Fed's Quantitative Easing is Like a 'Ponzi' Scheme - Bill Gross
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According to Bill Gross, chief executive officer of PIMCO, the plan for the Federal Reserve to up quantitative easing by pumping more money money in the financial system could bring an end to the bull market in bonds.
Gross called the measures being taken by the Fed as somewhat of a "Ponzi scheme. "Public debt, actually, has always had a Ponzi-like characteristic. Escaping from a liquidity trap may be impossible, much like light trapped in a black hole. Just ask Japan.”
Gross noted that this is honestly the only thing that Fed Chairman Ben Bernanke can do.
"He can’t raise or lower taxes, he can’t direct a fiscal thrust of infrastructure spending, he can’t change our educational system, he can’t force the Chinese to revalue their currency – it is all he can do, and as he proceeds, the dual questions of will it work and will it create a bond market bubble will be answered. We at PIMCO are not sure."
It is likely that the Fed will announce next week that it will initiate a new round of purchasing Treasury bonds, in an effort to push along the trudging U.S. economic recovery.
Economists have speculated that the Fed will buy anywhere from $500 billion to $2 trillion, according to the Wall Street Journal. The Fed has already bought about $1.7 trillion in government debt.
“It will likely signify the end of a great 30-year bull market in bonds, and the necessity for bond managers and, yes, equity managers to adjust to a new environment,” Gross wrote.
Gross called the measures being taken by the Fed as somewhat of a "Ponzi scheme. "Public debt, actually, has always had a Ponzi-like characteristic. Escaping from a liquidity trap may be impossible, much like light trapped in a black hole. Just ask Japan.”
Gross noted that this is honestly the only thing that Fed Chairman Ben Bernanke can do.
"He can’t raise or lower taxes, he can’t direct a fiscal thrust of infrastructure spending, he can’t change our educational system, he can’t force the Chinese to revalue their currency – it is all he can do, and as he proceeds, the dual questions of will it work and will it create a bond market bubble will be answered. We at PIMCO are not sure."
It is likely that the Fed will announce next week that it will initiate a new round of purchasing Treasury bonds, in an effort to push along the trudging U.S. economic recovery.
Economists have speculated that the Fed will buy anywhere from $500 billion to $2 trillion, according to the Wall Street Journal. The Fed has already bought about $1.7 trillion in government debt.
“It will likely signify the end of a great 30-year bull market in bonds, and the necessity for bond managers and, yes, equity managers to adjust to a new environment,” Gross wrote.
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William H. Gross, Pacific Investment Management Company, LLC (PIMCO), Ben S. BernankeSign up for StreetInsider Free!
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