PIMpCO’s Gross: When Will The Admission Come?


There comes a time when one must ask — how long will the self-deception continue?

Yet while the whales have no immediate worries about extinction, their environment is changing – and changing for the worse. The global monetary system which has evolved and morphed over the past century but always in the direction of easier, cheaper and more abundant credit, may have reached a point at which it can no longer operate efficiently and equitably to promote economic growth and the fair distribution of its benefits. Future changes, which lie on a visible horizon, may not be so beneficial for our ocean’s oversized creatures.

Really?  Ever-cheaper and more abundant credit has promoted economic growth?

When and where did this take place?

I’m truly interested because I know where it didn’t take place — over the last 30 years in the United States!

The provision of ever-more credit has never, over the last 30 years, led to more GDP growth than the credit extended.  That is, the thesis that extension of credit leads to economic progress net-net has been disproved.

What has been proved repeatedly, however, is that the “whales” — like Gross and the big banks — have eaten all the plankton.  The problem is that as the above graph shows there was never an increase in plankton or even a sustainable reproduction of them and thus the population of food up the chain has been depleted on a sequential basis for 30 years.

That Bill Gross uses a sea analogy is interesting.  There are myriad examples of this sort in the area of fishing and sustainable fishing stocks, where everything appears fine and “catch” goes up — right up until it craters as the population collapses.  Ever-increasing efficiency through better and larger nets, bigger fishing vessels and faster and “better” ways of catching the fish lead everyone to think the sea has an inexhaustible resource in the form of fish, but this is in fact not true.  The fish must spawn at a rate that allows them to survive to adulthood and be caught; if you catch fish faster than the new ones can grow to adulthood eventually the population collapses to zero.

Thus it is in the financial world as well.  We have lied to the American people and in fact the people of the world for 30 years about how “credit” and “borrowing” leads to economic progress.  It does not — it in fact leads to privation and destruction, as the fact of the matter is that the cheapening of borrowing has never, historically, led to economic growth at a rate that exceeds that of the borrowing!

In other words we have run a serial ponzi scheme for 30 years and now, suddenly, Bill Gross finds that we’ve run out of suckers!

Or, to put it Bill’s way, the plankton are disappearing and so are the little fish on which the larger fish depend.  The problem is that just as with fishing this didn’t happen overnight — it happened because for 30 years self-deluded and self-interested people like Bill Gross have argued for and supported the unsupportable and impossible-to-finance — the game that we can always find another sucker, another  “big growth opportunity” and another means to finance deficit spending and leverage.

The claim was a lie as even the most-rudimentary understanding of basic exponential math demonstrates and now the truth is intruding into Bill’s consciousness — as he, and the others at the top, begin to starve.

Of course Bill continues to deny that he was responsible for eating all the fish and indirectly eating all the plankton…. even though he was.

Now what?

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