Monday 2 November 2009

Senior investment guru forecasts longrun damage to capitalism’s profits

by Grant Morgan 29 October 2009 Bill Gross [pictured] is the managing director of PIMCO, one of the planet’s biggest investment firms. Consequently, in the world of corporate investment, the name of Bill Gross is writ large, and his views are hugely influential. On 27 October 2009 this US investment guru, who is expected to speak in conservative terms, published these radical views: “The U.S. and most other G-7 economies have been significantly and artificially influenced by asset price appreciation for decades.” Over the past 50 years “you would have been far better off investing in paper than factories or machinery or the requisite components of an educated workforce. We, in effect, were hollowing out our productive future at the expense of worthless paper such as subprimes, dotcoms, or in part, blue chip stocks and investment grade/government bonds.” “Financial leverage, in other words, drove the prices of stocks, bonds, homes, and shopping malls to extraordinary valuation levels – at least compared to 1956 – and there could be payback ahead as the leveraging turns into delevering and nominal GDP growth regains the winner’s platform.” “The six-month rally in risk assets – while still continuously supported by Fed and Treasury policymakers – is likely at its pinnacle. Out, out, brief candle.” To read the full essay by Bill Grosscan go to So Gross predicts the likely quenching of the “brief candle” which heated up share market values over the last six months. And, more importantly, he expects systemic “payback” for the financial leveraging which inflated global capitalism’s profit margins and asset prices over the past half-century. Stripped of qualifiers, Gross is forecasting not only market downturns, but also longrun damage to corporate profitability, the lifeblood of capitalism. Such economic pessimism from a Top Hat within the Belly of the Beast adds to the erosion of legitimacy which is besieging global capitalism. These intertwined crises of profitability and legitimacy are two of the quartet of contradictions that are tipping global capitalism towards collapse. The other two are the ecological crisis (notably climate warming) and the resource crisis (peak oil, peak water, peak farmland, peak minerals). These four contradictions are intensifying and coalescing, while also interacting in unpredictable ways with shifting imperial relativities as America’s Premier Power status comes under threat from a resurgent but conflicted China. Such fundamental drivers of social transformation cannot simply be wished away by defenders of capitalism. We appear to be entering the era of the collapse of global capitalism. And that will throw up social conflicts more turbulent than most of us can imagine as rival forces go into battle to determine what new world system will emerge from the chaos. If you liked this story, forward it to your friends. Feel free to contact the author at

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