Why Bill Gross Thinks The Fed is Ruining The Economy

It seems like everyone has an opinion on quantitative easing these days, as the actions of the Fed and Ben Bernanke have riled up investors all around the world. Last Friday, some were waiting for Bernanke to announce QE 3 at his Jackson Hole speech, though he merely hinted that the Fed will step in if the economy worsens. Given all of the money printing and the fact that the U.S. economy is still sluggish at best, many experts are weighing in on the various asset-purchasing programs and whether or not they agree with the actions of the Fed [for more economic news and analysis subscribe to our free newsletter].

It seems to be widely accepted that QE 1 did in fact help jolt the economy, as it was implemented at the height of the recession, helping stocks to spike higher. But the programs that followed have largely been considered failures. Now, Bill Gross has thrown his hat into the ring by stating that he thinks all of the quantitative easing is actually hurting our economy, and will continue to do so for as long as it persists.

Gross cited zero percent interest rates and rampant money printing as the two key factors putting a damper on our current economic status. “For the current shipwreck perhaps we have the Fed and other central banks to blame” said Gross. The low interest rates have created such low spreads that investments are being damaged, and if the damage continues, Gross feels that we could be in for a big pinch. “A lender will not easily lend money to an obese over-indebted borrower — that much is clear — but she will also not extend a check when the yield, carry and return on investment is so low that it cannot compensate for historic business model overheads” he stated [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk].

His outlook for the rest of the year is anything but optimistic as he expects markets will struggle. What remains to be seen are the actions of the ECB today, as many are expecting a large announcement from Mario Draghi. Draghi is predicted to be unleashing a major bond buying program to help nations like Italy and Spain who are up to their necks in debt. But following Gross’ theory, this may only add fuel to the fire and simply prolong the inevitable. As the manager of largest bond fund in the world, it is hard to disagree with Mr. Gross on his opinions and theories of the current economy.

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Disclosure: No positions at time of writing.

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8 Responses to “Why Bill Gross Thinks The Fed is Ruining The Economy”

  1. [...] Bullish fever swept over Wall Street as investors’ confidence saw a massive improvement following the latest European Central Bank rate decision. Surprisingly, the ECB held the benchmark rate unchanged at 0.75%; however, its announcement of the “outright monetary transaction“ plan welcomed buyers as markets favored the newly proposed measures. At home, improvements in weekly jobless claims and ISM nonmanufacturing data also added fuel to the global rally [see also Why Bill Gross Thinks The Fed Is Ruining The Economy]. [...]

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  3. [...] Equity markets stalled the first few days this week as investors were reluctant to jump back into stocks ahead of the European Central Bank interest rate decision. Much to everyone’s surprise on Thursday, the ECB kept rates steady, although the announcement of the “outright monetary transaction” plan was able to bolster markets higher as investors embraced the proposed plan to ensure financial stability. Amid another low-volume week on Wall Street, RBS rolled out the US Large Cap Alternator ETN (ALTL) while FactorShares filed plans for a trio of mining ETFs [see also Why Bill Gross Thinks The Fed Is Ruining The Economy]. [...]

  4. [...] Stoyan Bojinov: Bullish heat swept over Wall Street as investors’ certainty saw a large alleviation following a latest European Central Bank rate decision. Surprisingly, a ECB hold a benchmark rate unvaried during 0.75%; however, a proclamation of a “outright financial transaction“ plan welcomed buyers as markets adored a newly due measures. At home, improvements in weekly jobless claims and ISM nonmanufacturing information also combined fuel to a tellurian rally [see also Why Bill Gross Thinks The Fed Is Ruining The Economy]. [...]

  5. [...] He debunks the theory that the recovery is on the way or the least bit sustainable, and also combats the idea that the Fed is able to do anything more with its asset purchasing programs and printing. “The simple truth however, is that our economy has a disease that all the quantitative easing in the world can’t cure. And while the wrong medicine may make us appear healthier in the short term, we will continue to deteriorate beneath the surface” he says. Schiff then suggests that rather than continue with QE programs, the Fed should not only not implement a third round, but it should remove whatever actions are already in place [see also Why Bill Gross Thinks The Fed is Ruining The Economy]. [...]

  6. [...] After stretching out the global recovery over the last four years, equity markets finally had a strong start to 2012, but it was short lived. While this summer has been tame in comparison to last year, resurfacing Euro zone worries have made for a tumultuous quarter on Wall Street. There is also the added stress to the markets of the upcoming presidential election and how the policies of each candidate will shape U.S. GDP in the future. Consumer confidence however has slowly been on the rise, and this improving sentiment has spilled over into the stock market prompting many to increase their risk appetites. Despite the laundry list of economic uncertainties, the investment landscape is ripe with opportunities for those with a keen eye and a stomach for risk [see also Why Bill Gross Thinks The Fed Is Ruining The Economy].  [...]

  7. Maxver2000 says:

    The Fed is running the economy and the tragedy is that no one cast a single vote for any of those Fed. “Governors”.

  8. [...] engaged in gold, but also produces by-products such as silver, uranium oxide, and sulfuric acid. Prior to the recession, AU reached it’s record high in January of 2006 at $59.85 a share. When the financial crisis hit [...]

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