29 diciembre 2014

¿puede solucionarse una crisis de deuda con más deuda?

Esto es lo que se pregunta Bill Gross, uno de los mejores gestores de renta fija de EEUU, persona de gran prestigio en la gestión de fondos de renta fija, en su última carta mensual:
Say what you want about Bill Gross, but the legendary bond investor is absolutely spot on in the following paragraph from his latest, December, investment outlook:
How could they? How could policymakers have allowed so much debt to be created in the first place, and then failed to regulate their own system accordingly? How could they have thought that money printing and debt creation could create wealth instead of just more and more debt? How could fiscal authorities have stood by and attempted to balance budgets as opposed to borrowing cheaply and investing the proceeds in infrastructure and innovation? It has been a nursery rhyme experience for sure, but more than likely without a fairytale ending.
Here is the full letter (link):
How Could They?
Punch and Judy fought for a pie.
Punch gave Judy a sock in the eye.
Said Punch to Judy, “Would you like any more?”
Said Judy to Punch, “No my eye is too sore.”
   – Mother Goose nursery rhyme
Ah, nursery rhymes! Intended for kids no less! The above little ditty could serve as a modern day NFL domestic playbook, I suppose, while a century ago it was but one of many “lesson plans” on what not to do when you grow up. There was Jack and Jill, and Little Miss Muffet – all of whom had to be careful – the Muffet Ms. especially so if she ever sat on a tuffet; spiders were lurking! Then there was the Old Woman Who Lived in a Shoe, the moral being that if you lived in one, lots of kids would drag you down for the rest of your life. Honestly – conception must have been pretty awkward for the old gal, maneuvering between laces and all. And instead of scented candles, well, you get the picture. Even Buster Brown’s dog, Tige, wouldn’t have lived in there.
The Punch and Judy rhyme pretty much exposes the early 20th century for what it was: male dominated and domestic violence permitted. Actually, back then, the way comic strips allowed women to get revenge was a metaphorical frying pan in the kitchen. Watch out, Dagwood – here comes Blondie! Today, all of that is frowned upon and so much the better. Outside of comic strips and nursery rhymes, the AMC series “Mad Men” takes us back to the bad old days when everyone smoked in the office and right next to you on airplanes, no less. “How could they?!!” is the almost immediate response, because we have adapted and adjusted to a different set of social, moral and ethical standards. Race, gender, sexual orientation, you name it … things are moving forward. You could shriek a “How could they?” for all of the above while understanding perhaps why they did. Maybe they didn’t know any better, maybe the time wasn’t right, maybe they just needed a Martin Luther King, a Betty Friedan, or a Harvey Milk to lead the way. In each case the “How could they?” can only be answered by “they did – but now they don’t as much.”
What I find equally interesting is to project forward and try to guess what things we are doing now as a society that our grandchildren will ask, “How could they?” That indeed is a tough one, because like cigarette smoking on “Mad Men” in the ’60s, it’s difficult to conceive of an alternative environment. Perhaps it will be food and cuisine oriented. Corn in everything we eat and drink; genetic modification – “How could they?” Perhaps it will be robot driven cars, prompting our grandchildren to ask, “How could they? No wonder there were so many fatalities.” Maybe going to college will top the charts of future unthinkables. “Spending $200,000 for four years of partying – how could they?” We shall see, or better yet, our kids will. They will mold their own world as their environment, and developing ethical standards will mold them in turn; a wheel within a wheel. Punch and Judy would be amazed.
Speaking of the future and life’s lessons, there is an ongoing process of discovery taking place amongst the world’s central bankers which they hope will rejuvenate their respective economies without creating the inflationary horror of the 1970s. If Federal Reserve Chair Janet Yellen were the fictional Little Miss Muffet, she would be hoping to eat the “curds and whey” of 2% to 3% real economic growth while avoiding spiderous increases in future prices. If European Central Bank President Mario Draghi were the old fashioned “Punch,” he might figuratively be attacking German Chancellor Angela Merkel and her tight monetary and fiscal heritage. “Take that Judy/Angela!” I don’t know who to compare Bank of Japan’s Governor Haruhiko Kuroda to – perhaps little Jack Horner hoping to stick his thumb into a Christmas pie, pulling out a plumb and exclaiming, “What a good boy am I!” Ah, policymakers. Perhaps the last five years have been one giant nursery rhyme.
But each of these central bankers is trying to achieve the same basic objective: Solve a debt crisis by creating more debt. Can it be done? A few years ago, I wrote that this uncommonsensical feat could be accomplished, but with a number of caveats: 1) Initial conditions must not be onerous; 2) Both monetary and fiscal policies must be coordinated and lead to acceptable structural growth rates; and 3) Private investors must continue to participate in the capital market charade that such policies produced.
