biill gross in a recent article said he expects in the future that the Fed will limit interest rates paid on bank deposits if market interest rate should spike up. my assumption is that this will be done to protect the profits of the banking sector. if other posters think there are other reasons please post. I don't have the link to the article. it might have been bloomberg news. anyone who has a link please post. my feeling is when inflation comes roaring back the american gov't will try to control interest rates to fool people that there is less inflation.
Well they could just make all the newly issued bonds callable. Add enough volatility and this would force down bond prices temporarily... I.E existing bonds would go up in value, while the new ones would lose value. Kind of a messy, ugly way to do it and it would blow up a lot of Bond arbitrageurs.
You might be talking about his May letter. His "financial repression" thesis (which actually belongs to Reinhart & Rogoff) is not about the govt capping bank deposit rates. He's suggesting that the govt will cap the yield on long-dated treasuries. This will likely have an effect on deposit rates, but it's not 100% clear.
and burn the debt. at this pace( real inflation > 5%,rates negative)-in just 10 years they will cut CURRENT US debt in half. we may not like the way ( and Chinese definitely not going to like it), but there is nothing we(US) can do..it's been done before..the only "fair" inflation play was in 70-80's..Gross did explained this few times already and i totally agree with him. right now times are fucking tough for savers,retirees and all financially responsible folks
The process of what is commonly recognized as 'inflation' requires a flow of capital from financial assets to tangible assets accelerated through increasing leverage on collateral assets and related expanding private sector credit formation. Without that flow and velocity of private leverage money supply incrase just pools at the fed and does not have any mechanism to effect the 'process of inflation' that manifests in measurable price indexes. If you get that, you have to ponder how a pathitic hubristic government action to limit the rate of debt instruments within the banking structure... an attempt to control a financial asset...would forestall the process of inflation...such an act would be the consumate trophy for profound ignorance...it could only accelerate the process.
I doubt that it is done to protect private interests. They are appointed by the president, if the economy turns bad because of a Fed action then it looks bad by the president so then the Fed chair will be axed. So it is mainly from public pressure i.e crying that they need a money van to have a bubble again.
IMO Gross maybe has setup up himself for his biggest loss ever, probably the first, by shorting treasuries in a game he is not the major player, i.e. in a game controlled by the FED. He is already losing money it seems as rates have gone down. I think he is trying to put the blame on the FED but with unemployment of around 9% and low GDP growth you cannot have high inflation rates other than the commodity price inreases we see due to the growth of developing nations. In other words, commodity price increases, other than food and energy, cannot pass into final products due to the pressure on prices from low employment rates and a sluggish economy. It is clear to me that the FED controls the game by controlling the way inflation is reported. Gross can be correct and still lose money and maybe he is now set to get a feeling of that like many small traders like us often do when we are correct and volatility caused by big guys kicks us out of the market. A link with some estimates: http://www.priceactionlab.com/Blog/2011/05/was-mr-gross-wrong-about-bonds/
Agreed, guess who bought the treasury bonds? The fed did so in essence Gross is shorting into the feds positon. I like gross, but I don't suggest fighting the fed.
I agree. High street-level inflation doesn't equate to a collapsing bond market. The FED can monetize, as it's doing now. It's a smart move to be flat bonds, but not short. If anybody knows this, it's Gross, which makes his trade interesting. Maybe he knows something we don't and rationalized it for reasons he can say? I'd be very surprised if the FED abandoned intervention and let rates climb. Stranger things have happened.