I’m a fan of the writing style of Bill Gross, the co-founder of the asset management firm PIMCO and manager of the world’s largest mutual fund.
Gross produces an Investment Outlook column available on PIMCO.com. This month’s column is called “Credit supernova” and I strongly recommend it to anyone interested in finance and economics.
The column does a great job of articulating a feeling I have and many have expressed to me about the state of our economic reality, which is to say the state of the very fabric of our current global society.
This feeling stems back to Sept. 15 2008, the day Lehman Brothers collapsed and the global financial crisis accelerated. For me the threshold crossed that day left the same type of mark as discovering who Santa Claus really is, or where babies really come from. Regardless of whether I wanted to know or not, the knowledge partially revealed could not be unlearned.
The knowledge is the economic model we live in is much more fragile than we all wish it was, and the knowledge is not only is our economic reality fragile, but it also may be inherently flawed.
So to gain a better understanding of this realization we explore concepts like Modern Monetary Theory, we look at historical precedence in places like Japan and we learn to question theories presented to us in school as if they were facts.
As expressed in Investment Outlook a primary flaw in the financial system is it requires continual growth in order to remain sustainable. This is true because the system is largely based on credit/debt, and debt requires interest, the payment of which requires growth.
Sometimes growth is not only not possible, it is not reasonable. In the past, extension of more credit was used to brew the growth needed to service already existing debts. Since 2008, however, new credit has been less effective at generating this process, which is why strange things like zero-percent interest rates and printing $3 trillion new dollars seem to have very little impact on real world prosperity.
Many have attempted to express these same feelings, but doing so is not simple or comfortable. Regardless of the time we have been given, we must continue to figure out a way to pay our bills, educate our children and achieve retirement.
I find increased understanding leads me to more hope for the future. We will certainly experience new risks, but we will also find new opportunities. I am thankful for the chance to explore these concepts with all of you. Going forward it is all about strategy, we’ll try to have some fun along the way.
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