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Saturday, February 02, 2013

PIMCO's Gross: Civilization Headed For Extinction

Bond guru Bill Gross sees it coming even if most don't. Our finanical system is eating our civilization alive and it will all end in a financial supernova.

Starting with the concept of fractional reserve accounting, the lending system has been growing exponentially — and unsustainably — larger and larger. Each new dollar of debt generates less and less growth in the economy. Back in the 'Eighties, it took $4 of credit to buy $1 of growth. During the 'Naughties, that grew to $10 in debt for each dollar in growth. Today, it requires $20 in debt per dollar of output. Clearly, the system is heading toward collapse. It's the ultimate unsustainable system because as it nears collapse, it becomes the central force driving the real economy, destroying jobs and making the financial system itself the biggest sector within the economy, to the detriment of real growth. It's our civilization's ultimate Ponzi Scheme whereby it is moving to a state where everyone but those who have exited the system with profits end up losing everything during the final stage of supernova and collapse.

Gross mentions one of his colleague's solutions to the problem: buy land in New Zealand and move there. Unfortunately, most don't have that option available.

However, Gross doesn't mention it, but there is an investment available today which returns — mostly risk-free — more than 10% per year. That's solar power. Investors in many countries can install solar power on their residences and cut their electricity bills substantially. They can laugh at their non-solar neighbors as grid electricity soars in price. And, they will be able to sit, cool and calm, as increasing periods of monstrous heat waves and destructive storms eviscerate the landscape due to ongoing Climate Change which inevitably will lead to the extinction of the human race. No, Gross can't come right out and say it, but we can. The bottom line is that there is no bottom line ultimately.