No. of Recommendations: 5
Bill Gross: U.S. Credit Expansion is a "Financial Supernova"

In his February Investment Outlook, Bill Gross points out the obvious: that the ROI of borrowed funds in the US has reached a harrowing level of diminishing returns...

...Today, at $56 trillion and counting, [debt] is a monster that requires perpetually increasing amounts of fuel, a supernova star that expands and expands, yet, in the process begins to consume itself. Each additional dollar of credit seems to create less and less heat. In the 1980s, it took four dollars of new credit to generate $1 of real GDP. Over the last decade, it has taken $10, and since 2006, $20 to produce the same result. Minsky’s Ponzi finance at the 2013 stage goes more and more to creditors and market speculators and less and less to the real economy. This “Credit New Normal” is entropic much like the physical universe and the “heat” or real growth that new credit now generates becomes less and less each year: 2% real growth now instead of an historical 3.5% over the past 50 years; likely even less as the future unfolds.

Here's a Bloomberg video interview with Gross from earlier today about the same topic:

As Gross continues to sound the alarm on the problems of bond growth, his company, Pimco, continues to be something of a 900 pound gorilla in the bond markets (dwarfed, of course, by the Federal Reserve).

After Gross lost money by trying to stop buying US Treasuries last year, I'm sure he is hesitant to try and counter the Fed's pricing power all by himself.

Perhaps he's trying to build the case for others to sell their bonds so he's not the only mega-player trying to unwind an unwieldy book.

Who knows? All I know is Gross is always talking his book.

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.