Ex-pimco Chief Bill Gross is being called erratic for quitting PIMCO and going to work for Janus. “going to work for..” is a funny term to apply to a billionaire.
Bill Gross is the worlds’ foremost authority on credit and usury, and has the track record to prove it. Also, he knows full well and says so, that he merely played the other side of bad USA policy to get rich and grow a 2 trillion dollar fund. He had plenty of competitors who could not do what he did with the exact same info and opportunities. The 2nd string is now in charge at PIMCO, which is managing your pension.
On his way out Gross explained why our economic system is defunct. (Now he tells us!) His essay is still up at the Pimco site. It is exactly what I have been saying.
"A credit-based financial economy (as opposed to pure cash) depends on an ever-expanding outstanding level of credit for its survival. Without additional credit, interest on previously issued liabilities cannot be paid absent the sale of existing assets, which in turn would lead to a vicious cycle of debt deflation, recession and ultimately depression.
Gross defines credit later in his essay, but it is only one of many definitions, not necessarily his. The people in charge cannot even make policy when they cannot even define the term upon which they are making policy. Confusion as to definitions gives the bad guys a place to hide.
But note the problem, without additional credit, interest on previously isued liabilities cannot be paid.
1. The problem is in the system in which credit is defined as below.
2. If the point is interest, then the system as defined below is necessary.
3. Credit is a good thing, depending on the definition. If credit is sans usury (interest) then it is beneficial. Usury (interest) on loans (credit) is neither necessary nor sufficient to build prosperity. Gross goes on -
Put simply, if credit needs to expand at 4.5% per year, then the private and public sectors in combination must create approximately $2.5 trillion of additional debt per year to pay for outstanding interest."
4. Once usury is introduced, the system is inherently unstable, a realization that is now becoming clear to the man who knows most about credit on planet earth and in history.
Gross summarizes his article:
“For Wonks Only” Speed Read
1. Cross your fingers, credit growth is a necessary but not sufficient condition for economic growth. Economic growth depends on the productive use of credit growth, something that is not occurring.
William H. Gross
Managing Director
Because it is over. So Gross bails on Pimco, and those staying on the Titanic are calling him unstable.
This development has people world over uneasy. A Mish questioner asks...
This seems to correlate to reality 100% but the implications are stunning. It means that assets must increase in value at the rate of the original loan plus all interest payments ever made. It also means there will be a very major reversal at some point as there will be a moment when the last loan that someone will actually pay gets written and the system will not be able to expand. I always assumed that debt levels would just reach a very high plateau and stay there but Gross is saying that is not possible.
Mish turns to Father Darkness, and anarcho-CAPITALIST for analysis, and he says -
Nevertheless, Gross' calculation may be a bit too simplistic. After all, if you are a creditor and get paid interest and principal, money is only moving from A to B. It is still there, only its ownership has changed hands. The problem is that central banks believe in inflating debt away and keeping prices "stable".
Fundamentally wrong when the word money is introduced (highlight added). It is not money moving around, we are talking credit here, it is tallies.
In a free market economy, prices would not be stable, they would in fact decline. Thus, interest would be quite low to begin with, and every dollar would be doing more work over time (i.e., could be exchanged for more real wealth/goods/services as time passes).
No. In a free market there would not be interest on loans, becuase there would be no hegemon to enforce the usury, as the USA is now holding Argentina in contempt for defaulting on bonds. A free market is free of force and fraud, and usury includes a bit of both. In a free market no one would back up the usurers claims, any more than people credit a gambling debt, nonpayment of usury would make usury wither on the vine.
So Father Darkness gets confused in the end...
So Gross is quite correct that there is a problem - the problem is the ongoing bubble. Such a bubble does indeed require a constant acceleration in debt and money supply to keep going.
The result is the bubble, the effect. The cause is lending asset-less backed credit at usury. There is no money in it at all. Stick with what Gross said - Which is precisely the problem of capitalism. The Ponzi scheme needs an unending stream of suckers, which is why the Hegemon requires you to invest your pension in funds Pimco manages. Gross warned you, you cannot complain when it goes away.
“For Wonks Only” Speed Read
1. Cross your fingers, credit growth is a necessary but not sufficient condition for economic growth. Economic growth depends on the productive use of credit growth, something that is not occurring.
William H. Gross
Managing Director
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