The world’s central bankers are running out of time to get their economies growing and using policies that will ultimately punish investors if they fail to “reflate” their economies, according to Janus bond fund manager Bill Gross.
In his latest economic outlook, Gross writes that if central bank policies fail to boost nominal economic growth, financial markets will suffer and “capital gains and expectations for future gains” will become “giant pandas” – rare and less able to reproduce.
“Developed and emerging markets are flying at stall speed and they’ve got to bump up nominal GDP growth rates or else,” writes Gross. More specifically, nominal GDP needs to rise to levels that allow central banks to “normalize short-term interest rates,” or markets will be headed south instead of loss, writes Gross.
Gross writes that nominal growth in the U.S. needs to rise to 4% to 5% by 2017, up from 3% currently. And he offers these targets for other global economies: 1% to 2% for Europe (currently 0.3%); 1% to 2% for Japan (currently -0.3%); and 5% to 6% in China (reported as 6.9% for 2015).
Gross doesn’t say exactly what central banks need to do to reach these targets but lambastes the current negative rate policy of many central banks, as he has many times before, arguing that negative rates haven’t increased. He argues instead that negative rates—which account for 30% to 40% of government bond markets in developed economies including 75% of Japanese government bonds – “break down capitalistic business models related to banking, insurance, pension funds and ultimately small savers.”
Negative rates may seem like a logical way to force investors to buy longer-maturity debt or take more risk, but they’re not working, says Gross.