Financial Post 04 Gennaio 2009

In his 83 years, Stephen Jarislowsky has survived -- and thrived -- through more economic cycles than most wealth managers. Born in Berlin, he spent his boyhood in France during the Depression years, the Second World War and the Nazi invasion. His family moved to the United States in 1941, where Mr. Jarislowsky graduated from Cornell University and spent time in counter-intelligence for the U.S. Army in post-war Japan.

Armed with an MBA from Harvard University, he moved to Montreal in 1949 and six years later founded Jarislowsky Fraser Ltd., an independent investment-counselling firm. Over the years, as his firm made clients rich by investing in high-quality growth stocks -- Jarislowsky's company manages about $52-billion in assets for pension funds, institutions and private customers -- he became a billionaire in his own right. Along the way, the frugal son of a wealthy industrialist and financier became a feisty advocate for shareholder rights -- he co-founded the Canadian Coalition for Good Governance in 2002 -- and gained a reputation as a straight talker.

Mr. Jarislowsky spoke with Theresa Tedesco, chief business correspondent, from his office in Montreal about what he described as "economic war" and the way to battle through it "correctly."

Q How is this current economic crisis different than what you've experienced before?

A This is as big as the big Depression. This is a type of recession/depression that happens usually after the kind of greed sprees which are associated with bubbles.

Q Do you think political leaders and central bankers are on the right track in trying to solve the problems?

A What they are doing with these interest rates is totally cosmetic because whether the interest rate is 2% or zero makes absolutely no difference. People are scared out of their wits, scared of losing their jobs, scared that they don't have enough money to pay the rent. You see it already from the banks. All the banks want to do is get their balance sheets in shape so they won't go bust. Every corporation in the land is going to cut back so it won't go bust. That's called a balance-sheet depression because what they are trying to do is make sure that they are not going to go bust and they will do anything to get rid of costs, to get rid of debt in order to survive. And whether you give money at 1%, 2% or 10%, history has shown that people don't borrow until their house is strictly in order, they didn't go out and spend money.

Q Have we learned anything from past economic cycles?

A No, and we have so much information today and yet, we are so disconnected.

Q What alarms you the most right now?

A What alarms me the most isn't just one thing. We are going into this in the worst financial shape that you can possibly imagine, where the public hasn't saved for something like five or six years, and we started out with a complete collapse of the world banking system.

Q How long do you predict the recession/depression will last?

A We're in for at least two years if it's handled right. If it's not handled right, we can be sitting here seven or eight years from now.

Q How would you fix it?

A This is not curable the way a normal recession is curable; 1929 wasn't. It's a balance-sheet recession, not a temporary lowering in demand or the inflation recession of the 1970s. The inflation recession got rid of the debt. If you attack this the way you would a normal recession, that's exactly the wrong way.

Q Are you saying we need to fight the crisis with inflation?

A Unfortunately, you have to create inflation to get rid of the debt. The only way to get housing to go up again is through inflation, by reducing the value of the mortgages. The only way to get the consumer back purchasing things is to get rid of their debts and that can only be done through inflation. I'm not somebody who believes in inflation. I think it's an awful thing, but there's no alternative.

Q Does this mean you are not satisfied with the solutions tabled so far?

A Absolutely, I never underestimate the stupidity of mankind, which is based on greed and fear and what they do when they are afraid or too greedy. When the emotions rule, you can be sure it will lead to some form of stupidity of one form or another. The idea of saving GM [General Motors Corp.] is the dumbest thing in the world. Let it go bankrupt, let it go renegotiate its wages and put them on the comparable level paid by its competitors. What we need is common sense, logic, rationality, putting aside politics and fighting the common enemy. What worries me is the proroguing of Parliament and losing two months to tackle the problems. I've been trying to tell the politicians for Christ's sake, don't do something politically stupid. This is economic war!

Q If you were Governor-General of Canada, what would you have done when faced with the choice of proroguing Parliament to give the Conservative government of Stephen Harper time to table a budget or allowing the Opposition to form a coalition government?

A I would not have prorogued Parliament because I am democratically inclined. Having said that, I believe we need a coalition of all the parties, just like in wartime, to get at it. We need to stop this bitter infighting, put politics and ideology aside and hopefully do the right thing, rather than experiment with the wrong things like what they are doing in the United States, where they are panicking. This is a total emergency situation that has to be handled correctly.

Source > Financial Post