Bill Gross, managing director of the world's largest mutual fund with assets worth $255 billion at Pacific Investment Management Company (PIMCO), has issued a blistering critique of the FIRE economy in his latest letter to investors.
Unless developed economies learn to compete the old-fashioned way – by making more goods and making them better – the smart money will continue to move offshore to Asia, Brazil and other developing economies, both in asset and in currency space
Gross identifies the problem with the global economy as a lack of aggregate demand. And says there are two paths to "leveling the playing field" for the U.S to reclaim economic leadership:
1. A positive path:
The constructive way is to stop making paper and start making things. Replace subprimes, and yes, Treasury bonds with American cars, steel, iPads, airplanes, corn – whatever the world wants that we can make better and/or cheaper. Learn how to compete again. Investments in infrastructure and 21st century education and research, as opposed to 20th century education are mandatory, as is a withdrawal from resource-draining foreign wars.
- A negative/current policy path:
The second route to the level playing field involves political and financial chicanery: trade and immigration barriers, currency devaluation and military domination of foreign oil-producing nations.
Gross goes on to say that the second route seems more likely and is currently happening in view of the debt commission's reportto cut taxes for rich people (again). Gross also notes the pitfalls of Bernanke's currency devaluation planas risky and unlikely to do anything substantial for the average person but create greater inflation costs.
Gross concludes with a sound critique of the FIRE economy's most basic problem - it's worthless.
The United States in short, needs to make things not paper, but that is not likely unless we see a policy revolution in Washington DC. In the meantime, our unemployed will continue to fill out forms and stand in line.
Burn baby burn.