I must admit that I have been rather irritated with Bill Gross recently, because of his continuing calls for taxpayer bailouts of mortgage lenders, suspecting that he has more than a little interest in receiving taxpayer subsidies for securitized mortgages.

However, his latest piece goes a long way towards redemption, in my eyes at least.

“If I had to be bold I’d say we began a recession in December,” Bill Gross of Pimco told the Financial Times. Note that the “Super-SIV” or M-LEC mentioned in the article has been abandoned, according to the WSJ. Apparently the supply of idiots with money was rather smaller than first suspected.

Paul Kasriel of Northern Trust is more tentative, calling for a 65.5% probability of recession in 2008. We need to have a discussion on accuracy versus precision with Paul. For example, “More likely than not”. 65.5%. Economists. You gotta love ‘em.

ECRI, on the other hand, has not rolled over yet. “With Weekly Leading Index growth not far from its lowest reading since the 2001 recession, U.S. growth prospects have clearly darkened, but a recession is still not inevitable,” Achuthan said. Let’s just say I beg to differ. I think your index is giving too much credit to the stock market. Is “not inevitable” the same as “more likely than not?” How about 65.5%? Inquiring minds want to know.

John Hussman’s weekly letter: “I expect that in the next year or two, we will observe at least one quarter, and more likely a full year, in which the entire profit of the U.S. banking sector is consumed by loan losses.”

Oh, and by the way, if your mortgage is priced off LIBOR, watch out. It is up to 5.698% this morning, according to Reuters (I don’t have a direct quote feed for it). WIth the Treasury bill discount at 4.110, looks like the TED spread has blown out again to 158 bps.

Also a blast from the past, Bill Gross’ Plankton Theory, is worth a visit. “It may be a while before the Fed accepts and recognizes this, waiting for these Minsky style debt-deflation dynamics to become evident in broader measures of the economy’s health, notably job creation. But make no mistake: A Minsky Meltdown in the most important asset in most Americans’ asset portfolio is not a minor matter. Bill Gross’ Plankton Theory ain’t just a theory, but a reality.”

Note: LIBOR corrected - the BBC gave the sterling LIBOR, not the dollar. Sorry. But the TED spread is still wide compared to a normal 20-60 bps.

From the curmudgeon department: “July 31 (Bloomberg) — Jeremy Grantham, the money manager who oversees $150 billion as chairman of Grantham, Mayo, Van Otterloo & Co. LLC, said a credit crisis may force as many as half of hedge funds worldwide to close in the next five years.

The loss of investors’ appetite for risk also may cause at least one global bank and `one or two’ of the largest private- equity firms to go out of business, Grantham, known for his pessimistic outlook, said in a July 30 interview from his Boston office. The 68-year-old investor said he’s still bullish on emerging-markets stocks.”

While we’re on the subject of curmudgeons (takes one to know one), at Financial Times Alphaville: Marc Faber discusses Hindenburgs and the technical condition of the market. Hint: Not bullish.

And of course, you’ve been taking your weekly dose of Hussman, haven’t you?: “One of the best indications of the speculative willingness of investors is the “uniformity” of positive market action across a broad range of internals. Probably the most important aspect of last week’s decline was the decisive negative shift in these measures.”

An excellent assessment of Social Security from Bill Gross of Pimco. “Rob Arnott of Research Affiliates LLC, sub-advisor of PIMCO’s all asset strategy and a co-collaborator with Peter Bernstein on several articles about risk and future asset returns, has advanced what I consider to be the most realistic take on Social Security and Medicare trust funds. Pre-funding these systems, he argues, “is basically irrelevant.” And (in my own words) it matters little whether the system is pre-refunded with Treasury bonds or privately held stocks. The fact is that both of these financial assets represent a call on future production. If that production could possibly be saved, like squirrels ferreting away nuts for a long winter, then Treasury IOUs or corporate stocks might make some sense. But they can’t. Future healthcare for boomer seniors can only be provided by today’s teenagers, twenty-somethings, and even the yet to be born. We cannot store their energy today for some future rainy day. Nor can we save food, transportation, or entertainment for anything more than a few years forward. Each must be provided by the existing generation of workers for those who have retired and are presumably incapable of working. And, as Chart I points out, the ratio of retirees to workers - the dependency ratio - soars from 0.2 retirees for every worker to 0.35 over the next 20 years or so. There’s your problem, and neither privatization nor any goodly number of government bonds deposited in the Social Security trust fund can solve it.”

Sizing Up Social Security

Unfortunately, Bill doesn’t mention the role of productivity improvement in alleviating the demographic problem by delivering more goods and services per worker. But to get better productivity we need investment, and to get investment we need savings.