Redirecting

Tuesday, June 08, 2010

"Keynesian Endpoint" and "The Least Dirty Shirt"


Nations have reached a “Keynesian endpoint” as exhausted balance sheets leave policy makers with few options to bolster economic growth, according to Anthony Crescenzi, an investor at Pacific Investment Management Co., the world’s largest bond-fund manager.


“Time, devaluations, and debt restructurings might be the only way out for many nations,” Crescenzi wrote in an e-mailed note titled “Keynesian Endpoint” that referenced the Great Depression era economist John Maynard Keynes. Debt-fueled spending programs aimed at combating the global financial crisis of 2008 are among policy tools now “being seen as a magic elixir that has morphed into poison.” 

And Bill Gross chimes in too, emphasis mine:
"“The world is full of dirty shirts in terms of excessive debt, and the United States is one of those countries, but it still remains the reserve currency and still remains the flight- to-quality haven,” said Bill Gross, who runs the world’s biggest bond fund at Newport Beach, California-based Pimco. “The U.S. is the least dirty shirt,” 
 Backhanded complement I guess!  At least we're not the dirtiest shirt...

-KD

8 comments:

But What do I Know? said...

The choice now is to continue to issue currency and erode the paper wealth of those who have it, or to cut back on currency issuance and have "austerity" leading to deflation and hard times. Fire and Ice, if you will--you're in Robert Frost country, KD, can you feel his vibe?

Kid Dynamite said...

"miles to go before i sleep, " BWDIK - "miles to go before i sleep"

beaumont said...

PIMCO Managers pitch their book, they had a big move into Treasuries, and now are talking in ways to encourage a flight to quality. Same for those moving into gold, they worry about "inflation risks." Should not promote themselves as independent observers of the markets, but as interested parties.

Kid Dynamite said...

beaumont - there is no doubt that is true. however, i definitely think it would be difficult to argue with Bill Gross's comment that the US is the least dirty shirt. we ARE (for now) the reserve currency, and we ARE the flight to quality haven.

beaumont said...

Agree, just pointing out conflicts of interest that should be front and center. When the economy tanked after Lehman bankruptcy and PIMCO was one of the biggest holders of Mortgage backed securities, Gross and his buddies were all over the media talking about the need for Government intervention. They definitely bought themselves protection the cheap way, political and social influence. Now, they are worried about the endgame. Someone should ask them if they ever presented a view that if widely accepted by market participants would hurt their investment positions. If the answer is no, are we to conclude that they are so good at their jobs that such a conflict never arises?

Kid Dynamite said...

beaumont - i've addressed the concept of "talking one's book" before. the bottom line is that you should always assume that someone who is talking is talking their book. then, it's up to the reader to try to figure out what's wrong with the argument if they disagree.

what i'm saying is that i don't care that Gross is talking his book - it doesn't change the fact that i think he's correct that we're the least dirty shirt, the reserve currency, and the destination of flight-to-safety flows. do you disagree?

beaumont said...

I agree, but still think the use of "least dirty shirt" to frame the position of deficit spending is very different from what you find at Brad delong or Krugman's blogs. Yet, in late 2009, Pimco's Gross and others framed the same issue of govenment debt in ways similar to how delong and Krugman talked about it. The difference is probably found in Pimco's holdings(less "toxic assets" and more treasuries).

Kid Dynamite said...

i think that with Gross, although he's absolutely talking his book, he's smart and straightforward. after all, he told us right away that the best plan was to "shake hands with the government." how right that was...