One of the most common economic viewpoints today is that we’ve become a spendthrift society and debt is out of control. The antidote, everyone seems to agree, is to cut spending and save, save, save.
James Montier, a member of GMO’s Asset Allocation team, takes the contrarian view. In a white paper published this week, Montier describes the rise of the “Austerians” and asks if austerity measures are the antidote to today’s struggling economies, or if they could cause even more damage if policy makers choose to implement them.
Writes Montier in “Is Austerity the Road to Ruin?” :
What to do? GMO, usually leery of bonds as a long term value manager, is buying them as insurance against short-term deflation. While Montier says most bonds are overpriced, the governments of Australia and New Zealand both offer reasonable valuations.
That should work, at least until Austerians prompt inflationary pressure from all the savings.
Read the full GMO white paper here (free registration required).
