Bill Gross: America’s dark economic future … Happy Independence Day!

July 2, 2009

Pimco bond guru — and occasional White House economic adviser –  Bill Gross paints a really depressing economic future

The fact is that American consumers have suffered a collapse in wealth of at least $15 trillion since early 2007.  … And when potential spenders feel less rich by that much, the only model one can use to forecast the future is a commonsensical one that predicts higher savings, lower consumption, and an economic growth rate that staggers forward at a new normal closer to 2 as opposed to 3½%.  … As unemployment approaches 10%, what is less well publicized is that the number of “underutilized” workers in the U.S. has increased dramatically from 15 to 30 million. Those without jobs, as well as those individuals who only work part-time and have become discouraged and stopped looking, total 30 MILLION people. The number is staggering. Commonsensically, one has to know that many or most of these are untrained for the demands of a green-oriented, goods-producing future economy. Imagine a welding rod in the hands of an investment banker or mortgage broker and you’ll understand the implications quicker than any economist using an econometric model. …

If long-term economic growth declines by 1½% then profit growth will as well. This, after settling at perhaps half of absolute peak profit levels of 2007, because of the rise of savings rates from 0 to 8% or higher. But to add to the woes of the investor class, one has only to observe that their share of the pie is shrinking. What does the General Motors example tell us all about the rebalancing of power between the investor class and the proletariat? What do trillion-dollar deficits and the recent reinitiation of PAYGO government programs tell you about the future of corporate tax rates? They’re headed higher. Do you really think that a national health care program can be paid for with cost-cutting as opposed to tax hikes at insurance companies and benefit-paying corporations throughout all sectors of the American economy? The new normal will not be investor-friendly unless your forecasting dial is turned to “Pollyanna” or your intelligence quotient is significantly less than 100.

4 comments

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Bill Gross tells it how it is, very common-sense oriented. He made another comment the other day, that the greed of the past will return, in a generation or so, talk about long term projections.

Posted by Greg | Report as abusive

Yeah, I agree that it will be a generation before we return to a belief in markets. Have you talked to a young person lately? They are insouciant about business, at best.

The intellectual foundation needs to be rebuilt and that begins with a sound medium of exchange. Down with fiat money.

Posted by Austrian School | Report as abusive

Bill Gross is very good. The only caveat I hold is that Pimco is trying soooooooo very hard to be involved in current Gov. policy. Mohamed Al Erian is as brilliant as Mr. Gross (& a BHO contributor/supporter)

But here’s a kicker. Bloomberg reported that Gross said that Harvard & Yale should alter their investment strategy — cycle away from Private Equity, etc.

Pimco’s Gross Says Harvard Yale, Yale May Need to Alter Investments
http://www.bloomberg.com/apps/news?pid=n ewsarchive&sid=at0iuIc8_ga0

There was an earlier story that specifically went after the Yale investment.

Talk about talking your book and pressuring investment. It would be great to get some kind of equal time and hear from David Swenson. It’s never a good thing to just hear from one side.

Posted by Siobhan Sack | Report as abusive

P.S. Gross was aggressive & determinedly stepped into what would appear to be an extremely illiquid P.P.I.P investment but at the same time is critiqueing Yale’s “illiquid” investments. What’s his basis? How does he validate and measure the investment opportunity? Would he recommend that Yale abandon it’s plan & lobby to buy PPIP’s?

Posted by Siobhan Sack | Report as abusive