PIMCO manager Bill Gross' "new normal" has found a home — and it's not the tony Newport Beach environs of the asset manager's headquarters in California but rather the grim post-industrial Allentown immortalized in the Billy Joel song.
In his December commentary letter to clients, Gross expands on the theme of his famous "new normal" speech about living in a time of deleveraging and reduced economic expectations.
Gross argues that the downshift in global demand increases global competition for a slice of the world's smaller economic pie. "Economic growth is a delicate dance between production and finance and when a nation's or family's credit card gets maxed out, then demand/spending slows immeasurably," he writes. It is this diminished demand that shuts down steel factories in Allentown and other developed world industrial centers.
The reason developed nations are losing the global competition stems from a policy response that emphasizes what is politically palatable, since "sacrifice" is not a vote winner, Gross argues. Extending the Bush tax cuts or inducing small business to hire are short-term stimulus measures that fail to address the longer-term challenge of boosting our competiveness.
