Bill Gross: Credit Supernova!

Manager Director of PIMCO, Bill Gross, penned this nicely written article Credit Supernova, which he attempts to explain the way credit has been working or accurately put has not been working within our monetary system.

As more and more QE is spread across the land, it returns less and less.

• Each additional dollar of credit seems to create less and less heat. In the 1980s, it took four dollars of new credit to generate $1 of real GDP. Over the last decade, it has taken $10, and since 2006, $20 to produce the same result.
• So our credit-based financial markets and the economy it supports are levered, fragile and increasingly entropic – it is running out of energy and time. When does money run out of time? The countdown begins when investable assets pose too much risk for too little return; when lenders desert credit markets for other alternatives such as cash or real assets.