Posted on 05/26/2010 7:35:53 AM PDT by blam
PIMCO's Bill Gross: It May Not Be Possible To Reduce Debt By Reducing Spending
Joe Weisenthal
May 26, 2010, 10:26 AM
PIMCO boss Bill Gross is out with his latest investment outlook.
There's not a lot new in it, but this part is important, as it represents the latest thinking on the benefits of so-called austerity, namely that it doesn't work in many cases:
Granted, sovereign debtor nations are now saying all the right things and in some cases enacting legislation that promises to halt growing debt burdens. Not only Greece and the southern European peripherals, but France, the U.K., Japan, and even the U.S. are sounding alarms that might eventually move them towards less imbalanced budgets and lower deficits as a percentage of GDP.
Still, credit and equity market vigilantes are wondering if in many cases sovereigns haven’t already gone too far and that the only way out might be via default or the more politely used phrase of “restructuring.” At the now restrictive yields of LIBOR+ 300-350 basis points being imposed by the EU and the IMF alike, there is no reasonable scenario which would allow Greece to “grow” its way out of its sixteen tons. Fiscal tightening, while conservative in intent, leads to lower and lower growth in the short run.
Tougher sovereign budgets produce government worker layoffs, pay cuts, reduced pension benefits and a drag on consumption and the ability of the private sector to accept an attempted hand-off from fiscal authorities. Recession becomes the fait accompli, and the deficit/GDP ratio moves ever higher because of skyrocketing risk premiums and a plunging GDP denominator. In many cases therefore, it may not be possible for a country to escape a debt crisis by reducing deficits!
[snip]
(Excerpt) Read more at businessinsider.com ...
You can’t get there from here.
So we should spend more?
Depends on how much you reduce it. Obviously if you don’t run a surplus you aren’t reducing your debt.
Is this suppose to convince me that the government cannot do what citizens are expected to do when finances are tight?
The solution to the government debt trouble is to reduce government to Constitutional levels. Get that done, and the debt could be quickly dealt with, and taxpayers would see MUCH lower taxes - thus freeing up cash for investment, buying, and growth in the overall economy (which again, would actually INCREASE government’s income). A win-win.
But it takes away the biggest tool Marxists have - and that is the purse strings that keep people enslaved to the government.
So he is saying its already too late to avoid a sovereign debt default?
That would not be a good thing for anyone.
The only way to reduce US masive government debt is by default.
Retirement perks and pensions are not sustainable....the world is more or less unionized...the private sector makes the money and pays the taxes...not that union people don’t work and make money and pay their taxes, it is not enough to maintain their lifestyles once the stop being productive....some how the private sector survives without all the perks...someone(s) will have to cut back....
They are out of OPM. The socialists have no choice now. There is no way out of the box. A cornered Rat is the most dangerous.
Cutting spending does have a negative impact on GDP in the short run but it is the longer term cure since the other way of debting and spending will ultimately cause an entity to detonate. However, until the debt is discharged and people and companies can start putting earnings toward consumption and investment there is no means to grow anything. The group of parasites keep siphoning off the money. We seem to have a hugely vested interested in trying to save the lenders who want to be made whole on their part of the risk equation.
The balance sheet destruction would be enormous but the aftermath would mean a resetting of the market and people can get back to normal albeit a lot poorer but wiser
That's the way I read it.
And, BTW, Bill Gross isn't a crazy 'Doomer and Gloomer' either. He manages the largest mutual fund in the world...very reputable.
Gross does not want gov’t bonds to tank. That is bad for business. Of course he is going to be a proponent for taxes to bolster the gov’t bond market.
Bankruptcy of the entire developed world, pretty much all at once! (Or one country after another in short order: take your pick.)
What a thought; it’s hard to wrap my ol’ brain around. I’ve been trying to do just that for awhile and coming up unsatisfied. Maybe I have a brain that’s two sizes too small, and has lost its elasticity.
But anyway, the problem is this: I can’t see any way for mass default or “restructuring” to happen that doesn’t *also* lead to the “tightening” problems Gross mentions, namely, deep recession, or worse.
We must bust the public unions and let the private unions deal with their problems themselves. We must eliminate all welfare programs and put the government back in its constitutional box.
LOL, this is so stupid in so many ways.
Cut government spending, fire useless government workers ... get out of the economy’s face with the nonsensical regulations.
And drop the salt gig, it’s really stupid.
In the 1920s, Pres Harding cut the federal government by downsizing it immediately ... The depression lasted less than 2 years.
People need to realize that the Greek system is vastly different than our own. Everyone knows it's more socialistic (er...well...it was before Obama) than the US. But what is less known is that the equivalent of the Greek IRS is a joke. Paying taxes is more of a suggestion that a vigorously-enforced system. Greece needs to cut back on its socialistic programs, but also put some teeth into its tax laws.
BS, Total, wholly unmitigated, BS.
But it should be possible to decrease the amount of debt added each year by reducing spending.
(1) Government employment now exceeds private employment.
(2) 48% of the population don't have to pay federal taxes.
The tipping point has been reached. There is no turning back. There is only crashing into the mountain and seeing who survives.
So what is his advice for surviving the inevitable collapse?
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