Seven years of lean - MARKETPLACE and Bill Grossof PIMCO

Seven years of lean Marketplace, Wednesday, November 2, 2011 Listen to this Story PIMCO's Bill Gross says it took us more than seven years to get into this mess, and it'll take just as long to get out of it Justin Rowlatt: Here's a fundamental truth about the debt crisis Europe's going through: Kai Ryssdal: You can prop up bad debts all you want, but until somebody takes the loss, they're still bad debts. Rowlatt: That's why the deal last week was so important: Banks were expected to agree to take the loss on those Greek bonds. Ryssdal: The world's biggest bond trader, though, says you need something else besides that. You need growth. Bill Gross is the managing director at PIMCO, down the road from us in Newport Beach. And I asked him, just for a refresher, how we came to find ourselves in this fix. Bill Gross: Well it happened because the world went crazy in terms of overconsumption and too much debt, and we see that obviously in Greece, we see it in some of the southern euroland countries. But in the United States, we all went crazy. In most of the developed world -- which is where most of the debt is -- what we describe as the new normal, which is a very low-growth type of economy, is what we're going to experience for the next several years at least, until growth is critical. Ryssdal: So riddle me this, Bill: Where's the growth? Gross: It's hard to find. Ryssdal: I feel much better now. Gross: In euroland, it's almost non-existent. And policies in euroland are really towards fiscal conservatism, but lowering deficit should be something that takes place down the road, as opposed to immediately, because it hinders growth. Rowlatt: Can you see a way out of the eurozone crisis without growth, Bill? Gross: I can't. And to suggest that becoming fiscally constrictive and balancing the budget will produce growth, I think is a stretch of the imagination. Rowlatt: It looks as if the Western economies are suffering. Meanwhile, around the world, there is growth, and crucially there's optimism there'll be future growth. So do we see a decoupled world, is there a divided world? Gross: I think we do. Basically, economies such as China, such as Brazil, such as India, have rather underdeveloped consumer sectors and low levels of debt -- just the opposite of developed countries. And so it's possible for them to expand their consumer sector because their consumer sectors are very underdeveloped. Rowlatt: Can growth in those economies lift the Western economies out of the doldrums that they find themselves in at the moment? Ryssdal: And if not, what do we do, right? Gross: Well they can. Sort of like, you know, the U.S. used to be the big locomotive, and now perhaps we're into the territory of the Little Engine That Could, I guess. But at the moment, Chinese growth and Brazilian growth and growth in India is not rubbing off in the same way as U.S. growth used to in terms of global growth. Rowlatt: OK Bill, one last question for you, from London: How long is it going to take us to get out of this crisis? Gross: You know, Rogoff and Reinhart, who are economists in the United States, they suggest that the time to get out is roughly equivalent to the time to get in, sort of biblical in a way. Seven years of lean, following seven years of fat. And as long as debt becomes a focal point in terms of fiscal and monetary policies, then we're likely to experience very slow growth in the developed world for a long, long time. Ryssdal: Wow. Bill, quickly before we let you go: Are you counting on anything or looking for anything to come out of the G20 this week? Gross: Certainly an affirmation of the EU grand plan and perhaps a hint or two in terms of additional support. Perhaps China puts in its piece and perhaps the IMF speaks up, but those would the topics of the weekend, I suppose, in terms of who will participate in the financing of euroland. So we might see some hints in that direction. Ryssdal: Not to put too fine a point on it, but we're down to affirmations and hints, is that where we are? Gross: Yeah. I think that's been the case. And remember that the grand plan is an affirmation that's all been hints and promises to do better. So we'll simply have to see in terms of the implementation of this policies, how it goes forward and it hasn't gone smoothly in the past. Ryssdal: Bill Gross at the bond firm PIMCO.