Today’s post on ethics is written by Alonzo Fyfe of Atheist Ethicist. (Keep in mind that questions of applied ethics are complicated and I do not necessarily agree with Fyfe’s moral calculations.)
In what I consider to be an under-reported news story of the week, Bill Gross, the famous (in financial circles) manager of the narly $250 billion PIMCO bond fund, has given up hope that our government can get its budget under control. He is betting his fund’s assets that America will fail, and that interest rates will sharply rise in the near future.
A growing number of investors are growing increasingly confident that the United States will go the route of Greece, Portugal, and Ireland with respect to acquiring an unmanageable debt. But in our case, there will be no larger organization capable of stepping in and bailing us out.
The American political system and culture seem ill-suited for financial responsibility. Specifically, their aversion to debt has been far too weak – and its population far too willing to embrace irrational blindness to reality – to motivate effective change.
I drew this conclusion in part from the population’s excessive willingness to embrace other irrational and indefensible claims ranging from religious fundamentalism, global warming denial, and creationism on the right, to new-age medicine and subjectivism on the left. Far too many people have proven themselves adept at denying reality to expect them to generate realistic responses to real-world problems.
However, reality has a bad habit of asserting itself without regard to people’s beliefs. Unfortunately, that fact has proven to be a poor deterrent against adopting irrational and unfounded beliefs.
We must add in support of this current datum that, with a deficit of $1.6 trillion, the government was nearly brought to its knees in a dispute over less than 2.5 percent of that amount – $38 billion. Our politicians will have to find hundreds of billions of dollars to cut, and the recipients of those hundreds if billions simply will not tolerate the burden.
Through their political activism, they will create a situation what requires government failure to address this issue.
For these reasons, I expect that America will eventually default on its debt, and those who hold a significant amount of that debt at that time will suffer as a result.
Now, I have the testimony of investing experts confident enough that this opinion is accurate that they are moving hundreds of billions of investment dollars based on that belief.
In short, investors are now seeing the US Government as a poor risk.
We can further expect that those who do not think so are grounding their opinion more on sentiment that on reason – more on faith in the US Government than on an objective evaluation of the facts.
However, Bill Gross is not just refusing to purchase US debt (perhaps out of fear the government will default on those loans). It is short-selling US treasuries.
Without going into details of how this works, suffice it to say that this is an active bet that the price of treasuries will drop – that people are buying treasury bonds today that will be cheaper to buy tomorrow.
In making this move, Gross is creating an incentive, on the part of his investors, to help to bring about this political failure. To the degree that the government fails to address its debt problem, these investors will profit.
This means that those who are invested in the PIMCO bond fund now have a stake in helping to make sure that this prediction comes true – helping to bring about a state of affairs in which future investors are unwilling to buy – and willing to unload at bargain prices – the government bonds they hold.
Many of these people vote and contribute to political candidates.
In fact, many are the type of people who can arrange for personal and private meetings with political senators, representatives, and presidents (unlike the rest of us).
Granted, many people do not know that they now have a stake in bringing about government fiscal failure. They belong to pension plans that have these investments, or they are paying insurance premiums to companies that are now betting on the US government’s financial failure. We cannot expect this fact to affect their decisions, given their ignorance.
However, the most heavily invested will not be ignorant of what conditions must exist for their investments to profit.
It’s a dangerous game to be playing – setting oneself up to have a motivating interest in realizing a state that will be so destructive in its ability to thwart the desires of others. In fact, I think I can argue that no good person would do such a thing.
Certainly, those who give others a reason to act so as to make things better are to be prized more as neighbors and community citizens than those who create incentives to make things worse.
- Alonzo Fyfe