12/07/2017 - Bill Gross: When Credit Risks Increase, Creditors Increase Preference For Classical Money And The Financial System Can Be At Risk
“High-quality credit can at times take the place of money when its liquidity, perceived return, and safety of principal allow for its substitution.
When the possibility of default increases and/or the real return on credit or liquidity decreases and persuades creditors to hold classical ‘money’ (cash, gold, bitcoin), then the financial system as we know it can be at risk (insurance companies, banks, mutual funds, etc.) as credit shrinks and ‘money’ increases, creating liquidity concerns.
Someone asked me recently what would happen if the Fed could just tell the Treasury that they ripped up their $4 trillion of T-bonds and mortgages.
Just Fugetaboutit! I responded that that is what they are effectively doing. “Just pay us the interest”, the Fed says, “and oh, by the way, we’ll remit all of that interest to you at the end of the year”.
Money for nothing – The Treasury issuing debt for free. No need to pay down debt unless it creates inflation. For now, it is not. Probably later.”