Let me explain each of these three caveats in turn.
1- By initial conditions, I am referring to existing structural headwinds that would thwart the successful rejuvenation of old normal, nominal growth rates. Certainly a country’s current debt/GDP ratio factors enormously into the oddsmaking for success. It is difficult, for instance, to imagine Japan getting out of its quagmire of debt by simply creating more of it and buying 100% or more of the new and current supply. Similarly, Greece (which has already suffered several restructurings) as well as neighboring Euroland peripherals begin the healing process well behind the debt/GDP eight ball. But there are other significant initial conditions – structural headwinds – that my version of the “New Normal” envisioned as early as 2009: aging demographics, technology/the race (rage) against the machine, and the ongoing reversal of globalization, are all growth-stunting factors to consider. Economist and former Treasury Secretary Larry Summers has labeled this “Secular Stagnation” and rightly so, but it is just another way to describe the New Normal and its deleterious effect on future growth.
Monetary and fiscal policies must work side by side; they must be stimulative as opposed to being counterproductive. It makes little sense, for instance, for Euroland to be running a tight fiscal policy resembling the balanced budget mandate of Germany, while at the same time initiating quantitative easing and negative interest rate monetary policies. The same holds true for the Bank of Japan’s massive monetary stimulus on the one hand, and Japan’s raising of its consumption tax on the other. One could even apply that complaint to the U.S. with its fiscally restrictive rebalancing of its budget deficit from 10% to 3% over the past five years. If not for fracking, Uncle Sam might be labeled the Old Man in the Shoe for not knowing what to do. In fact, in the U.S., as elsewhere, there has been little focus on public investment and infrastructure spending. It’s been all monetary policy, all of the time, with most of the positives flowing over to markets as opposed to the real economy. The debt currently being created is not promoting real growth and solving a debt crisis – it is being used by corporations to repurchase shares and accentuate the growing inequality between the very rich and the middle class.
2- Keeping private investors playing the “game” in our financial markets even though they smack of a pyramid scheme might seem like a no-brainer. “Where else can they go” has been and continues to be the commonsensical refrain. Not sure, but perhaps Google Maps can show the way. But on the fringe and at the margin, there are alternatives to negative interest rates or artificially low cap rates, or escalating P/E ratios based on historically high profit margins. And even if investors must buy something, they don’t necessarily have to buy it in their own or any specific country. If 3-year German government bonds yield -.05%, then how about a 3-year Brazilian government bond at 12.5%? At the moment the negative yielding German bond gets the market’s vote, but you must see the point. Creating more debt with artificially low yields leads to currency wars and exchange rate volatilities that distort global capitalism. Solving a debt crisis by creating more debt cannot cure the disease if higher volatility distorts the historical flow of markets and associated commerce.
3- And of course economic theory might suggest that artificially low interest rates gradually but inevitably lead not to more consumption and real growth, but to more savings in order to meet future liabilities such as education, health care, and eventual retirement. If a household needs $250,000 for any or all of these future commitments, it will be twice as hard to meet them with 5-year Treasurys at 1.5% instead of 3%.
With each of my three primary caveats coming up short in an answer to my earlier question: “Can a debt crisis be cured with more debt?” it is difficult to envision a return to normalcy within my lifetime (shorter than it is for most of you). I suspect future generations will be asking current policymakers the same thing that many of us now ask about public smoking, or discrimination against gays, or any other wrong turn in the process of being righted.
How could they? How could policymakers have allowed so much debt to be created in the first place, and then failed to regulate their own system accordingly? How could they have thought that money printing and debt creation could create wealth instead of just more and more debt? How could fiscal authorities have stood by and attempted to balance budgets as opposed to borrowing cheaply and investing the proceeds in infrastructure and innovation? It has been a nursery rhyme experience for sure, but more than likely without a fairytale ending.
Markets are reaching the point of low return and diminishing liquidity. Investors may want to begin to take some chips off the table: raise asset quality, reduce duration, and prepare for at least a halt of asset appreciation engineered upon a false central bank premise of artificial yields, QE and the trickling down of faux wealth to the working class. If the nursery rhyme theme is apropos to the future, as well as the past, investors should remember that while “Jack and Jill went up the hill,” that “Jack fell down, broke his crown, and Jill came tumbling after.”
Someday soon, perhaps.
