Inquiring minds are reading CNBC.com for an interview with PIMCO’s chief, Bill Gross. Surviving California readers will remember “Run, Turkey, Run” where Mr. Gross said that today, Wednesday, Nov. 3rd, the Fed would launch “QEII”.
In this new interview, Mr. Gross gives specifics of what to expect…and it isn’t pretty:
“I think a 20 percent decline in the dollar is possible,” Gross said, adding the pace of the currency’s decline was also an important consideration for investors.
“When a central bank prints trillions of dollars of checks, which is not necessarily what (a second round of quantitative easing) will do in terms of the amount, but if it gets into that territory—that is a debasement of the dollar in terms of the supply of dollars on a global basis,” Gross told Reuters in an interview at his PIMCO headquarters.
Not exactly the time to make plan on traveling internationally next summer. Of course, this will make US products cheaper in comparison to imports. But this also means oil will go up 20%, too. So, California, just add about 60-70 cents per gallon on Gas station price boards to know what you will be paying in about 30 days.
“QEII not only produces more dollars but it also lowers the yield that investors earn on them and makes foreigners, which is the key link to the currencies, it makes foreigners less willing to hold dollars in current form or at current prices,” Gross added.
To a certain extent, that is what the Treasury Department and Fed “in combination” want, said Gross, who runs the $252 billion Total Return Fund and oversees more than $1.1 trillion as co-chief investment officer.
“The fundamental problem here is that our labor and developed economy labor relative to developing economy labor is so mismatched—China can do it so much more cheaply,” he said.
“It is a globalized economy of our own doing for the past 20-30 years. We encouraged all of this, but it is coming back to haunt us. To the extent that Chinese labor, Vietnamese labor, Brazilian labor, Mexican labor, wherever it is coming from that labor is outcompeting us and holding down our economy,” he said.
Gross added: “One of the ways to get even, so to speak, or to get the balance, is to debase your currency faster than anybody else can. It’s a shock because the dollar is the reserve currency. But to the extent that that is a necessary condition for rebalancing the global economy over time, then that is where we are headed.”
“Other countries and citizens are willing to work for less and willing to work harder—and we forgot the magic formula somewhere along the way,” Gross said.
His final words of encouragement…about the pensions:
“Pension funds and Americans, in general, have a problem because their liabilities are dollar-denominated. It’s probably worth the risk of getting out of dollars and getting into emerging countries and going where the growth is. All of which entails risk relative to the home country. But there’s probably a bigger risk in simply staying comfortably within the confines of dollar-based investments.”
Ahhhh…decisions, decisions, decisions. Our politicians around the globe have repeated played a shell game with debt and it’s about the time to pay the piper.
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