Skip to comments.What Bill Gross Really Thinks: The US Economy Is Screwed
Posted on 02/03/2010 10:52:35 AM PST by blam
What Bill Gross Really Thinks: The US Economy Is Screwed
The Pragmatic Capitalist
Feb. 3, 2010, 12:45 PM
James Carville, the famed political strategist once said:
I used to think if there was reincarnation, I wanted to come back as the President, or the pope, or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.
In todays world, the bond market runs through Bill Gross, the Founder and CEO of PIMCO. The soft spoken Californian, former professional blackjack player and billionaire, oversees over one trillion (with a T) dollars in assets under management. He has been referred to as the 4th branch of the U.S. government and with the bond market under his thumb its not a stretch to say that he is the most powerful man in the United States.
His current outlook for the U.S. economy is not particularly rosy (read his latest outlook here). Gross recently coined the term the new normal when talking about the post-crisis economy. He believes the global economy has been effectively reset as investors take on less risk, de-leverage the mountain of debt, regulation hampers growth and de-globalization takes hold. He believes this is best presented by the low expectations in the bond market where 10 year treasuries, at 3.5%, are still positioned for very meager economic growth. He says we are entering a sustained period of low growth and low inflation.
A year ago, Gross was seen as a co-conspirator of sorts in the government bailouts. As the U.S. government began to take stakes in financial institutions Gross jumped in head first with them. He piled his firms assets into the riskiest of risky assets in what turned out to be a brilliantly simple bet
(Excerpt) Read more at businessinsider.com ...
Bill Gross: Liberal in politics, awful as an investment manager = Rich Media Hero
Once again, I don’t think you can flood the world with dollars and debt and have low inflation.
Read it with a “grain of salt”. Bill Gross is selling his own bonds as the cure.
I think that he's close to the mark now, however. Things aren't as rosy as the MSM would like to have us think.
Stopped clock / Blind Squirrel and all that.....
As I understand - Bill Gross was a BIG supporter of TARP and the bailouts, quite ironic given his present comments about the “new normal” - because PIMCO would have taken a HUGE hit in the event of default of many of the bonds and money funds they are holding.
$2 trillion gone and nothing to show for it
Feb 2nd 2010, 14:05 by G.I. | WASHINGTON
NOTHING better explains the fiscal setback Barack Obamas domestic agenda has suffered in the last year than this sentence from the budget:
Since the [previous budget] was released in February of 2009, unfavorable economic conditions and technical re-estimates have worsened the deficit outlook by $2 trillion through 2019the equivalent of 1 percent of GDP per yearwith a deterioration of about $200 billion in 2015 alone.....
Former Gambler ?
The “bond market” is not under his thumb, and he doesn’t own the assets under management, the shareholders do.
Do you think Citi is right? I don’t.
I’ll be more complete. Citi says inflationary expectations drive the price of gold, which is true enough, but also state that inflationary expectations have to increase to continue driving the price of gold up. I think if expectations are met or even if expectations are not met but there is inflation . . . the price of gold can increase . . . because there is uncertainty (inflationary expectations are discounted). When we get the reality of inflation there is no discounting.
Japan, under the tutelage of our, and their Federal Reserve has had no growth, no inflation( actually deflation ) for near twenty years now.
We could be entering the era of zombie countries now. Living dead.
I am a fan of somewhere, someplace the bill comes in. In Japan’s case it was young people not being able to have families, as housing/land prices were kept high by borrowing( a tax on the young ) and government buying banks and keeping land/buildings/homes off the market. Which is what is happening here.
In our case, though. Our elites can allow, import low cost young people from third world countries to replace high cost shortages of domestic young people. This is what Europe has done, only not nominal christians, but muslims.
Much of the money the government has sent to banking institutions has ended up shoring up reserves or simply invested in treasuries (since there is a spread between the rate banks are charged and the rates paid on treasury notes, banks can make a pretty risk free profit on that spread). Money invested in treasury notes isn't multiplied as it is through bank lending. If the banks start lending, the trillions of dollars created in the last couple of years will be multiplied through fractional reserve lending and inflation will take off big time. Gold will do fine in that environment. The stock market will tend to freeze up as people will be reluctant to pay taxes on capital gains which are actually losses after in real dollar terms.
I wish we could make Mundell head of both the Fed and the Treasury.
We have been in a era of inflation for years now. It has been masked by the collapse of artificial high prices. Other things, like oil which has had a drop in demand has basically doubled. This is because the cost of buying things needed to extract, refine, ship, labor is priced in dollars, and you basically need twice as much for the same amount even with a slower world economy.
