BILL GROSS: EVERY NATION FOR ITSELF
As always Mr. Gross’ monthly outlook is a must read:
It is this lack of global aggregate demand – resulting from too much debt in parts of the global economy and not enough in others – that is the essence of the problem, which only economists with names beginning in R seem to understand (there is no R in PIMCO no matter how much I want to extend the metaphor, and yes, Paul _Rugman fits the description as well!). If policymakers could act in unison and smoothly transition maxed-out indebted consumer nations into future producers, while simultaneously convincing lightly indebted developing nations to consume more, then our predicament would be manageable. They cannot. G-20 Toronto meetings aside, the world is caught up as it usually is in an “every nation for itself” mentality, with China taking its measured time to consume and the U.S. refusing to acknowledge its necessity to invest in goods for export.
Even if your last name doesn’t begin with R, the preceding explanation is all you need to know to explain what is happening to the markets, the global economy, and perhaps your own wobbly-legged standard of living in recent years. Consumption when brought forward must be financed, and that financing is a two-way bargain between borrower and creditor. When debt levels become too high, lenders balk and even lenders of last resort – the sovereigns, the central banks, the supranational agencies – approach limits beyond which private enterprise’s productivity itself is threatened. We have arrived at a New Normal where, despite the introduction of 3 billion new consumers over the past several decades in “Chindia” and beyond, there is a lack of global aggregate demand or perhaps an inability or unwillingness to finance it. Slow growth in the developed world, insufficiently high levels of consumption in the emerging world, and seemingly inexplicable low total returns on investment portfolios – bonds and stocks – lie ahead. Stop whispering (and start shouting) the words “New Normal” or perhaps begin to pronounce your last name with an RRRRRRRRRRRR. Our global economy, our use of debt, and our financial markets have changed – not our alphabet or dictionary.
Source: PIMCO
Poetic truth…it’s demand not supply, it’s organic US growth not the amount of cash that corporations have accumulated from outsourcing, it’s workers fear of lack of job growth for current and new workers not how those who are making money out of this broken productivity model continue to gain in their riches.
These issues will be corrected over time but the country, as Richard Russell has stated, will not look the same. Our leaders will reap for this country what they sow for this country.
Poetic truth? Here’s poetic truth: The counterfeiting cartel stole purchasing power from the savers and drove the debtors into unmanageable debt and now neither can now afford to consume the new products that result from the money invested “for them”. The implicit contract, that the stolen purchasing power would be used for the greater good, has been violated. Instead, it has been wasted on useless wars and enriching the elites. But God is not mocked.
I agree. And this is the whole point of genuine capitalism: that only the free market can efficiently set prices and allocate resources, through the individual choices of sovereign individuals. Whenever coercive monopolies (government sanctioned or otherwise) are empowered to set prices and allocate resources by force, it can only and always result in misallocation of resources, irrational prices and a boom and bust business cycle to the detriment of all except those favored by the coercive monopoly.
This is still to much surface based. The dollar through its hegemonic nature was way to strong for decades. That just invited an entire population to ignore its own production capabilities and result to consumption of foreign products. The currency difference is the primary regulator of trade and it works well if the currency is a product of the market not of a external influence of whatever sort.
The Europeans are the only ones in the US -China -Europe triangle that have a currency based on market value. The US has to work towards a multi hegemonic world, let go of dollar exceptional-ism and a china that allows its currency to be valued by the market. Then the imbalances can go away. It seem to me within in the mentioned authorities everybody is just looking at trade deficits and surpluses but none of them are honest of enough to explain where they came from.
Our President, while making a speech today said that some people wanted to go back to the way we were. He went on to say he didn’t want to go back, he wanted to go forward.
I’d like to respectfully remind him that when one is standing in a swamp, going forward merely takes you further into the swamp where gators, snakes and quick sand become more plentiful. Some swamps are very big. Perhaps another direction should be considered like GETTING OUT OF THE SWAMP!!! I’m just saying!!!!
Bill Gross is spot on. To add my thoughts, (like they matter), I think there is going to be a complete change in peoples attitudes towards money, savings, housing, and “investments” over the course of the next ten years in the US. It will be similar to what happened after the great depression, no matter how much the government tries to get people to spend (in fact despite this). Chronic high unemployment, a debt hangover, and the destruction of American financial (and dollar) strength will be the cause. People will once again look at houses as a place to “live” and not a thing to derive wealth from, therefore prices will drop to their true value, and stay there for a generation. People will start to save more but not in stocks, and they won’t stop saving for a generation, the stock market will be a place for chumps for at least ten years. As long as people think the government is acting irresponsibly with the dollar and their money, they will fear spending, and save more. It sounds a bit like Japan 1990-2010, a zombie economy. Also, gold won’t go up because of inflation, rather it will rise due to fear and a general hatred of stocks. Inflation won’t happen for a long time in the US, if it does there may be total anarchy. The only saving grace will be if Chindia grows very slowly as this will reduce inflationary effects on oil and other basics of life, otherwise the US will be completely stuffed. China, India, Brasil, etc… do not have the credit card spending spree mentality the west had, …yet. It will take more than ten years for this to develop, so don’t expect any demand explosion yet, especially if there is another downturn in the economy. Just my two cents (as they are now, near enough worthless!).