Last updated: 15:51 / Tuesday, 27 August 2019
July's Outlook

Bill Gross: “Worry About the Return “Of” Your Money, Not the Return “On” It”

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Bill Gross: “Worry About the Return “Of” Your Money, Not the Return “On” It”
  • The system still generates $200 per player per round trip roll of the dice, but it’s not enough to keep real GDP at the same pace
  • Money supply or “credit” growth is not the only determinant of GDP but the velocity of that money or credit is important too

In his July’s letter to investors, Bill Gross states that if “Fed Governors and Presidents understood a little bit more about Monopoly, and a tad less about outdated historical models such as the Taylor Rule and the Phillips Curve, then our economy and its future prospects might be a little better off.”

Without forgetting of other effects such as Brexit, the growing Populist movement and the possibility of what he calls de-globalization (less trade, immigration and economic growth), he highlights the $200 you get when passing go, mentioning it is like new credit, “responsible for the ongoing health of our finance-based economy. Without new credit, economic growth moves in reverse and individual player “bankruptcies” become more probable.”

He also explains how at the beginning of the game when “the bank”- which he compares to private banking, gives out the initial $1,500 growth is strong but eventually it starts to decelerate.

After explaining that money supply or “credit” growth is not the only determinant of GDP but the velocity of that money or credit is important too and that today’s “contribution of velocity to GDP growth is coming to an end and may even be creating negative growth,” he goes on to warn about that this means that “at best, a ceiling on risk asset prices (stocks, high yield bonds, private equity, real estate) and at worst, minus signs at year’s end that force investors to abandon hope for future returns compared to historic examples. Worry for now about the return “of” your money, not the return “on” it. Our Monopoly-based economy requires credit creation and if it stays low, the future losers will grow in number.” He concludes.

You can read the full letter in the following link.

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