PIMCO co-founder to Congress, "get real"

"Both parties, in fact, are moving to anti-Keynesian policy orientations, which deny additional stimulus and make rather awkward and unsubstantiated claims that if you balance the budget, "they will come." It is envisioned that corporations or investors will somehow overnight be attracted to the revived competitiveness of the U.S. labor market: Politicians feel that fiscal conservatism equates to job growth. It's difficult to believe, however, that an American-based corporation, with profits as its primary focus, can somehow be wooed back to American soil with a feeble and historically unjustified assurance that Social Security will be now secure or that medical care inflation will disinflate. Admittedly, those are long-term requirements for a stable and healthy economy, but fiscal balance alone will not likely produce 20 million jobs over the next decade. The move towards it, in fact, if implemented too quickly, could stultify economic growth. Fed Chairman Bernanke has said as much, suggesting the urgency of a congressional medium-term plan to reduce the deficit but that immediate cuts are self-defeating if they were to undercut the still-fragile economy."
- Bill Gross, in a prospectus to his clients.

 

Jan. 7, 2010 (Financial Times) – Bill Gross, the influential bond fund manager who is one of the world’s biggest investors in sovereign debt, said it was unlikely that the US economy was strong enough for the government to “gracefully exit” stimulus spending programmes or that private investors would be capable of absorbing the balance in deficit funding.

In a monthly investment outlook Mr Gross, managing director and a founder of Pimco, which has $940bn under management, commented on US healthcare legislation, the resulting budget deficits and the potential impact on financial markets.

The four-page commentary, entitled “Let’s Get Fisical”, included a scathing attack on the workings of the US political system. He urged the American people to use social networking sites like Twitter to have their voices heard over individual political donors.

“Our government doesn’t work anymore, or perhaps more accurately, when it does, it works for special interests and not the American people,” said Mr Gross. “When special interests, even singular citizens, write a cheque, it represents a perversion of democracy, not the exercise of the First Amendment.”

In highlighting that just $500m spent in healthcare lobbying by labour, insurance, “big pharma” and related corporate interests would generate a $50bn-$100bn annual return, he said, “What amazes me most of all is that politicians can be bought so cheaply.”

Mr Gross said that while he was “distressed” at the state of US democracy, a rational money manager could not afford to “get mad” when it comes to investing clients’ money. Global investment managers have a choice of sovereign credits where “stable inflation and fiscal conservation are available”, he said.

The fund warned that the days of “carefree cheque-writing leading to debt issuance without limit or interest consequences may be numbered for all countries”.

 

True but he misses the point.

The Congress should refuse to raise the debt limit. Just refuse, no tradeoff's for spending cuts, etc. You know why? Because those cuts will never be implemented. Don't forget, they are being planned over ten years, not this year. If the democrats regain congress, they will immediately undo all of it and start trying to raise taxes again. They played the same game on Reagan to get him to agree to tax increases.

The only conclusion one can reach from Obama's curious failure of leadership on the budget is that he wants budget busters like medicare and socail security to go bust. That will create another crisis and be used to justify more socialism, more bailouts, more sweetheart deals for favored constituencies and more loss of freedom.

I am sure that gross is right that the economy is too weak and failure to raise the debt ceiling will create chaos. It will be worth it.

 

No, it won't be worth it. Some of us are still able to bring something worthwhile to market and generate revenue. We are the future of this country, just as we are the successful past; not the handwringers of the republican party.

 

I agree.

 

So true, the recession only exists in communities that can't fend for themselves.