Developed countries cannot rely on emerging markets to bring global growth back to pre-credit crunch levels, says PIMCO's Bill Gross.
The legendary bond fund manager says the gap between levels of debt in developed and developing markets means investment returns will be low for years to come.
"Developing nations are not growing fast enough, at least internally, to return global growth to its old standards," he says.
"Their financial systems are immature and reminiscent of a spindly-legged baby giraffe, having lots of upward potential, but still striving for balance after a series of missteps, the most recent of which was the Asian crisis over a decade ago.
"And so they produce for export, not internal consumption, and in the process leave a gaping hole in what is known as global aggregate demand.
"Developed nation consumers are maxed out because of too much debt, and developing nations don't trust themselves to stretch their necks for the delicious leaves of domestic consumption just above."
It is this lack of global aggregate demand, resulting from too much debt in parts of the global economy and not enough in others, that is the essence of the problem, Gross believes.
"If policymakers could act in unison and smoothly transition maxed-out indebted consumer nations into future producers, while simultaneously convincing lightly indebted developing nations to consume more, then our predicament would be manageable. They cannot," he says
"G-20 Toronto meetings aside, the world is caught up as it usually is in an "every nation for itself" mentality, with China taking its measured time to consume and the US refusing to acknowledge its necessity to invest in goods for export."
Gross says the result is the ‘New Normal' where, despite the introduction of three billion new consumers over the past several decades in what he terms "Chindia" and beyond, there is a lack of global aggregate demand.
"Slow growth in the developed world, insufficiently high levels of consumption in the emerging world, and seemingly inexplicable low total returns on investment portfolios - bonds and stocks - lie ahead," he says.
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