The Dow Jones industrial average moved more than 400 points in five out of the last six trading days through Thursday as investors reacted to news from the debt ceiling debacle, the Fed and interest rates, fiscal troubles in the United States and Europe, and the Standard & Poor’s downgrade of U.S. debt.
Experts, like Bill Gross and Jeremy Grantham, of course, have been weighing in on what’s behind such swings and how to view the underlying issues in the longer term. Here are the five best quotes from a wild ride in the markets so far this month.
‘Debt Men Walking’
Future liabilities facing the U.S. government are staggering, said Bill Gross, PIMCO managing director, in his early August outlook “Kings of the Wild Frontier.”
“In addition to an existing nearly $10 trillion of outstanding Treasury debt, the U.S. has a near-unfathomable $66 trillion of future liabilities at ‘net present cost’ … I call these liabilities ‘debt men walking,’ because as long as 330 million living Americans require promised entitlements, the $66 trillion that wear shoes are as much of a liability as the $10 trillion on paper.”
‘The U.S. Is Bankrupt’
The country can’t kid itself about its debt anymore, investor Jim Rogers said on CNBC on Tuesday, after expressing similar comments to the Economic Times of India a day earlier.
“It seems to me it’s physically, humanly impossible for the U.S. to ever pay off its debt. They can roll it over and continue to play the charade, but the U.S. is bankrupt.”
U.S. ‘Looking Like a Banana Republic’
Due to its own misbehavior, Congress had to act, said investment guru Jeremy Grantham (below right) in GMO’s quarterly newsletter released Aug. 1.
“So now [July 30], the U.S.—with a dysfunctional Congress—[had] to decide between two of the ugliest choices seen in a long time. Should they cut government expenditures and therefore cut aggregate demand at a time of a critically weak economy on the cusp, perhaps, of a double dip? Or should they do nothing and allow a technical default … Come to think of it, the choice was between technical default and looking like a Banana Republic, and technical blackmail and looking like a Banana Republic! Just different bananas perhaps?” ‘Debt Dramas and Crises Will Not Go Away Any Time Soon’
Thanks to over-spending by governments, things will not be ‘normal’ for a while, PIMCO CEO and co-CIO Mohamed El-Erian said in an Aug. 1 commentary.
“We should all accept that Europe and America—the former for fundamental reasons and the latter for self-inflicted ones—are now in a de-levering cycle whose consequences will be with us for many years … and governments will mix and match from the menu of options … Accordingly, periodic debt dramas and crises will not go away any time soon … Unfortunately, none of us have the ability to fully insulate ourselves from the collateral damage and unintended consequences. The best we can do is to understand the process …”
Two More Years of Interest Rate Heaven
The typically bland Federal Open Market Committee (FOMC) announcement on Tuesday was exciting to the markets, which surged, but stocks flopped Wednesday.
“The Committee currently anticipates that economic conditions — including low rates of resource utilization and a subdued outlook for inflation over the medium run — are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
(Photos on Pages 1 and 3-6 are by The Associated Press.)