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Global economy cannot live without QE

by: Anna Fedorova
  • 04/11/2014
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As the US Federal Reserve finally turns off the money printing presses, veteran investor Bill Gross has warned the global economy cannot survive without the support of quantitative easing (QE).

The bond manager said the economy as it stands today needs an easy money supply to stay alive.

His comments come a week after the Federal Reserve finally put an end to its bond buying programme, leaving the economy to run unsupported for the first time since the financial crisis.

“Stopping the printing press sounds like a great solution to the depreciation of our purchasing power, but today’s printing is simply something that the global finance-based economy cannot live without,” he said.

Pointing to the US and eurozone, he said these regions need at least 4% and 3% nominal growth, respectively, and this can only be achieved through further money printing to inflate the economy.

“Having created outstanding official and shadow banking credit of nearly $100trn with an average imbedded interest rate of 4% to 5%, the Fed presses must crank out new credit (nominal growth) of approximately the same 4% to 5% just to pay the interest rate tab,” he said.

“Inflation, in other words – or in simple math – is required to pay for prior inflation. Deflation is no longer acceptable.”

However, Gross said the central banks’ response to the problem of creating inflation is seeping through to the wrong part of the economy.

“Alibaba’s stock goes from $68 on opening day to $92 in the first minute, but wages simply sit there for years on end.

“One economy (the financial one) thrives while the other economy (the real one) withers,” he said.


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