Best of the Week
Most Popular
1.Stock Market Continues Defying Gravity, Dow New All Time High - Nadeem_Walayat
2.America Superpower 2016 - Ian Bremmer
3.The US Dollar and the Precious Metals Complex - Rambus_Chartology
4.UK Immigration Crisis Could Prompt BREXIT, Propelling Britain Out of EU Despite German Factor - Nadeem_Walayat
5.The “Real Flash Crash” Will Scare You to Death - Shah Gilani
6.Gold Price Trend Forecast - Bob_Louka
7.UK Deflation Warning - Bank of England Economic Propaganda to Print and Inflate Debt - Nadeem_Walayat
8.Gold Lifeboat to Global Economies “Titanic Problem” Warn HSBC - GoldCore
9.Will Interest Rates Ever Rise? - BATR
10.Who’s Killing the Stock Market? - Shah Gilani
Last 5 days
National Holidays London and the Magic of Legoland UK Review - 27th May 15
Imminent Stocks Bear Market Signaled by Dow Theory ... - 27th May 15
Gold Price Has Bottomed – More Evidence - 27th May 15
Three Reasons You Shouldn’t Try to Invest Like Warren Buffett - 27th May 15
Gold Is “100% Guarantee from Legal and Political Risks” States Russian Central Bank - 27th May 15
Don't Drown in the Sea of Global Debt - 27th May 15
Three Reasons Why Carl Icahn Is Wrong About Apple Stock - 27th May 15
Crude Oil Price Stochastic Signals - 26th May 15
Why the Stock Market Will Crash - 26th May 15
GDP, Inflation, Employment Economic Statistics: It’s All a Lie - 26th May 15
Introduction to Peak Food - 26th May 15
Should We Dump the Euro? - 26th May 15
A Geopolitical Net Assessment of Europe - 26th May 15
Stock Market Top in Place? - 26th May 15
Best Cash ISA SBI 2.3% - 2.8 Year Fix, UK Interest Rates 2016 - 26th May 15
China Sets Up Gold Bullion Fund For Central Banks - 25th May 15
Is The Silver Trade Getting Crowded? - 25th May 15
Money Murder Mystery: Who Killed the Stock Market? - 25th May 15
Why Do We Celebrate Rising U.S. House Prices? - 24th May 15
Mario Draghi’s Slippery Downward Slope - 24th May 15
Gold : Truth is Stranger than Fiction - 24th May 15
Facebook Stock Price Forecast - 24th May 15
Make a Killing on the Coming Energy "Debt Bubble" - 24th May 15
Stock Market SPX Uptrend Inflection Point - 23rd May 15
What You Know for Certain - Huge Demand for Gold And Silver - 23rd May 15
Are We in Another Credit Bubble? And Is It Different than Before? - 23rd May 15
The “Real Flash Crash” Will Scare You to Death - 23rd May 15
Venezuela: No Rule of Law, Bad Money - 23rd May 15
Robots That Can Beat the Market by 100% - 23rd May 15
Why Shake Shack Stock Is a Bad Investment - 23rd May 15
Gold Price Primary Driver Bullish - 23rd May 15
Time To Get Real About China - 22nd May 15
Gold Lifeboat to Global Economies “Titanic Problem” Warn HSBC - 22nd May 15
One Investment Could Save Two Generations' Retirements - 22nd May 15
Investing is About Identifying Gifted and Talented Camps - 22nd May 15
One of Europe's Latest Debt Nightmares - 22nd May 15
UK Immigration Crisis Could Prompt BREXIT, Propelling Britain Out of EU Despite German Factor - 22nd May 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Biggest Debt Bomb in History

Fed QE Policy Means U.S. Treasury Issuing Debt For Free, Money for Nothing

Interest-Rates / Quantitative Easing Dec 14, 2012 - 03:38 AM GMT

By: Bloomberg

Interest-Rates

PIMCO's Bill Gross told Bloomberg Television's Betty Liu on "In the Loop" today that the Federal Reserve's latest round of monetary stimulus will enable Treasury to issue debt for no cost.

Gross said, "what really happens, and this is critically important, is that the Treasury issues bonds and the Fed buys them and then it remits interest to the Treasury...It basically means that the Treasury is issuing debt for free...Inflation is one of the complications."


Gross on yesterday's move by the Federal Reserve:

"Basically, the Fed's policy has been and other central bank's policies have been over the past few years to basically write checks. Ben Bernanke, back in 2002, when he was the governor, basically told us in the first one or two pages of his scripted speech, he said that the quantitative maneuvers that he anticipated going forward were essentially costless. Those were his words. He is correct. This is critical and important, what really happens is that the Treasury issues funds, the Fed buys them and then it remits interest to the Treasury quarterly or over time. It basically means that the Treasury is issuing debt for free."

On what the economic complications will be:

"There are those, and we are amongst them, that believe that inflation is one of the complications. It has not happened yet. We are well below 2%. The Fed is comforted by that. Ultimately, if you write checks for free and if it is costless to finance a fiscal policy that is well into a deficit figures, then, yes, that is an inflationary moment to the extent that the private sector gets some animal spirits and takes that bait."

On whether he and Mohamed El-Erian have been invited to Washington:

"Not frequently. Mohamed is a great ambassador and he picks up the phone frequently, I think, but we have not been invited to these meetings. I find it a little strange with our $2 trillion asset base, we did participate in 2008 and 2009 and the commercial paper program for the Fed and for the mortgage program. We have been in there helping out, so to speak. We haven't been part of the meetings. That's our style. We're on the west coast. We sort of like breathing the fresh air and looking at the sunshine, but no invitation yet."

On advice he would give to President Obama and Republican leaders:

"I would say get together and figure out a solution. if they do not, there is a recession coming and a downgrade perhaps in terms of long-term treasury bonds. So get out of this and take care of the debt ceiling at the same time. Ultimately, the policy has to be directed towards investment spending as opposed to consumption. Mohamed and I would think that infrastructure is the key. It hasn't been mentioned up until this point. Entitlements have to go down. Taxes have to go up. Within that context, let's put whatever government spending there is to work in a productive way, as opposed to writing checks for consumption. let's make it an investment-oriented economy."

On whether PIMCO will sell more mortgages:

"We have been lightening up on mortgages, it is true. One of the reasons that PIMCO has had such a great year is because we have been anticipating what the Fed is going to do. We bought a lot of mortgages and so we are getting back to home base. It is not that we do not like the asset class, it is an excellent asset class because the Fed will be buying 40 billion of them going forward every month. So we're back to normal and we would suggest that our investors take a look at mortgages. They yield 2% or 2.5% relative to a 10 Year treasury at 1.70."

"In addition to anticipating what the Fed was going to do, it's a statement on safety. We believe that the economy is slow and will stay slow. We are not looking for a recession but we are looking for risk assets to stop bubbling, which means that spreads of corporates will probably not narrow again in 2013 and that we should be focusing on mortgages and the roll down in treasuries that provides a decent alternative to some of these corporate spreads."

On how to protect wealth with tax rates likely going up:

"In a number of ways. First of all, municipals are an alternative. Municipals might be part of the tax package so I think an investor has to be leery at least until we see some legislation in 2013 which defines how municipals fit in. That is one way to do it. You also do it in markets outside the United States which have higher than average growth and are not subject to the higher taxes that you speak to. If you're looking for growth and for risk go outside the united states, if you're looking for substance within the united states to protect yourself, perhaps municipals, but we're focusing at the moment on treasuries and that roll down in terms of yield which gives you an added 50 to 100 basis points which gives you something."

bloomberg.com

Copyright © 2012 Bloomberg - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Bloomberg Archive

© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History