September 8, 2011

PIMCO’s Gross: Fed Action ‘Destroyed’ Credit Creation; Obama Needs to Be Bold

Bond king would like to see ‘gusto’ from president in jobs speech

Ben Bernanke at Senate hearing this year. (Photo: AP) Ben Bernanke at Senate hearing this year. (Photo: AP)

Echoing similar sentiments he made earlier this week, PIMCO chairman Bill Gross said Thursday that quantitative easing by the Fed "destroyed" credit creation. He also said he'd like to "see something bold" from President Barack Obama in his speech Thursday night, noting the markets will be disappointed if stimulus is below $300 billion.

"This is really a cost of credit versus a creation of credit type of argument,” Gross said on Bloomberg Television's "Surveillance Midday". “There is no doubt that by purchasing longer-dated Treasuries that they would probably lower the cost of credit. My argument is the creation of it would it be destroyed and has been destroyed over the past several years during QE1 and QE2.”

When asked about his investment outlook, Gross responded that a “freezing” of policy stimulus and interest rates in both in the United States and Europe will occur. He suggested government incentivize companies to buy American and produce American jobs.

bill gross of PIMCO“Let's not necessarily go as far as recommending tariffs or walls in terms of imports, but let us talk about we do as well to major corporations,” Gross (left) said. “The export-import thing in terms of what we have done for many years in terms of aircraft. And Boeing was a specific example. Why can't we apply that concept to smaller businesses in terms of providing financing? The infrastructure bank that might be proposed by President Obama tonight begins to do that, but I suggest we go beyond that and provide a bank for small and medium-sized as well as large U.S. corporations."

Turning to the president’s address before Congress scheduled for Thursday night, Gross said he like to see some “gusto.”

“I don't think $300 billion really does it,” he added. “When you break the program down about half of it is simply to continue existing programs. So we have less than 1% thrust in terms of new GDP types of programs, much of which is in 2012 and 2013 with the infrastructure bank. I would like to see something bold. I don't think we are going to see it, and I think the markets will be disappointed eventually and probably disappointed tomorrow morning if we see something at $300 billion or less."

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