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Bill Gross: This economy requires a check from the government

Bill Gross, the man who controls the largest bond fund in the world, believes that trillions of dollars in government spending will be necessary to get the economy going again. He warns that if the government does not spend trillions of stimulus to boost the economy, the U.S. and global economies could collapse.

Now, on the whole, I tend to fall into Marc Faber’s camp in believing that government spending and government interference is a large part of the problem. But, I have some sympathy for what Bill Gross is saying. In fact, since November I have been calling for stimulus — with some regrets given the potential for pork-barrel politics.

(Note: The Financial Times says: “After scrutinising the bill, Republicans said they had unearthed $19bn worth of pork. Leaving aside that this accounts for just 2 per cent of the total (but probably half of the media airtime), most of the items do not really fit that description. Among the examples of alleged profligacy were $650m to expand wildfire fighting, $6bn to make federal buildings energy efficient and $850m to upgrade railways. All of these would create jobs – some quite rapidly.” That means the stimulus is far from pork-laden)

Nevertheless, I do agree that systemic collapse is a potential Armageddon scenario that looms as a unlikely but ever-present possibility. In order to prevent this collapse, a liquidation of bad debts ad bankrupt companies is needed — coupled with stimulus in order to prevent a worst-case outcome and speed recovery.

I would suggest you watch this video and the one of Marc Faber in the previous post, because they both do a very good job of representing the two competing economic approaches for dealing with the present Depression.

Faber is an Austrian School-type who believes in free markets without crony capitalism or excessive government interference. Fiscal stimulus will be wasted and monetary stimulus will misallocate capital, worsening the downturn. His solution is more or less “let them eat cake.”

Bill Gross is arguing from the Keynesian perspective. Here, government is the solution. Through massive government spending, the economy will receive a jump start while consumers correct their balance sheets.

Gross, like Faber, uses the ‘D’ word Depression — although he uses a little ‘d.’

Source
For Obama, the road to bipartisanship gets bumpy – Financial Times

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.