Best of the Week
Most Popular
1.UK House Prices Momentum Crash Threatens Mini Bear Market 2017 - Nadeem_Walayat
2.Perfect Storm - This Fourth Turning has Over a Decade of Continuous Storms to Come - James_Quinn
3.UK House Prices Momentum Crash Warns of 2017 Bear Market - Video - Nadeem_Walayat
4.Billionaire Investors Backing A Marijuana Boom In 2017 - OilPrice_Com
5.Emerging Markets & Basic Materials Stocks Breaking Out Together - Rambus_Chartology
6.Global Currency Reserve At Risk - Jim_Willie_CB
7.Gold and Silver: Your Stomach Is Probably Wrenching Right Now - The_Gold_Report
8.Warning: The Fed Is Preparing to Crash the Financial System Again - Graham_Summers
9.Basic Materials and Commodities Analysis and Trend Forecasts - Rambus_Chartology
10.Discover Why A Major American Revolution Is Brewing - Harry_Dent
Last 7 days
3 Psychological Ingredients behind Great Web Content - 17th Aug 17
The War on Cash - Rogoff, Orwell and Kafka - 17th Aug 17
The Stock Market Guns of August, Trade Set-Up & Removing your Rose Tinted Glasses - 16th Aug 17
Stocks, Bonds, Interest Rates, and Serbia, Camp Kotok 2017 - 16th Aug 17
U.S. Stock Market: Sunrise ... Sunset - 16th Aug 17
The Next Tech Crash Could Delay Your Retirement by a Decade - 15th Aug 17
Gold and Silver Precious Metals Nearing Breakout - 15th Aug 17
North Korea Showdown: Pivotal Market Turning Point - 15th Aug 17
Tech Stocks DOT COM Bubble Do-Over? - 14th Aug 17
Deep State Conspiracy or Chaos - 14th Aug 17
From the Trans-Atlantic Axis and the Trans-Asian Axis - 14th Aug 17
Stock Market Intermediate Correction Underway - 14th Aug 17
The Islamic State Jihadi Pivot to Asia - 13th Aug 17
Potential Pivots Upcoming for Stocks and Gold - 13th Aug 17
North Korean Chinese Proxy vs US Military Empire Trending Towards Nuclear War! - 12th Aug 17
Gold Stocks Coiled Spring - 12th Aug 17
Neil Howe: The Amazon-Walmart Rivalry Will Determine the Future of Retail - 12th Aug 17
How to Alton Towers Half Price Discount Entry 2017 and 2018, Any Time, No Pre-Booking! - 12th Aug 17
Top 3 Technical Trading Tools Part 2: Relative Strength Index (RSI) - 11th Aug 17
What Makes Women Better Investors - 11th Aug 17
Crude Oil Price Precious Metals Link in August - 11th Aug 17
Influencer Marketing Predictions All Businesses Should Take Into Account - 11th Aug 17
Really Bad Ideas - Government Debt Isn’t Actually Debt - 10th Aug 17
Gold Sees Safe Haven Gains On Trump “Fire and Fury” Threat - 9th Aug 17
Why Is The Stock Market Not Trading On Fundamentals Lately? - 9th Aug 17
USD/CAD - Can We Trust This Breakout? - 9th Aug 17
New Monthly Rebate to Help Reduce Your Trading Costs - 9th Aug 17
Stock Market Divergences Are Now Appearing! - 9th Aug 17
Is Inflation an issue or did the Fed Mess Up? - 8th Aug 17
Top 3 Technical Trading Tools Part 1: Japanese Candlesticks - 8th Aug 17
Researchers Find $10 Billion Hidden Treasure In A Dead Volcano - 8th Aug 17
What Happened to Thousands of Sheffield's Street Trees 2017 - Fellings Documentary - 8th Aug 17
Solar, Bubble, Banks, War, and Legal Tender: Five Reasons Why You Should Buy Silver Now - 7th Aug 17
CRASH - If Some People Do It, Nothing Bad Happens, But If Everyone Does It, All Hell Breaks Loose - 7th Aug 17
Gold and Silver : The Battle for Control - 7th Aug 17
Precious Metals Sector is on Major Buy Signal - 7th Aug 17
Stock Market - Has Time Run Out? - 7th Aug 17
Get Ready for an Historic Upside Gold and Silver Run - 7th Aug 17
BOOM! Bitcoin Rockets To New All-Time High As Cryptocurrencies Surge Higher! - 7th Aug 17
U.S. Dollar: This Crash Signals the End - 6th Aug 17
Predicting The Price Of Gold Is A Fool’s Game - 6th Aug 17
Asda Sales Collapse and Profits Crash! UK Retailer Sector Crisis 2017 - 6th Aug 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

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

© 2005-2017 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

Catching a Falling Financial Knife