Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Markets Failing to Give Another AI Mega-trend Buying Opportunity - 6th Jun 20
Is the Stock Bulls' Cup Half-Full or Half-Empty? - 6th Jun 20
Is America Headed for a Post-Apocalyptic Currency Collapse? - 6th Jun 20
Potential Highs and Lows For Gold In 2020 - 5th Jun 20
Tying Gold Miners and USD Signals for What Comes Next - 5th Jun 20
Rigged Markets - Central Bank Hypnosis - 5th Jun 20
Gold’s role in the Greater Depression of 2020 - 5th Jun 20
UK Coronavirus Catastrophe Trend Analysis Video - 5th Jun 20
Why Land Rover Discovery Sport SAT NAV is Crap, Use Google Maps Instead - 5th Jun 20
Stock Market Election Year Cycles – What to Expect? - 4th Jun 20
Why Solar Stocks Are Rallying Against All Odds - 4th Jun 20
East Asia Will Be a Post-Pandemic Success - 4th Jun 20
Comparing Bitcoin to Other Market Sectors – Risk vs. Value - 4th Jun 20
Covid, Debt and Precious Metals - 3rd Jun 20
Gold-Silver Ratio And Correlation - 3rd Jun 20
The Corona Riots Begin, US Covid-19 Catastrophe Trend Analysis - 3rd Jun 20 -
Stock Market Short-term Top? - 3rd Jun 20
Deflation: Why the "Japanification" of the U.S. Looms Large - 3rd Jun 20
US Stock Market Sets Up Technical Patterns – Pay Attention - 3rd Jun 20
UK Corona Catastrophe Trend Analysis - 2nd Jun 20
US Real Estate Stats Show Big Wave Of Refinancing Is Coming - 2nd Jun 20
Let’s Make Sure This Crisis Doesn’t Go to Waste - 2nd Jun 20
Silver and Gold: Balancing More Than 100 Years Of Debt Abuse - 2nd Jun 20
The importance of effective website design in a business marketing strategy - 2nd Jun 20
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like TRADE.com are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

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

© 2005-2019 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

6 Critical Money Making Rules