I have a hard time reading Bill Gross anymore, or anyone talking about the US financial system/economy as if it’s a one country closed system rather than a global one. The US economy is moribund because there is no job creation. In fact, using taxpayer dollars to foment, and now trying to reflate, the housing bubble made the exodus of jobs happen even faster as it magnified the cost of living disparity between US and China/India/etc.
There is no shortage of liquidity for businesses at all. It’s just that all the liquidity is flowing out of US into other countries where they have job growth, higher interest rates, and more predictable fiscal policies, etc. GM took the US taxpayer bailout and then turned around and invested in auto plants in China.
I just got back from India a couple weeks ago, and it’s incredible the growth that has occurred there in the past 5 years since I was last there. I haven’t been to China, but from what I’ve read it is the same. Ditto for Brazil, and all these other developing countries.
For the multinational corporations, this continues to be a golden era with globalization and developing markets providing green pastures to sell products, while the industrialized countries provide cheap financing to finance their expansion.
Before globalization, lowering interest rates had a bigger effect on US economy, because US employers would respond by hiring US workers. Now an employer like AAPL responds to increased demand by calling up FoxConn and telling them to add another assembly line for IFad gadgets. The Fed policy levers are completely broken. Yet, they continue to focus on US unemployment as a key metric for deciding to lower interest rates. Oh yeah, and the neutered CPI metric barely registers a 2% jump while there is massive commodity inflation.
Instead of 0% interest rates and QE2, the US should stop weakening itself and raise interest rates, to stop providing the artificially cheap capital which is helping develop other countries economies and funding multinational corporations profits (which they squirrel away to the Bahamas to avoid US taxes).
But it’s not going to happen until there’s a crisis. One of these times when there is a crisis, nobody is going to rush into USD$ for safety. That’s when you’ll know the sh@# really hits the fan.
This post is reprinted from this thread on the Bears Chat forum. Thanks to Limejuice2 for his/her thoughts.