By John Morgan
Monday, 10 Nov 2014 06:00 AM
Bill Gross should stick to the shuffleboard courts because his call for bigger deficits is illogical, according to David Stockman, the still-outspoken U.S. budget chief during the Reagan White House years.
Writing on his Contra Corner blog, Stockman said Gross, perhaps the nation's most prominent bond guru during his years at the helm of Pimco, has apparently "lost it" since taking up residence at Janus Capital.
That's because Gross, in his November investment letter at Janus, called for more money printing and more spending from the debt-ridden federal government to boost the economy.
Those are fighting words for Stockman, a reliable foe of the Federal Reserve's ultra-loose monetary policies and the Beltway wastrels of Washington, D.C.
"Let's see. In the case of the US, real economic growth has been faltering since the year 2000. During the last 14 years real GDP growth has averaged 1.8 percent per annum — the lowest rate of growth for an equivalent period in modern times," Stockman wrote.
"In fact, it is barely half the average growth rate during the second half of the 20th century. Not only is there no correlation between fiscal deficits and economic growth over those 50 years, but the real evidence is more nearly the opposite."
Stockman noted that during the "golden era of sound money and fiscal rectitude" from 1953 to 1963, GDP averaged 4 percent, deficits were tiny in comparison with today and the government actually recorded some surplus years.
Writing on his Contra Corner blog, Stockman said Gross, perhaps the nation's most prominent bond guru during his years at the helm of Pimco, has apparently "lost it" since taking up residence at Janus Capital.
That's because Gross, in his November investment letter at Janus, called for more money printing and more spending from the debt-ridden federal government to boost the economy.
Those are fighting words for Stockman, a reliable foe of the Federal Reserve's ultra-loose monetary policies and the Beltway wastrels of Washington, D.C.
"Let's see. In the case of the US, real economic growth has been faltering since the year 2000. During the last 14 years real GDP growth has averaged 1.8 percent per annum — the lowest rate of growth for an equivalent period in modern times," Stockman wrote.
"In fact, it is barely half the average growth rate during the second half of the 20th century. Not only is there no correlation between fiscal deficits and economic growth over those 50 years, but the real evidence is more nearly the opposite."
Stockman noted that during the "golden era of sound money and fiscal rectitude" from 1953 to 1963, GDP averaged 4 percent, deficits were tiny in comparison with today and the government actually recorded some surplus years.
In those days when the inflation rate was only 1.2 percent annually, no one called it deflation or worried about making sure the dollar's purchasing power kept shrinking with hidden inflation, according to Stockman's view.
"Instead, they called it sound money, and such price stability was especially welcomed by bond managers of the day. The latter made their living by investing capital, not front-running the central banks of the world as do speculators like the bond king. Accordingly, bond managers during the golden era would have been utterly mystified by the babble that Gross unloaded in his call for more deficit spending."
In his Janus commentary, Gross bemoans the stagnant world economy and concludes: "The real economy needs money printing, yes, but money spending more so, and that must come from the fiscal side — from the dreaded government side — where deficits are anathema and balanced budgets are increasingly in vogue."
But that's balderdash, according to Stockman.
The rising interest rate environment that accompanies inflation may be profitable for the fixed-income industry and the likes of Gross and his Washington D.C. compatriots, but in Stockman's view it is terrible for average Americans.
"Instead, they called it sound money, and such price stability was especially welcomed by bond managers of the day. The latter made their living by investing capital, not front-running the central banks of the world as do speculators like the bond king. Accordingly, bond managers during the golden era would have been utterly mystified by the babble that Gross unloaded in his call for more deficit spending."
In his Janus commentary, Gross bemoans the stagnant world economy and concludes: "The real economy needs money printing, yes, but money spending more so, and that must come from the fiscal side — from the dreaded government side — where deficits are anathema and balanced budgets are increasingly in vogue."
But that's balderdash, according to Stockman.
The rising interest rate environment that accompanies inflation may be profitable for the fixed-income industry and the likes of Gross and his Washington D.C. compatriots, but in Stockman's view it is terrible for average Americans.
"First, they crushed savers with 70 months of zero interest rates. Now they propose to drive returns from savings even deeper into negative territory by pounding their pans for more inflation," he wrote.
"Finally comes the utterly unsupportable claim that growth and full time jobs have faltered because Washington has not manufactured enough 'aggregate demand' by burying future taxpayers even deeper in debt."
"Finally comes the utterly unsupportable claim that growth and full time jobs have faltered because Washington has not manufactured enough 'aggregate demand' by burying future taxpayers even deeper in debt."
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