Hay muchas dudas de que estemos haciendo las cosas bien. No se puede arreglar un problema de exceso de deuda emitiendo más deuda… Hemos ganado tiempo, pero no hemos solventado la crisis de deuda por la que nos movemos… Un abrazo,
PD1: Más de Bill Gross:
 “We’re all one thing, Lieutenant. That’s what I’ve come to realize. Like cells in a body. ’Cept we can’t see the body. The way fish can’t see the ocean. And so we envy each other. Hurt each other. Hate each other. How silly is that? A heart cell hating a lung cell?”
-"Cassie" in the novel The Three
I am a philosophical nomad disguised in Western clothing, a wondering drifter, masquerading in a suit near a California beach. Sand forms the foundation of my being and its porosity is at once my greatest strength and deepest wound. I have become after 70 years, a man who believes that no belief is sacred. I have ideals and moral standards, but I believe them specific to me. Had I inherited your body and ego, “I” could just as clearly have assumed “yours.” If so, I wonder, if values are relative, then what are mortals to make of them, and what would a judging God make of us? If a collective humanity is to be rooted in sandy loam, spreading its ideological seeds through howling winds only to root in mutant form at different places and different times, can we judge an individual life?
I despair that my only answer is “not easily.” The conclusion at its logical end makes us all innocent and equal. We are born innocent, falter, but no matter, we remain mostly innocent. My problem, however, is that if there are no absolute standards, it may minimize life’s value. Concrete, as opposed to porous sand, provides a firmer foundation for judgment, but sand I suspect is the soil into which we are insecurely grounded. All one thing, masquerading as ourselves.
The global economy and its financial markets are insecurely grounded as well. Decades and indeed centuries have taught us that both inflation and deflation are the enemies of stability and growth, but knowing which one is just around the corner can be difficult. Before the advent of central banks in the early 20th century, prices were just as likely to go up as down. A bountiful harvest or supply shock miracle could sink prices just as easily as the discovery of gold and silver in the New World could raise them. Even after the miraculous “discovery” of the modern central banks printing press, a miscue or fat fingered mistake by one of the “wise men” could lead to depression and accompany deflation. The world of the 1930s and the more recent lost decades of Japan give testament. Prices change – and while they usually go up these days, sometimes they do not. We are at such a moment of uncertainty.
That one or the other should be favored, is a fascinating debate. Currently, almost all central bankers have a targeted level of inflation that approaches 2%. Some even argue for higher levels now that deflationary demons approach in peripheral Euroland. They argue that the 2% level is sort of like a firebreak. Once inflation approaches zero, goes their theory, the deflationary firestorm is difficult to stop. With interest rates at zero and quantitative easing approaching potential political maximums, there is little water left to pour on the flames. Best then to keep inflation at a reasonable 2% so that the zero hour never comes. They have a point, but then how to explain to the average 30-year-old citizen that if so, his/her retirement dollar will only be worth half as much come 65, and if inflation averages 3%, it will only be worth a third. Actually, a 30-year-old citizen of the 1970s (yours truly), has experienced a 75% depreciation of his purchasing power. The cost of a firebreak can be expensive insurance.
And why, goes the argument, are lower prices so bad? Didn’t Wal-Mart get famous by featuring everyday low prices, and what’s so bad about 3-buck-a-gallon gas at the pump? More dollars in consumer pocketbooks suggests more spending, stronger growth rates and ultimately more jobs.Jim Grant, one of the most gifted financial historians of our day, has long argued that economies did just fine during bouts of deflation in the 18th and 19th centuries – in fact, in many cases, they did better. America in the 1880s was a period of good deflation with output rising by 2% to 3% from 1873 to 1893. Two percent targeted inflation, he would argue, is the “con” of central bankers who know nothing better than to create money during a financial crisis and then to keep creating it during the inevitable recovery. Grant has a point. If that is their job, then indeed they have been good at it.
But Grant must know, I suspect, that our modern finance based economy is not your 19th century Oldsmobile, if there had been one. “That indeed is the problem,” he might counter. In fact, Grant has even written a book supporting that thesis titled “The Trouble with Prosperity.” Prosperity has created inflation and excess, he would argue. My problem though (getting back to the introductory quote’s reference to a heart cell as opposed to the lung cell) is that much of our 21st century economy has been planted in the sandy loam of finance as opposed to the concrete foundation of investment and innovation. Stopping the printing press sounds like a great solution to the depreciation of our purchasing power but today’s printing is simply something that the global finance based economy cannot live without. Going home again, to paraphrase Thomas Wolfe, is something you just can’t do. Modern economies have grown used to inflationary sand and cannot grow in the concrete based economy that Grant eulogizes in his magnificently written histories.
