If zero interest rates become the long-term norm, economic participants will soon run on empty because their investments aren’t producing the gains or cash flow needed to finance past promises in an aging society, he wrote in an investment outlook on Wednesday for Denver-based Janus Capital Group Inc. That’s already beginning to happen in the developed world, where Detroit, Puerto Rico, and, he predicts, soon Chicago, struggle to meet their liabilities.
“My advice to them is this: get off zero and get off quick,” Gross urged the central bankers. It’s time for a “new thesis” that allows people in developed economies to save, enabling liability-based businesses models to survive and spurring more private investment, “which is the essence of a healthy economy. Near term pain? Yes. Long term gain? Almost certainly. Get off zero now!”
The Fed last week decided to keep its benchmark rate near zero, showing reluctance to end an era of record monetary stimulus in a time of market turmoil, rising international risks and slow inflation at home. Futures traders are betting the Fed is unlikely to act in October, as they put 41 percent odds on an increase in December and 48 percent in January, according to data compiled by Bloomberg.