Bill Gross, founder and co-chief investment officer of Pimco, says our global monetary system may be flawed.

"The global monetary system which has evolved and morphed over the past century but always in the direction of easier, cheaper and more abundant credit, may have reached a point at which it can no longer operate efficiently and equitably to promote economic growth and the fair distribution of its benefits," Gross writes in the Investment News.

Higher global inflation will likely result from overextended debt-ladened balance sheets both public and private, Gross notes.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

“Bond investors therefore should favor quality and ‘clean dirty shirt’ sovereigns (U.S., Mexico and Brazil), for example, as well as emphasize intermediate maturities that gradually shorten over the next few years,”
he says.

“Equity investors should likewise favor stable cash flow global companies and ones exposed to high growth markets.”

Investors in general, however, will be hard pressed to repeat the performance of the past 30 years, which was based on excessive credit expansion, says Gross, as deleveraging economies and financial markets present a different and lower returning kettle of fish than did recent credit-dominated decades.

“Investors should sail carefully and the Wall Street 1 percent should put on their life vests if they expect to weather the inevitable storm that may threaten the first-class cabins they have come to enjoy,” Gross says.

The Business Insider reports that analysts at the huge European bank and financial services firm SocGen say that the deleveraging in European banks is hurting emerging European economies.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.