Bill Gross, co-chief investment officer of Pacific Investment Management Co., said the U.S. may slump into a “mini depression” unless policy makers spend trillions of dollars to spur growth.
“This economy needs support from the government, a check from the government in the trillions,” Gross said today in a Bloomberg Television interview from Pimco’s headquarters in Newport Beach, California. “There is a potential catastrophe if the U.S. government continues to focus on billions of dollars.”
It absolutely galls me to admit this. But he is probably right. I am generally opposed to government interventionism in the economy. But history and 90% of economists tend to agree that in times of severe economic emergency large scale government spending is one of the most effective means of spurring rapid recovery. But no one should be under any illusions here. There is gonna be a steep bill for all of this down the road.
I am haunted by the same question: if Debt was chiefly the reason for our economic downfall, why is even more Debt our solution? And why should one Invest, when profits are held in such distain by so many voters as evidenced by the recent election? And who will buy this flood of new Debt? And if (when) the Dollar falls in value, the prices of imports increase, and inflation comes back in double digits, will even more government spending (and more Debt) be again the answer (problem)? Will our best and brightest (Obama, Pelosi, and Reid) be up to the task? The voters said YES, but the markets do not seem to have that same confidence. Kyrie eleison. Statmann
Re # 2
Statmann,
Every single word you wrote is true and sits in the back of my mind. We are going to get buried in steep debt (even worse than Bush left us in) and there is gonna be a nasty spike in inflation. All that said inaction is not an alternative unless we are prepared for a major and multi year depression. Sometimes life is not fair and does not give you good choices. This is one of those times. Our choices are between really bad, and outright catastrophe.
How soothing to throw “mini” in the description.
Statman, “debt” isn’t the solution. The philisophy is to stimulate demand by demanding. The government purchases goods from private businesses, who then purchase from other businesses.
Right now business and banks aren’t buying much of anything. They are laying people off. Laying people off means fewer people will buy goods. then businesses will fold because nobody is buying their goods. Then they lay off other people. A private businessperson has no obligation to hire people, especially if nobody is buying their goods.
The government, howeve, can ask that businessman to build a road, fix insulation, build a research lab, or plant sod. They can hire others. And then they pay taxes. Businesses then benefit from all sorts of public goods (ranging from roads, bridges) which the public has paid for. They benefit for generations.
John,
Government has nothing except what it confiscates from the private sector, either in the form of taxes or inflation. Nobody is any richer. The recession is the cure for prior malinvestments engendered by the Fed’s monkeying around with the supply-demand curve for loanable funds. Deficit spending is nothing but more of the same, producing malinvestments that will be liquidated in their turn.
In the private world, this is known as “check-kiting.” Essentially trying to pretend you have money by writing bad checks from one account to cover bad checks in other account, and then writing more bad checks from the other account to cover the bad checks from the first account. It works, for a while, but somehow eventually the banks figure it out.
And we still don’t have a clue what the first 300 Billion given to banking institution was used for. They don’t seem willing to tell us. Before any more $$ are let loose shouldn’t the US Gov’t demand a detailed accountinng. And if certain banks don’t know or are unwilling to tell us then let them survive by some other means, if possible. And maybe our new President better stop banking his desk insisting on more give-aways. Nuff said!!!
#1 – it seems to me all that is being done is postponing the reckoning, and reckonings postponed only get worse the longer they are held off. No economic fundamentals are going to be changed for the better by this. Just one more round of taking on more debt to live in the day. I think the more we avoid this, the less there will be left when the bill finally comes due. The government is going to destroy whatever future we have left to avoid pain in the present.