View the article online at http://citywire.co.uk/money/article/a444465
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.
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