Bill Gross – November 2011 Investment Outlook: Pennies from Heaven
Halting the downward maelstrom is what current monetary policy is attempting to accomplish. With fiscal policy in most developed countries incredibly restrictive instead of stimulative, central banks have assumed the helm on their own – but it has been a long and relatively futile watch. Structural growth problems in developed economies cannot be solved by a magic penny or a magic trillion dollar bill, for that matter. If (1) globalization is precluding the hiring of domestic labor due to cheaper alternatives in developing countries, then rock-bottom yields can do little to change the minds of corporate decision makers. If (2) technological innovation is destroying retail book and record stores, as well as theaters and retail shopping centers nationwide due to online retailers, then what do low cap rates matter to Macy’s or Walmart in terms of future store expansion? If (3) U.S. and Euroland boomers are beginning to retire or at least plan more seriously for retirement, why will lower interest rates cause them to spend more? As a matter of fact, savers will have to save more just to replicate their expected retirement income from bank CDs or Treasuries that used to yield 5% and now offer something close to nothing.
My original question – “Can you solve a debt crisis by creating more debt?” – must continue to be answered in the negative, because that debt – low yielding as it is – is not creating growth. Instead, we are seeing: minimal job creation, historically low investment, consumption turning into savings and GDP growth at less than New Normal levels. The Rogoff/Reinhart biblical parallel of seven years of fat followed by seven years of lean is not likely to be disproven in this cycle. The only missing input to the equation would seem to be how many years of fat did we actually experience? More than seven, I would suggest.
- The Financial Sense Newshour Interviews Kyle Bass
Found via Zero Hedge. Kyle: When you think about what Reinhart and Rogoff’s book says, it kind of gets to an answer but it’s not the right way to look at things; there are many more variables to analyze the situation with. One is, of course, debt...
- Bill Gross – May 2012 Investment Outlook: Tuesday Never Comes
The current acceleration of credit via central bank policies will likely produce a positive rate of real economic growth this year for most developed countries, but the structural distortions brought about by zero bound interest rates will limit that...
- Bill Gross – December 2011 Investment Outlook: Family Feud
Proposals from the German/French axis in the last few days have heartened risk markets under the assumption that fiscal union anchored by a smaller number of less debt-laden core countries will finally allow the ECB to cap yields in Italy and Spain and...
- The Economy Can’t Grow With Debt - By Carmen M. Reinhart And Kenneth S. Rogoff
As public debt in advanced countries reaches levels not seen since the end of World War II, there is considerable debate about the urgency of taming deficits with the aim of stabilizing and ultimately reducing debt as a percentage of gross domestic product....
- Wsj: Reinhart And Rogoff: Higher Debt May Stunt Economic Growth - By Mark Whitehouse
To all the reasons to worry about the rapid rise in government debt in the wake of the financial crisis, add another: It’ll stunt our growth. In a new paper presented Monday at the annual meeting of the American Economic Association, Carmen Reinhart...