Tags: Gross | Europe | austerity | easing

Pimco’s Gross Rips Europe’s Fiscal Austerity

By    |   Monday, 22 April 2013 01:07 PM

The fiscal austerity that has been adopted by much of Europe will do little to bring its economies back to life, says Bill Gross, co-chief investment officer of fund giant Pimco.

“The U.K. and almost all of Europe have erred in terms of believing that fiscal austerity in the short term is the way to produce real growth,” he told the Financial Times. “It is not. You’ve got to spend money.”

Lowering European debt levels is an important long-term issue, Gross noted, but economic growth is more important in the short term.

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In the long term, it is important to be fiscal and austere. It is important to have a relatively average or low rate of debt to GDP [gross domestic product],” he said. “The question in terms of the long term and the short term is how quickly to do it.”

While Gross favors more stimulative fiscal policy, he thinks global central bank easing is losing its effectiveness, as demonstrated by the drop in gold and Treasury inflation-protected securities prices.

“Markets are beginning to wonder about the magic of not only the [Federal Reserve], but the Bank of England and the European Central Bank, maybe even the [Bank of Japan] in terms of whether this will all work out in the end," he stated.

“I think, fiscally, that governments everywhere have erred in terms of their policy for one way or another and they certainly haven't induced investment as a percentage of GDP, which, we all know, is ultimately the way to prosperity,” Gross explained.

Regardless of Gross’ view, most economists expect the Fed to leave all its easing in place for a period.

“The Fed is missing its dual mandate on both sides — unemployment is too high, and inflation is too low,” Josh Feinman, chief economist for DB Advisors, told Bloomberg.

“This simply makes it more likely the Fed will stick with the program for a while, and talk of scaling back sales this summer is diminishing, partly because of the [weak] inflation data.”

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The fiscal austerity that has been adopted by much of Europe will do little to bring its economies back to life, says Bill Gross, co-chief investment officer of fund giant Pimco.
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2013-07-22
Monday, 22 April 2013 01:07 PM
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