The dollar might go up or down, but over the last hundred years has lost, about, 98% of it’s purchasing power. This loss has been heavily masked by real productive improvements in labor, science and such. In other words, as much as the Federal Reserve Government has been stealing by slow stealth, we have been a bit more productive, so we have more, even though we have lost a lot. We are like hard working farmers that, finally have near filled our silo, even though we have harvested its amount ten time over. Every minute of the day, the rats come in and carry off grain. The rats being the Fed and various government agencies and their private market hooked up friends of all stripes.
My understanding (very limited) is that the Bank of Japan has pursued a very tight monetary policy over the past decade . . . so no inflation/deflation.
Most all businesses are marginal. In that the difference between profit or loss is a few percentage points on the gross.
Paper money is political money. So the worlds economy now is under political whims of rate changes. No business working on a few points can know if its present decisions/investments will work, because tomorrow your Central Bank/Federal Reserve could change from deflation fighting to inflation fighting. Or not. Or back. Or steady.
No elected Representative.
So, the world wonders why people with money sit, not all but enough, on the sidelines trying to preserve their wealth?
Couple Federal Reserve/Central Bank umba gumba with your local marxist lawyer cum graduate of the Hugo Chavez with a masters from Che Peron school and ...well...what are these clowns going to do next?
I didn’t even know the name of Mundell ‘til your post. Quick look at him, it seems like both Dems and Pubs might trust him.
Japan needed to, as we did/do, adjust prices to market. This it avoided to do, buy buying banks, keeping dead banks alive, and various methods that we are doing now.
So, it took its money, and re’invested’ it in unproductive things. Bad decision making banks( sound familiar? ), real estate prices, large un needed construction projects( high speed trains to Searchlight, Nevada? ).
Just like we are doing. There was no ‘deflation’, because they basicall bought everything. There is no inflation, because they managed the buying quite well....and the...(hint hint hint) the economy never took off. So, we don’t know if the Bank of Japan handled the inflation part, because the economy never took off. It’s just blah, stagnant. Paul Krugman says that the reason Japan has lost a generation is because they didn’t pour enough money, concrete, condo’s for sale.
This is what, to a bit, we are looking at. Although we are not Japanese, and will not be as politically nice, polite, or patient. So, my guess is the Fed get’s the riot act and Timmy Turbo and Obambi pours the money on. ( value, 2 cents )
(supply)x(demand)x(federal reserve)x(congress)x(president)x(creative destruction)/(taxes)
Find the values( good luck ), could be positive or negative. Multiply them and there’s is your course of action say if you want to as an example, make a four, five year out manufacturing decision.
And, of course the rise of derivatives, hedging, AIG insurance products was all the fault of the ‘free market’.
Tax cuts and supply side guy? Dem’s? Fugehdabou’it.
In Japans case it was young people not being able to have families, as housing/land prices were kept high by borrowing( a tax on the young ) and government buying banks and keeping land/buildings/homes off the market.
I think the same thing has happened here. I read that in the past regular joes, the factory workers, had medical insurance, a house, retirement, and could put their kids through college. That’s not the case for regular joes anymore. Often they don’t have any of those things, even with both parents working.
Do you know of any conservative economic analysis of the Japanese stagnation? I’d like to learn more.
Awesome, thanks. I read Hayek’s “The Fatal Conceit,” only reading in the Austrian school I’ve done.
The site has a search feature. Pretty good to just research a subject. Also it and Econolog have downloadible mp3 files. I put them into a ipod and listen to them in the car, at work.
I read that essay. It was good; I think it’s the second time I’ve read it. The everything is about information aspect of the Austrian school seems like it should be part of the zeitgeist of these information age times.
I think it is also know as, ‘The knowledge Problem’.
The people best able to make the best decision are those closest to the problem.
This is why the Japanese corporation try to have as few management layers as possible, and push decision making as far down as possible, vs say the bloated, many layered labyrinthine of GM, or the Federal Government.
Another example was WWII submarine captains. German had to report in every day, where upon they were issued orders of where to go, and so forth. American captains were given an area, and then left to make decisions as they best saw fit.
Most politicians have no idea of any of this, and of course the bureaucracy is motivated, rewarded and likes more layers, more staff more opaque decision making and responsibility.
Liberty is open, decentralized, low layers. Tyranny is centralized, closed, opaque, layered.
We basically have the organization frame work now, for tyrannical government. We just need someone to seize it.
We basically have the organization frame work now, for tyrannical government. We just need someone to seize it.
Very good post. Your last sentence rings true. Is it your idea/formulation? If it is, have you written a piece expanding on it?
Thanks, I’ll check it out (literally!)