US Would Sink Into Recession Without ECB, BoJ Policies
World Economy

US Would Sink Into Recession Without ECB, BoJ Policies

Bond investor Bill Gross said on Monday that without quantitative easing from the European Central Bank and Bank of Japan the 10-year US Treasury yield would “rather quickly” rise to 3.5% and the US economy would sink into recession.
Gross, who runs the $1.8 billion Janus Global Unconstrained Bond Fund, said in his latest Investment Outlook to clients that US Treasury yields will likely rise gradually, yet will stay artificially low due to the “kindness” of foreign central bank quantitative easing policies, Reuters reported.
“Without that financial methadone, both bond and stock markets worldwide would sink and produce a tantrum of significant proportions,” Gross said.
“A 2.45%, 10-year US Treasury rests at 2.45% because the ECB and BoJ are buying $150 billion a month of their own bonds, and much of that money then flows from 10 basis points JGB’s (Japanese Government Bonds) and 45 basis point Bunds into 2.45% US Treasuries.”
Imagine you are a Japanese investor with JGB’s capped at 0.1%. The yield difference is actually amazing and your real yield is quite attractive given the circumstances. And it’s almost a “risk free” trade given the BoJ´s interventions to control yields, Gross said.
On Friday, the yield on the 10-year US Treasury settled around 2.47%.
Gross repeated in his latest research note an assertion he has made for several years that loose monetary policies have “promoted higher asset prices and engendered a modicum of real growth.”
“Capitalism has been distorted: savings/investment has been discouraged by yields/returns too low to replicate historic productivity gains; Zombie corporations have been kept alive in contrast to Schumpeter’s ‘creative destruction’,” he said.
Gross added that debt has continued to rise relative to gross domestic product; the financial system has not been cleansed and restored to a balance where risk and reward are on a level playing field. “Disequilibrium has replaced equilibrium, although it is difficult to recognize this economic phantom as long as volatility is contained,” he said.
Overall, Gross said a client of his recently asked when the Federal Reserve or other central banks would ever be able to sell their assets back into the market.
“My answer was ‘NEVER’. A $12 trillion global central bank balance sheet is PERMANENT–and growing at over $1 trillion a year, thanks to the ECB and the BoJ,” Gross wrote.
Bill Gross

Short URL : https://goo.gl/jtOQFY
  1. https://goo.gl/4i5msK
  • https://goo.gl/mU1t7M
  • https://goo.gl/zwA0fF
  • https://goo.gl/pGeRY6
  • https://goo.gl/RRvVWw

You can also read ...

More and more Thai merchants are integrating WeChat Pay and Alipay’s systems to cater to tourists.
The internet has changed the way most people live. Through...
Cambodia’s economic outlook remains positive, but is subject to downside risks.
The IMF Managing Director Christine Lagarde expressed optimism...
More India Bank Frauds Revealed
Over 25,800 fraud cases involving about Rs179 crore ($1.79...
Qatar Calls to Investigate UAE Bank’s Bogus Deals
Qatar has asked US regulators to investigate the US subsidiary...
Free trade achieves more good for the planet.
US President Donald Trump’s steel tariffs have brought the...
Morocco Currency Reform on Right Track
Few weeks after the launch of the gradual dirham float, the...
EU Readies Tax on US Technological Titans
The European Union will next week unveil plans for a digital...
Apparel imports from ASEAN are growing, spurred by low labor costs  in such countries as Vietnam.
Import prices for apparel and daily goods in Japan plunged...

Add new comment

Read our comment policy before posting your viewpoints