Gundlach: Deficits, Recessions, Unemployment and the Impending Crisis

Jeffrey GundlachThe federal deficit is already high at 6% of GDP. But if a recession hits – as Jeffrey Gundlach fears will happen next year – unemployment will rise, and the deficit and the interest the government pays on it will cripple the economy.

Gundlach spoke to investors via a webcast, which he titled “Norms,” and the focus was on his flagship total-return fund (DBLTX). Slides from that webcast are available here. Gundlach is the founder and chairman of Los Angeles-based DoubleLine Capital.

Gundlach used to frequent a restaurant called Norms in Santa Monica, whose motto was, “We never close.” That was until it was sold in 2013. Societal norms and institutions are thought to be eternal, but he said that will not be the case with the Fed over the next decade, as it faces challenges financing the deficit. Other institutions – the police, Supreme Court, and presidency – will be confronted with similar challenges. Support for those institutions is already at all-time lows, Gundlach said.

“One of the norms we have been living on is debt,” he said, “and that can’t continue.”

The debt-based financing scheme on which the U.S. relies will end, and there will be a better place – a “new turning” – he said. But Gundlach did not say what that would be or how those institutions would evolve.