Can’t argue with success:

Central Banks ‘Printing Money Like Gangbusters’: Gross

By Margo D. Beller

Jan 11 (CNBC) — The world’s central banks are “printing money like gangbusters,” which could revive the threat of inflation , Pimco founder Bill Gross told CNBC Wednesday.

By putting “hundreds of billions” in currency in circulation, the central banks “can produce reflation—that’s why we’re seeing the pop in oil, gold” and other commodities, he said in a live interview.

At the same time, “there’s the potential for deflation if the private credit markets can’t produce some sort of confidence and solvency going forward,” Gross said. “So we’re at great risk here, not only in the U.S. but on a global basis.”

Gross has previously predicted a “paranormal” market in 2012 characterized by “credit and zero-bound interest rate risk” and fewer incentives for lenders to extend credit.

He said stock and bond investors must lower their expectations when it comes to returns, with 2 percent to 5 percent as good as they get this year.

He also told CNBC he expects the Federal Reserve will keep interest rates “exactly where it is at 25 basis points for the next three to four years.”

Gross’s Total Return Fund, the world’s largest bond fund, had over $10 billion in outflows in 2011, but Gross stressed the fund “started 2011 at $240 billion and ended it at $244 billion.”

He said he will run the Pimco Total Return Fund ETF , which starts March 1, the same way he runs the bond Total Return Fund, adding, “They’re twins.”

20 Responses

  1. Bill Gross, 2011: “But while our debt crisis is real and promises to grow to Frankenstein proportions in future years, debt is not the disease — it is a symptom. Lack of aggregate demand or, to put it simply, insufficient consumption and investment is the disease.”

    At least he got the second part right. I wish he knew about this website.

  2. He is saying QE is why there is a pop in commodities. Is this possible? Can the banks use the extra reserves created by QE to now buy oil/comoodities and drive prices up? Do regulations prohibit this?

    1. @wwtk,

      The “markets” in-correct view of QE probably causes commodity long speculation to increase, which causes prices to increase.

      So indirectly, he is correct but he incorrectly thinks it is a direct cause.

      1. @Crake, I can see this and am arguing this with some folks but the comeback is: Before QE, the banks used the excess reserves they had to buy treasuries/mbs, then with QE, these financial assets were converted back to excess reserves. Some of that is still sitting at the fed but some is used to buy commodities. So are banks allowed to buy commodities (or derivatives based on commodities) with their excess reserves, like they can buy mbs or treasuries. This would be a direct cause, wouldn’t it?
        Or banks can only use Excess reserves to buy treasuries and maybe some other securities like mbs, but not securities based on commodities?
        Can QE have the unintended consequence of pushing banks to search for higher returns on their excess reserves in commodities/stocks?
        I am learning MMT and am grateful for all the posts & discussions.

      2. @wwtk, all banks can do with reserves is use them to settle transactions with the Treasury, the Fed, or other banks. So banks AS A SECTOR cannot use reserves to buy assets from non-banks. Simply impossible – without turning the reserves into banknotes and showing up at a hedge fund with an armoured truck of bills.

  3. Amazing he is still seeing hyperinflation around every corner. He doesn’t seem to wonder there is maybe something wrong in this notion of high probabilities for deflation and hyperinflation at the same time.
    Looks he is still puzzled by decreasing yields on US tsy secs after end QE2.

    From $240bn to $244bn incl results indicates a net outflow. Fund is huge of course, but….

  4. There’s something that bugs me about the phrase ‘central banks are “printing money like gangbusters” (variations of being used a lot lately)’, as though this some sort of unusual event, when, if I understand things correctly, ALL money is “printed”. There aren’t seperate piles of ‘good money’, and ‘printed money’. It’s all the same stuff.

    Am I also correct in thinking they have causality of a hyperinflation back to front. Any printing is actually trying to catch up with inflation that has already happened, creating a feedback loop?

    1. govt spending can be said to be printing dollars, and taxing unprinting dollars

      when the fed spends it can be said to printing one kind of dollar deposit, a reserve balance, and unprinting
      a different dollar deposit, a treasury security

    2. @hamish,

      Expanding on Warren’s reply:

      -Govt spends (taxes) money into (out of) existence.

      -CB prints into existence (destroys) one kind of govt liability into and removes (adds back) another, under “normal” operating policies such as interest-rate targeting.

      -Banks also create money when they make a new loan, which involves the creation of an offsetting (and ultimately exitinguished) asset and liability.

      Only one of those–govt spending–is capable of expanding the supply of govt liabilities, which are net financial assets of all other sectors of the economy. CB “printing” of the QE2 variety doesn’t add to anything.

      So either Gross knows something about those mythical gangbusters the rest of us don’t (they’re impotent?), or he doesn’t understand monetary operations as well as he thinks. Or he could have agreed to say something like that at the producer’s request, who knows?

      P.S. IMO, “gangbusters” doesn’t take the cake, “financial repression” does:

      http://symmetrycapital.net/index.php/blog/2011/06/help-help-im-being-repressed/

      http://symmetrycapital.net/index.php/blog/2011/08/reminder-an-antidote-to-toxic-reasoning/

  5. Dollar index got significantly stronger while Gold prices rose $60 / Oz; over the past 10 years it was typically the other way around. NYSTOCKGURU believes the US, Canada and Australia are sitting on significant Gold Reserves as sales from the Mints is down as the prices have risen and mining production is still going strong, preceived risk is up for experienced investors as prices are 3-4X what they where for over a decade; Gold prices are too high for beginner investors; There is signifcant resistance to any upside movement at the $2000 / Oz range; So the risk / reward is in favor of a significant downside movement… Simply put NYSTOCKGURU believes the Gold Bull Market may be ending in a manner similiar to any bubble. symbol:GLL (200% Gold Short ETF) is on my watchlist; money moving out of the metal should move into the stock, bond and real estate market

    Interest rates are going to eventually go up; when they do expect a shart upside movement 1/2 a basis point hikes likely well into the 9% range for AAA US Govt debt; Jewish bankers are more interested in locking in 20 year bonds that pay alot then stability. Once they do rates will likely return to historically normal levels

    In my opinion

  6. The Bernancke Fed has more conflicts of interest in my opinion than the Greenspan Fed, Volcker, or any other Federal Reserve I have studied… it is not so much about the greater good of the economy as it is about securing long term interest rates (20 yrs+) at a high rate or return (say 9%+) The Fed obviously holds alot of European debt… It is like how for a while everyone was disclosing what stocks they owned before they went on CNBC or whatever. With Bernancke he has made it pretty clear that Europe is a top priority, and inflation not so much (alot of conflicts of interest in other words compared to previous Federal Reserves)… so yeah the fact that he is Jewish would add to the conflicts of interest category vs say a Gentile Federal Reserve in my opinion given the last 50 yrs of history

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