comments on posting for Bill Gross's Misguided Diagnosis Of America's Economic Problems | LinkedIn

Bill Gross's Misguided Diagnosis Of America's Economic Problems | LinkedIn

There was an interesting article (which I'd be unable to reference) a few months back in something like Barrons about how the effect of bad fiscal policies slowly saps the strength of an economy.

Likewise, I recall that at the end of the 1970's and with the epiphany of the 1980's in the US, it was determined that the 'stagnation' of the 70's was due to government taking too big a share of GDP (with the correct number roughly 19%) - i.e. growth.

We all know the share today, which is much higher.

Based on the above slow-sapping argument, we are clearly seeing the results of too-big-government in Europe.

So, I'd go back to my previous postulation that one has to look at the bottom line net to the individual (again, low corporate taxes - e.g. in much of Europe (below individual rates) may help large companies but they are totally counter-productive to entrepreneurism).

Thus, the trenchant question would appear to be whether or not the distortion of financial modeling, created by Fed and Central Bank policies is a major contributor to the lack of investment and the creation of job opportunities.

I would assume an econometric analysis would only reflect input variables and that would be a selective task, leading to selective output.

Sitting here in Europe, I know I wouldn't consider investing in or starting up any type of traditional business - service or sales. The only business I'd look at, as we are seeing in the US, are those businesses which are game-changers.

Not everyone can participate in such businesses - either through natural skill or training. However, there is always a need for a plumber, electrician, etc. (Note in Europe the impact of a 23% VAT on services.)

So again, if money is the life blood of an economy; and, if some people save (retirees) and others borrow (young people) - all traditional business school stuff; then, if interest rates are below the traditional norms, there is a distortion.

Supply and demand would suggest that if there is excess supply, then demand should pick-up with lower prices (i.e. for money). This isn't really happening - except in the US in housing and probably car loans.

I know if I did an SME business plan with an IRR based on higher individual tax rates (assume the entity doesn't incorporate), then I'd need a greater gross margin (EBITA) than otherwise with these high personal income tax rates.

A higher gross margin suggests that there has to be an abnormal constraint on supply in order to permit this higher margin. Again, think fewer businesses.

As a banker, one perceives (even if one doesn't fully understand the underlying logic) and one toughens ones lending standards. This is what apparently is going on (Bloomberg comments this weekend on banking).

So a bank has to compensate for risks that are engendered by poorly structured for growth fiscal policies. Etc.    

I think of Bernanke's low rate policies as having two key negatives: (1) they encourage government spending and borrowing; (2) like a car stuck on ice with an inexperienced driver flooding the engine with gas to get the car moving - one first needs to remove the fiscal policy ice and snow.

How this all turns out, longer term, one doesn't know.

However, it is interesting to postulate and observe how change is accelerating and many things get old before their previously expected obsolescence. Thus, in economies (including the US but particularly in much of Europe) where the grease for change and growth - read growth oriented fiscal and regulatory and tax policies - are missing or weak, we see vast youth unemployment.

Youth should be working in new businesses and changed businesses - and, those are not being created, at least to the degree necessary.

In the US, something somewhat similar is happening in that the knowledge-based part of the economy is growing and replacing the less-skilled, more labor intensive (read: employment) part of the economy (think retail).

Etc.