What is the CPM Group's analysis of the ongoing economic crisis and what investors need to know about prospects of a recovery?
We came out in 2009, with a view called, "The muddle through economic outlook." Sub par growth, high unemployment, low interest rates, low returns on traditional investments for an extended period of time, you know --10, 20, 30 years, while you pay down the debt and restructure the global economy and the global political system. That's the good scenario, right, because it avoids a collapse.
A lot of central banks are trying to help execute that plan. The Bank of China sees it that way. Other central banks see it that way. This is what we need to do over the long run. If you look at Bernanke's comments when he was the Fed Chairman, he repeatedly said, "The Fed can stanch the bleeding. We can keep the corpse from dying. We can keep us in a low growth or low recession environment instead of a depression, but the real economic reform has to come on the fiscal side." The congress and the administration has to step up to the plate and execute real fiscal reform if you want to have growth. We can't engineer growth with monetary policy. We can only keep the country from rolling over into a depression.
If you use an econometric model and you look at the U.S. economy and say "What if we haven't had all this quantitative easing?" "Did the quantitative easing help the economy?" Some people criticize and they say "Well, look we've had 1-2% growth for 5 years that hardly has helped the economy." That's exactly what Bernanke said he was trying to engineer. If you use a good econometric model of the U.S. economy and you say "What if we hadn't had that quantitative easing?" You would have had about a 2% contraction in the economy for several years and you would have had about a 2% deflation. So they actually kept us out of a deflationary depression. As Bernanke said repeatedly in public testimony, "I can't engineer a recovery." That's where we are today. It all comes down to political will. There are some very interesting groups and mainstream economics and finance that have one recent piece that I have read was called, "5 easy pieces." It was 5 relatively painless policy changes that the U.S. government could make, which would probably restore us to a surplus, a federal surplus, but the political will to do those 5 easy pieces is not there.