Ray Dalio (Bridgewater) is a proponent of the ongoing “Beautiful Deleveraging” as the process by which the US slooooooowly works itself out of the economic morass we’ve been digging ourselves into for the last few decades. His knowledge of deleveragings is extensive and he’s talked a lot about the commonalities between them – they all end with printing and they all require patience.
Jeff Gundlach of DoubleLine does not typically advocate policy (two years ago he told a room full of money managers I was in that his job is invest based on what policy is, not whine about what it ought to be) but he does have some thoughts about the potential for a drastic slowdown should the pols try using the same deficit-reduction chainsaw that’s been employed in peripheral Europe:
From Advisor Perspectives:
“We’re in this predicament owing to a simple fact…The United States has been spending more than 50% more than it’s been taking in in taxes….”
“Clearly, people don’t want to see the economy contract very substantially next year,” Gundlach said. “But, as I’ve said for several years now, addressing the budget deficit equals economic weakness and headwinds, and perhaps if it’s addressed aggressively, that’s just instant recession.”
Gundlach was very skeptical that progress would be made to avert the fiscal cliff, much less toward addressing the larger deficit issues. The fiscal cliff negotiations have been unable to bridge gaps as small as $70 to $80 billion annually in tax increases, he said, which does not bode well for addressing the $1.3 trillion deficit.
“Ultimately, you must balance the budget,” he said. “To do that, you have so much more work to do than this tiny little issue about 2% of the population.”
I would say that there’s probably little danger of the rug being ripped out from beneath our feet so quickly thanks to the November elections. The deficit hawks and born-again Austerians (the same gang that vociferously backed Bush’s massive spending binges not even ten years ago) were largely chased out of town after all.
More on Gundlach’s views including his Japan bet below.