bill grossBloomberg TV

Bill Gross, the PIMCO fund manager known as the "Bond King," is out with his February investment letter, titled "Credit Supernova!"

This month, Gross tackles the relationship between credit expansion and real growth. He channels the late economist Hyman Minsky, saying the economy is now in Minsky's "Ponzi finance" phase, "when additional credit would be required just to cover increasingly burdensome interest payments, with accelerating inflation the end result."

Gross writes that new credit is providing diminishing returns: "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."

The reason, Gross says, is because more and more of that credit is being channeled into market speculation, driving a wedge between markets and the real economy. "Investment banking, which only a decade ago promoted small business development and transition to public markets, now is dominated by leveraged speculation and the Ponzi finance Minsky once warned against," he writes.

Below is an excerpt from the letter (emphasis his):





Click here to read the rest of the letter at >