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Top bond investor slams US money-printing 'Ponzi scheme'

Ahead of a crucial week in the US, the manager of the world's biggest bond fund, Bill Gross, says Americans face a 'critical inflection point in determining our future prosperity'.


With mid-term elections and the second round of 'quantitative easing' - or printing money - looming in the US next week, the manager of the world's biggest bond fund says the public faces a 'critical inflection point in determining our future prosperity'.

Pimco chief Bill Gross says that voters and investors are going to 'get what they deserve.'

In his latest investment outlook, Gross (pictured) says he agrees with commentators who say the US has 'two bankrupt political parties which are bankrupting the country'.

'Democrat or Republican, Elephant or Donkey, nothing much ever seems to change,' Gross writes. 'Each party has shown it can add hundreds of billions of dollars to the national debt with little to show for it, or move our military from one country to the next chasing phantoms instead of focusing on more serious problems back home.'

On Wednesday, the day after the midterm elections, the government will announce its renewed commitment to quantitative easing - or 'writing checks' as Pimco founder Gross calls it.

'Not only investors, but the American people should recognize that Wednesday, even more than Tuesday, represents a critical inflection point in determining our future prosperity,' Gross says.

'If QEII cannot reflate capital markets, if it can’t produce 2% inflation and an assumed reduction of unemployment rates back towards historical levels, then it will be a long, painful slog back to prosperity,' he adds.

He says the US is now in a 'liquidity trap,' where interest rates or trillions of dollars of quantitative easing asset purchases may not stimulate borrowing or lending because consumer demand is just not there.

Gross also returns to a parallel he made almost two years ago, when he described the entire US economy as Ponzi scheme, saying that a second bout of quantitative easing is an extension of this and that there has 'never been a Ponzi scheme so brazen'.

'Public debt, actually, has always had a Ponzi-like characteristic. Granted, the US has, at times, paid down its national debt, but there was always the assumption that as long as creditors could be found to roll over existing loans – and buy new ones – the game could keep going forever.

'One and one-half trillion in checks were written in 2009, and trillions more lie ahead. The Fed, in effect, is telling the markets not to worry about our fiscal deficits, it will be the buyer of first and perhaps last resort..I ask you: Has there ever been a Ponzi scheme so brazen? There has not.'

His full investment outlook can be found here.

2 comments so far. Why not have your say?

Myron Martin

Oct 28, 2010 at 14:02

Finally somebody with some street cred. telling it like it is. I started calling our fractional reserve monetary system a "Ponzi scheme" over a year ago based on the following indisputable facts. In testimony before a Commons committee way back in 1939 the then Bank of Canada Governor Graham Towers stated that; "every bank loan is a new creation of money, and when it is paid back it CEASES TO EXIST" so figure it out for yourself.

Can you sober up a drunk by offering him another litre of whiskey? Then no more can you solve a DEBT PROBLEM by creating EVEN MORE DEBT that has to be paid back with interest. The kicker, our debt creating monetary system where our money supply is BORROWED INTO EXISTENCE only creates (out of thin air) the principal of a loan, NOT the INTEREST, so the only way interest can be paid going forward is if there is an ever increasing number and size of new loans to replace what is being paid back, PLUS the interest being syphoned off by the bankers, a recipe for a PERPETUAL DEBT PYRAMID that keeps getting rolled over rather than paid off.

As more and more people become aware of these simple but obscured facts the price of REAL MONEY, gold and silver and other important commodities will continue to advance and fiat currency will become worth less and less until it returns to its intrinsic worth of ZERO, unless the system is changed.

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Oct 28, 2010 at 22:20

Thank you Myron.

To basics, adulterate milk and it tastes adulterated and you will be prosecuted if you arte a producer or retailer..

Mervyn is a prat, as is Cameron/Osborn if they allow. It will weaken the currency and prolong the agony, principally the tax payer and the savers and it will swiftly hit the benefit dependent breeder/idler and await the screams, sorry shrieks from Red Ed and Balls, both of them.

Johnson, will parrot what he has been told, an economic lightweight, and he will quickly destroy his reputation for integrity, which he has already done to a large extent accepting the orders from billy (silly) boy (captive of the unions who then scream even louder demanding huge pay rises) and Balls, both of them..

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