliott said in a quarterly letter to clients, which was seen by Business Insider.

The letter added:

“Only more development can generate a reasonable prospect of paying the ever-mounting bills, and lower the temperature of the growing societal edginess regarding economic security and “inequality.” Growth is essential to fostering the sense of community and buy-in that are needed for social stability, the acceptance of the notion of private property, and the marginalization of fringe political parties and leaders. The clock is ticking (or is it a time-bomb?).”

Elliott cited a number of statistics on the US economy, saying that only 41% of high school dropouts are currently working, and that 15% of men aged 25 to 54 are out of work, versus 5% between 1945 and 1968.

“This has been an emergency for a long time, but it has not been addressed as such,” the letter said. “Many policymakers appear to feel that printing more money and keeping interest rates low, plus extending and enhancing benefits of all kinds (health care, student loan forgiveness, etc.), is good enough.”

The letter makes a case for US corporate tax reform, saying the “world is ever competitive” and “the historical assumption that customers will pay more for U.S. goods and services because they are ‘better’ is long gone.”

“The case for domestic tax reform (really, tax cuts) is not quite as clear, but it is nonetheless powerful,” the letter added.

“The tax cuts would be additionally helpful if they led to lower governmental spending, but good luck on that front,” the letter added. “Our view, considering the entire landscape, is that individual tax cuts would be an important catalyst of faster economic growth, and would help restore the balance between capital and labour.”

Republican lawmakers have released a tax plan that, if enacted, would be the country’s most sweeping tax change since the 1980s. Democrats charge that the plan would largely benefit the wealthy.

Elliott cautioned against raising government deficits, meanwhile. Here’s the excerpt:

“At present it appears that both political parties in the U.S. are (more or less) in favour of, or at least willing to accept, increased federal spending and higher deficits. … It is likely, based on the current state of play, that the tax legislation that may emerge from the Congressional “meat grinder” will deepen the spending/revenues deficit even after taking into account the expected increase in growth (and hence increased tax revenues) that tax rate cuts may create. While there is no “right time” to change profligate government spending, it is also true that kicking the can down the road (with ultimately unsustainable deficits) is a path to ruin.”

Singer was among the leading Republican critics of Trump during his campaign, though he later donated to the president’s inaugural fund and has made multiple visits to the White House, according to The New York Times.

A conservative website funded by Singer was reportedly involved in funding opposition research from a firm that later went on to produce the notorious Trump-Russia dossier. And Steve Bannon, the former White House chief strategist and current Breitbart News executive chairman, says he is now on a mission to destroy Singer, who runs $US34 billion fund Elliott Management, according to Axios.

As of October 1, Elliott managed $US34.1 billion, per the letter.

A spokesman for Elliott declined to comment.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.