Wednesday, August 3, 2016

Bill Gross on inflation which he calls nominal GDP growth

Almost all assets are a bet on growth and inflation (hopefully real growth) but in its absence at least nominal growth with some inflation. The reason nominal growth is critical is that it allows a country, company or individual to service their debts with increasing income, allocating a portion to interest expense and another portion to theoretical or practical principal repayment via a sinking fund. Without the latter, a credit-based economy ultimately devolves into Ponzi finance, and at some point implodes. Watch nominal GDP growth. In the U.S. 4-% is necessary, in Euroland 3-4%, in Japan 2-3%.

ME:  Do you know of an economic system that doesn't involve credit? Communist economies face the very same problems as do capitalist economies.

Therefore serious inflation is ultimately needed when debt levels become too high.

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