Why not? Simple math, I suppose. Our 2014 U.S. Oldsmobile requires 4% nominal growth just to keep it running, and Euroland economies need at least 3%. Having created outstanding official and shadow banking credit of nearly $100 trillion with an average imbedded interest rate of 4% to 5%, the Fed presses must crank out new credit (nominal growth) of approximately the same 4% to 5% just to pay the interest rate tab. That of course wasn’t the case in Grant’s 19th century version – there was very little debt to service. But now at 500% to 600% of GDP (shadow debt included), it’s a Sisyphean struggle just to stay above water. Inflation, in other words – or in simple math – is required to pay for prior inflation. Deflation is no longer acceptable.
Such is the dilemma facing central bankers (and supposedly fiscal authorities) in 2014 and beyond: How to create inflation. They’ve made a damn fine attempt at it – have they not? Four trillion dollars in the U.S., two trillion U.S. dollar equivalents in Japan, and a trillion U.S. dollars coming from the ECB’s Draghi in the eurozone. Not working like it used to, the trillions seem to seep through the sandy loam of investment and innovation straight into the cement mixer of the marketplace. Prices go up, but not the right prices. Alibaba’s stock goes from $68 on opening day to $92 in the first minute, but wages simply sit there for years on end. One economy (the financial one) thrives while the other economy (the real one) withers.
Perhaps sooner rather than later, investors must recognize that modern day inflation, while a necessary condition for survival, is not a sufficient condition for increasing wealth at a rate necessary to satisfy future liabilities associated with education, health care, and a satisfactory retirement. The real economy needs money printing, yes, but money spending more so, and that must come from the fiscal side – from the dreaded government side – where deficits are anathema and balanced budgets are increasingly in vogue. Until then, Grant’s deflation remains a growing possibility – not the kind that creates prosperity but the kind that’s the trouble for prosperity.
PD2: Interesante lo que sacan aquí: http://www.voxeu.org/article/geneva-report-global-deleveraging Te copio unos cuantos gráficos: En 2008, el sistema petó porque nos dimos cuenta de golpe que habíamos generado, en la bonanza, una terrorífica crisis de deuda. Lejos de disminuir las deudas, optamos por patada hacia adelante y seguir endeudándonos más y más…
Doble deuda: pública y privada más la externa:
Unos mejor que otros, unos con mucha deuda externa, y otros acreedores:
Hubo un frenazo en 2008 a las deudas, pero después, venga más y más…
Y esto es lo que ha pasado en otras crisis:
Y en esta:
Se pensó que emitiendo papelitos implicaría volver a las tasas de crecimiento previas, pero no ha sido así…
El caso de la Unión Europea:
Y eso que el crédito se ha disminuido ya que nadie pide invertir en proyectos nuevos:
Pero no hemos sido capaces de disminuir las deudas:
Salvo en España que se ha trasferido la deuda privada a deuda pública…, qué gran regalo a los banqueros…
En el sector externo, hay países que no entiendo como no son más penalizados…
Y a todo esto súmale lo que hemos subido las deudas en el 2014. En el caso español, hemos emitido nuevo 55.000 millones de euros de nueva deuda pública, que coincide aprox. con el déficit público de este ejercicio. El año que viene 2015 emitiremos otros 55.000 millones más… El crecer un 2% o crecer un 1% es lo de menos…, no hay ninguna gana de reducir la deuda acumulada.
PD3: Me encantó el discurso de Nochebuena del nuevo rey. La única pena es que no se presente a las elecciones, le votaría en su proyecto de regeneración democrática. Una pena que sea rey y no político. Quizás, deberíamos volver a los reyes absolutistas y tal…
PD4: Educar es como podar un árbol:
…Con el temperamento se nace, pero el carácter se hace; a base, eso sí, de ir podando todo aquello que nos sobra o que no impide crecer. No se trata de cortar por lo sano, sino de ir tallando esas menudencias, o no tan menudas, que hacen que se desparrame la savia por lo accesorio y quede desnutrido el tronco. Saber qué ramas hay que cortar y cuáles no, por dónde hacerlo y cómo, no es fácil, aunque resulta imprescindible. Por eso, la poda es un arte para el que hay que tener oficio: un árbol mal podado no crece bien.
Pero la poda es dolorosa. Si un árbol pudiera sentir, seguramente que le dolería cada vez que las tijeras le amputan lo que le sobra, pero el agricultor no se ablanda porque sabe que es por su bien. Por eso, prescindir de lo prescindible, de esa golosina, de esa nueva aplicación del móvil, de eso que todos tienen, de nuestras postizas preocupaciones, de todo eso secundario que ponemos en primer lugar, de lo trivial que no vital… resulta incómodo, doloroso, arduo…, pero nos asegura un crecimiento personal más firme y seguro…