Enlightened Economics

Economics for an Enlightened Age

Posts Tagged ‘Bill Gross’

• America’s Economic Rebirth

Posted by Ron Robins on April 12, 2011

By Ron Robins. First published March 24, 2011, in his weekly economics and finance column at alrroya.com

A rebirth of the American spirit and economy is probable. It would be founded on huge reductions of societal debt and consumption. It will arise on re-invigorated American entrepreneurship, a revamped government and healthcare system, new energy sources, local manufacturing and a growing working age population, amongst many other changes Americans will embark on.

However, before America can begin its rebirth, it has to deal with its debts. Total US societal debt may well have reached a tipping point and many investors are wondering when US government bonds will be abandoned. In fact, this process might already be underway. Reuters’ Jennifer Ablan reported on March 9 that Bill Gross’s $237 billion Pimco Total Return Fund, the largest bond fund in the world, had sold all its US government bonds over the past few months.

The most likely cause for wholesale abandonment of US government bonds is when there is broad recognition that the US economic recovery is not self-sustaining—as Bill Gross believes—and that the fiscal stimulus packages and Fed quantitative easing (QE) programmes have been ineffective in righting the US economy. One major result of US bonds being dumped will likely be much higher US interest rates and restrictive credit market conditions. Such conditions could give rise to dramatic falls in consumption as happened in 2008-2009.

In such circumstances, facing a stark new reality, Americans will be forced to look within themselves for guidance. As they do, I believe they will regain their ‘can do’ attitude and surprise the world with a regenerated spirit and incredible enterprise and entrepreneurship. Gerald Celente, probably the most accurate trends forecaster of our time, predicts an ‘American Renaissance.’

More than likely the economic and social circumstances of the next few years will cause a total re-organisation of US governments: federal, state and local. With greatly restrictive finances, many of their services will no longer be available. This will leave room for numerous private entrepreneurs to fill the gaps. Perhaps the area where this will be most felt will be healthcare. As I have written in US Healthcare Delivering a Heart Attack!, financial conditions will force major reductions in Medicare and probably private insurance plan coverage as well. Individuals will have to pay directly for many more services.

With patients in the drivers’ seat by having to pay directly for numerous healthcare services, doctors and healthcare service providers will have to compete in ways they never had imagined before. Alternative therapies such as Chinese medicine, homeopathy, ayurveda, meditation, etc, will compete on a more equal footing with established healthcare practitioners, drug plans, and so on, to provide health remedies. It will be messy and likely finally force down the prices of many healthcare services that had been rising in prices far faster than incomes. Finally, healthcare will become more affordable to Americans. But as in any competitive marketplace, those that offer the most cost-effective services and products will gain most.

There is also the opportunity for eventual US energy self-sufficiency, particularly as many forecasters believe that oil will become ever more expensive—most especially in devalued dollar terms. Renewable energy systems—wind, sun, geothermal, etc —all have the capacity to vastly increase output. An article by Karin Rives on February 18, on the website United States Mission referred to a Bloomberg New Energy Finance report that said US onshore wind power electrical generating costs are now about the same as for coal-generated power. The gradual transfer to electrically driven vehicles is also just beginning.

Furthermore, if environmental safeguards can be found, shale gas deposits in the US could go a long way to ensuring US energy self-sufficiency. In “Facts About Shale Gas”, Washington DC based API states that the US has over 100 years of supply at current gas consumption rates. Moreover, an MIT study reviewed in the New York Times by Matthew L. Ward on June 25, 2010, foresaw natural gas usage doubling over the next several decades to 40 per cent of the US energy market.

Thus, US ingenuity in energy production could substantially change its energy mix. The US could become much more self-reliant while dramatically decreasing its oil related imports that today account for more than 50 to 70 per cent of its trade deficit.

The financial conditions that will befall the world when the US dollar crumbles will probably lead to trade restrictions and tariffs in the US and in many countries. US manufacturing, behind a tariff wall and ‘buy America’ policies, together with a shortage of imported goods, will re-invigorate American manufacturing and technological prowess. Mr Celente predicts an ‘elegance trend’ and the need for durability in all things manufactured.

Similarly, Mr Celente forecasts a rebirth of American agriculture. Americans will demand real, natural food and it will also be grown abundantly in numerous urban and roof gardens.

Looking out over the next few decades, the US has another advantage over other large developed countries. It is expected to have the most favourable demographics as well. By 2050, according to the UN’s 2008 population database projections, the US dependency ratio is forecast to be 63 dependents per 100 working age individuals, compared to 96 for Japan and 74 for Europe.

