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Gross Predicts ‘Strawberry Fields Forever’

Echoing the refrain from the Beatles classic, “Strawberry Fields Forever,” PIMCO’s Bill Gross predicts slower growth of the economy over the next decade, or a “new normal” of 2%. While it’s understandable that “living is easy with eyes closed, misunderstanding all you see,” Gross explains how opening your eyes, though difficult, is essential. In his monthly commentary for December, Gross notes that this is probably why both presidential candidates were vague about economic fixes — because there aren’t any short term ones.

The “new normal,” echoed by Ben Bernanke last month, was created by the financial crisis, diminished productivity and short term investment uncertainty due to the fiscal cliff. According to Gross, other factors that will keep us at 2% growth include:
• Sovereign debt and “delevering” — Over the past 200 years, GDP growth is negative when debt/GDP is greater than 90%.
• Globalization — Growth of the Chinese economy and other developing countries has slowed.
• Technology — While increasing productivity, it also has increased unemployment faster than we can create new jobs.
• Demographics — People over 55 years old are less productive, save more, spend less and contribute to a lower birth rate.

Any good news or recommendations, Bill? The good news: Gas prices should come down as the housing market recovers, and there should be increases in productivity due to technology. We’ll let you read the full text to get Gross’ recommendations.

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