Bill Gross compares deficit spending to flushing money down the toilet

http://sfgate.bloomberg.com/SFChronicle/Story?docId=1376-L69P2S6NKMZJ01-1M2S7D340JHALJ6F809MPJREDH

Pacific Investment Management Co.’s Bill Gross said deficit spending by governments that seek to maintain artificial levels of consumption “can be compared to flushing money down an economic toilet.”

Without acceleration in population growth, developed countries finance more consumption to maintain economic growth, the world’s biggest bond-fund manager wrote in his August commentary today on Newport Beach, California-based Pimco’s website. Leveraged spending, he said, is not a substitute for demand created by people.

“I will go so far as to say that not only growth but capitalism itself may be in part dependent on a growing population,” Gross wrote. “Production depends upon people, not only in the actual process, but because of the final demand that justifies its existence.”

Deficit spending will be unsuccessful in what Pimco calls the “new normal” because deleveraging, re-regulation and de- globalization produces structural headwinds that lead to slower growth and lower-than-average investment returns, Gross said.

Pimco, a unit of Munich-based insurer Allianz SE, managed $1.07 trillion of assets as of March 31.