The next few years will be difficult for America. But beyond that is its revival. Its unsustainable debt burden will be substantially reduced and US governments—federal, state and local—will be financially forced to live within their means. This will entail a huge restructuring of what they do and in the process provide major opportunities for new entrepreneurial activities.

Healthcare, energy, food, manufacturing and technology, will be among the areas that will undergo transformations that will lead America and the world into a new era. A new American spirit probably arising sometime this decade will give rise to the birth of a new US economic paradigm.

Copyright alrroya.com


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• Out of the Ashes. A Global Central Bank!

Posted by Ron Robins on March 12, 2008

Our financial overseers will create a world central bank in the next few years. Growing higher consciousness in the world will enable it to become a reality. This bank will have a mandate to monitor, regulate, and maintain global currency, credit, and debt issuance. It will ensure that growth of these activities roughly matches global economic output. It will come about as the chaos and inadequacies engendered in our present monetary system become evident to everyone and a world central bank seen as the best solution.

Individuals and groups in financial markets everywhere, lacking inner fulfillment, have demonstrated inordinate greed resulting in reckless financial games and gambling – are bringing the financial system to its knees.

Such mismanagement in the financial system, I believe, will require the new world central bank to disallow banks everywhere from continuing in unfettered debt creation and speculative excesses. In search of ever higher returns, banks created overly lax lending standards, highly leveraged loans, obscure financial entities bearing major financial risks unconsolidated in their financial statements, and generally ran down the quality of their assets and reserves to unsafe levels.

‘Shadow banking’ system larger than conventional banking
All the while an even bigger, massively leveraged, totally unregulated, thinly capitalized, ‘shadow-banking’ system was allowed to balloon by bank regulators. And it is now in the process of imploding! Bill Gross, managing director of PIMCO, the world’s largest bond fund, said this recently about the shadow banking system: “Our modern shadow banking system craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever.”

Due to the enormous growth of irresponsible central bank and banking activities globally, plus the vast, mushrooming credit creation of the shadow banking system – the world’s money supply is expanding out-of-control.

Unprecedented money supply growth creates inflation as bad as 1970s
Globally we see that, “China [is] registering an 18% plus growth in money, India 22.4% a year growth, Singapore 14%, Britain up by 12.3%, Western Europe 11.5%, Australia 16%, Canada 13%, and Saudi Arabia 22%!” So says The Mogambo Guru, Richard Daughty. These are ‘broad money supply’ figures. John Williams of www.shadowstats.com shows the US broad measure of money supply, as of early February 2008, increasing at annual rate of 16.8%. (The US Federal Reserve stopped publishing this measure in March 2006 claiming it costs too much to produce. Many economists suspect that they just wanted to hide the ramping-up of the US money supply.)

Even Marketwatch’s chief economist, Irwin Kellner, is concerned about US money supply growth. He said recently, that, “The rate of growth for highly liquid funds which the St. Louis Fed calls MZM [i.e. physical money, checking and money market accounts, etc.]… soared by an annual rate of 22.7% between December 24, 2007 and February 18 of this year.” He adds, “… it has created a whole lot of inflation.”

The link between an expanding money supply and inflation is firmly established. As the Bank of England’s Governor, Mervyn King quoting a highly respected study, said, that “Over the 30 year horizon 1968-98, the correlation coefficient between the growth rates of both narrow and broad money, on the one hand, and inflation, on the other, was 0.99.” Thus in the words of Milton Friedman, the recently deceased Nobel Economics prize winner, “… inflation is always and everywhere a monetary phenomenon.”

In the US, consumer price inflation using the politically biased, understated, consumer price index (CPI-U) is in January 2008 up 4.3% from a year earlier. But using the CPI methodology as of 1980, it is almost hyperinflationary at close to 12%! Inflation in China is now running at 8.7%, while in the EU and the UK, though more moderate at 3.4% and 3.1% respectively, it is picking-up significantly and well above their respective central bank targets.

The foregoing suggests that the present global monetary and financial system is reaching a state of extraordinary instability. The danger is the possibility of rapidly growing, unstoppable inflation culminating in a hyperinflationary episode such as is now occurring in Zimbabwe. Or, a threat of a deflationary bust similar to the Great Depression.

Higher consciousness the only real answer
The only real answer to such economic threats is higher global consciousness. This, I am convinced, will gain traction. (See my post, The Missing Ingredient In Economics — Consciousness!). In future years, this higher consciousness will, amongst other things, first manifest itself by allowing our financial overseers to see the need for, and create, a world central bank.

In ages past central banks utilized gold to help create monetary order. A new world central bank might well find a role for gold again, but in an updated, modern form. I will write about this in another post.


© Ron Robins, 2008.

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