Bill Gross is one of the best bond managers around, so it’s always comforting when someone as astute as Gross is on the same page as you. In a prospectus for his clients (via TPM), Gross said:
“Solutions from policymakers on the right or left, however, seem focused almost exclusively on rectifying or reducing our budget deficit as a panacea… Both, however, somewhat mystifyingly, believe that balancing the budget will magically produce 20 million jobs over the next 10 years.”
In a previous post I highlighted my concern with spending cuts in regard to the market. Broadly speaking, with the consumer being over leveraged and unemployment still high, where is the incentive for the private sector to invest?
My concern is that if government doesn’t continue to spend the private sector can’t and won’t pick up the slack. Further, if the government stops spending, how does that help the economy now? I have difficulty finding the logic in that argument.
Gross has a solution:
“Government must step up to the plate, as it should have in early 2009. An infrastructure bank to fund badly needed reconstruction projects is a commonly accepted idea, despite the limitations of the original "shovel-ready" stimulus program in 2009."That seems good to me – put people to work, build critical stuff we need, employee people to do it, stimulus is pumped directly into where we need it, and the infusion gets the economy to the point where it is self-reinforcing.
Quick point, fiscal stimulus – cash injected to directly into the economy – is different than QE – where cash goes to fuel speculation. I vote for the former and against the latter.
