Jan 31 (Reuters) - Bond guru Bill Gross of Pimco warned on Thursday that the U.S. economy has become too credit-reliant and is requiring more and more government stimulus to produce ever-diminishing rates of growth, much like Japan has experienced over the past decade.
Using a supernova as a metaphor for the U.S. financial system, Gross said the universe is expanding so rapidly now that in the far future it will end in a “big freeze.” Dependence on credit for growth will produce similar results, he said.
“Our current monetary system seems to require perpetual expansion to maintain its existence,” Gross said in a Pimco investment outlook commentary for February posted on the firm’s web site. “The advancing entropy in the physical universe may in fact portend a similar decline of ‘energy’ and ‘heat’ within the credit markets.”
Gross said in the 1980s it took $4 of new credit to generate $1 of real gross domestic product, while over the past decade it took $10 and since 2006, $20 to produce the same result.
U.S. government, corporate, household and personal debt is now $56 trillion, a monster that needs ever increasing amounts of fuel, Gross said, calling it a “supernova star that expands and expands, yet, in the process begins to consume itself.”
Gross runs the $285 billion Pimco Total Return Fund, the world’s largest bond fund.