nice brief article by Gross, here is the main comment
In the coming years, Gross thinks the inflationary pressures will only intensify as Alan Greenspan and the Fed, and President Bush and his Treasury, make good on their promise to avoid a Japanese-style recession by whatever means necessary, including turning on the government printing presses and flooding the economy with money.
Such a move could be devastating for savers, with foreigners scrambling to make sure they're not the last one out of the U.S. market. The upshot would be ugly, since a good chunk of the invested savings in the United States comes from foreigners. (They hold $7 trillion in our assets in all, Gross says, 35 percent of Treasury bonds, 25 percent of corporate bonds, and 15 percent of U.S. stocks.)
"Foreigners aren't going to let us off the hook easily," Gross says. And any exodus out of U.S. assets could have a "real fire-in-the-theater potential," he says. Of course, the Fed could try to forestall a disastrous run by buying up the domestic assets that foreigners sell - a move that Gross admits would soften the blow temporarily.
"But ultimately," Gross says, "if the Fed has to do those sorts of things ... that's a perversion of capitalism as I know it and it would not be conducive to the long-term health of the economy."
/ jim |
