US Economy Is Running On Empty
Wednesday, Bill Gross, 71 anni, said the US Fed must raise interest rates as soon as possible, trading some near-term market losses for longer-term stability and a healthier economy and financial system.
If Zero+ interest rates become the long-term norm, economic participants will soon run on empty because their investments are not producing the gains or cash flow needed to finance past promises in an aging society, he wrote.
That is already beginning to happen in the developed world, where Detroit, Puerto Rico, and, he predicts, soon Chicago, struggle to meet their liabilities.
“My advice to them is this: get off zero and get off quick,” Mr. Gross urged the central bankers. It’s time for a “new thesis” that allows people in developed economies to save, enabling liability-based businesses models to survive and spurring more private investment, “which is the essence of a healthy economy. Near term pain? Yes. Long term gain? Almost certainly. Get off Zero now!” The economy 1st rule.
Last Thursday, the Fed decided to keep its benchmark at Zero+, showing reluctance to end an era of record monetary stimulus in a time of market turmoil, rising international risks and slow inflation at home.
Futures traders are betting the Fed is unlikely to act in October, as they put 41% odds on an increase in December and 48% in January, according to data compiled by
Mr. Gross noted that it is not just insurance companies and giant pension funds that are suffering from low interest rates. Investors are not getting the 8 to 10% returns they counted on to pay for education, healthcare, retirement or vacations.
“Mainstream America with their 401(k)s are in a similar pickle,” he wrote. “They are not so much in a pickle barrel as they are on a revolving spit, being slowly cooked alive while central bankers focus on their Taylor models and fight non- existent inflation,” Mr. Gross said, referring to a rule named for Stanford University economist John Taylor (https://en.wikipedia.org/wiki/Taylor_rule).
The Economy 1st should be the rule.
Stay tuned…
HeffX-LTN
Paul Ebeling
The post US Economy Is Running On Empty appeared first on Live Trading News.