The U.S. government needs to start using more of its money to support markets to stem a burgeoning “financial tsunami,” according to Bill Gross, manager of the world’s biggest bond fund.
Banks, securities firms and hedge funds are dumping assets, driving down prices of bonds, real estate, stocks and commodities, Gross, co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co., said in commentary posted on the firm’s Web site today.
“Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami,” Gross said. “If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury.”
This is alarming. Bill Gross is highly respected in the bond industry. Yet given the enormous outflow of US dollars to purchase foreign energy, and the implosion of the mortgage market because of the greed of the mortgage services industry and would-be homeowners who knowingly took on more debt than they were qualified for, I’m not surprised. Just saddened.
This is an evil, horrible proposal. The purpose of government is to redistribute assets as politically needed, not support the asset values for those who happen to own them.
The US doesn’t have any “assets”. The US is the worlds largest debtor. The only “asset” it has is the labor of todays and future generations who are being sold into bondage in order to maintain the wealth of current bondholders.
Yes, Clueless, the US owns assets.
The airbase I work at is government property. The holdings of the Federal Reserve system (Treasury bills, notes, and bonds) are assets. But what is at issue in this article is the simple economic argument that if the government buys up “stuff” and takes it off the market, the rest of the “stuff” on the market goes up in price instead of declining. It is usually called the “law” of supply and demand, though nobody ever actually legislated that “law”.
#4 No, it is called trying to reinflate a bubble using a credit card. We did that when stocks tanked in 2000. It created another and worse bubble. This “strategy” just increases the national debt, and it will not work (more than just long enough for the election, and for insiders to sell, leaving taxpayers with the bill).
Treasury notes, bonds, etc are not assets. They are an IOU from future generations. They will be defaulted on either by inflation (debasing the dollar by printing money) or by confiscation (no you can’t cash in your 401k, until you are 75) or by open, default (we aint gonna pay, and you can’t make us). My guess is that it will be a combination of the above with the third being reserved for foreign debt which we will claim is counterfeit, being held by criminal or terrorist organizations.
As to your military base being an asset, an asset that can’t be liquidated is not an asset that is helpful in a global liquidity crisis. My “assets” include my self esteem, my can do spirit, and my charming personality. However none of these can be profitably sold.
Clueless, you obviously are not an accountant, nor a financial analyst. The issue you have is that the [b]net balance[/b] of assets and liabilities includes an accumulated deficit, assuming that the federal government’s books could ever be represented on a double entry basis. That does not mean that the government does not own assets or have distinct assets or liabilities that it can buy and sell.
By the way, the government buys and sells land every year. The fact that land, in itself, is difficult to sell as an asset class in any financial crisis doesn’t affect that fact. Your citation of “global liquidity crisis” as an impediment to sales of long term assets is a circular reasoning; liquidity crises mean that nobody has the cash to buy anything, particularly asset classes that do not have a high cash flow associated with them.
Liquidity crises that come from excess credit binging, cannot be solved by handing out more credit.
What we are facing is a global deleveraging spiral. Thanks to the magic of fractional reserve banking and derivatives, There is some 500 trillion dollars worth of derivatives out there. The only way for this to not fail is for a greater fool to keep buying more. The US has been that greater fool, however there is no way that even the US can continue to keep this ponzi scheme afloat by printing more money. Even if we sold off every national park, the white house and all our nuclear war heads, together with the labor of all our kids for the next seven generations, we still could not put this off more than temporarily a year, max 5.
A deleveraging crisis is like trying to keep the water level in your toilet stable, during a flush, by adding handfuls of water from the sink. It will not work. It is futile to try and simply further burdens future generations (who frankly already are burdened enough thanks to the irresponsibilty of our generation).
Don’t keep your money in stocks or bonds. Don’t have any debt. Have physical assets.