Take a lesson in credit from Monopoly: Bill Gross, billionaire bond investor

NEW YORK: Billionaire bond investor Bill Gross has a message for Janet Yellen: Take a lesson from Monopoly. Gross, in his latest outlook for Janus Capital Group Inc., likened the economy to the board game where players collect $200 every time they pass the “Go” square. That payment — the game’s version of credit creation — ensures expansion at the start, but it also dooms players because the amount is fixed and doesn’t grow, eventually leading to stagnation and bankruptcies.

“If only Fed Governors and Presidents understood a little bit more about Monopoly, and a tad less about outdated historical models such as the Taylor Rule and the Phillips Curve, then our economy and its future prospects might be a little better off,” Gross wrote in the outlook, published Wednesday on Janus’s website.

Federal Reserve Chair Yellen and other central bankers, who have lowered interest rates to try to stimulate economies, have been unable to boost credit growth in the real economy, Gross wrote — whether because commercial banks don’t want to take the risk, or consumers and corporations don’t want to borrow. While lower interest rates helped fuel economic expansion by increasing the “velocity of credit,” that’s coming to an end as rates turn negative, Gross wrote.

“Our credit-based financial system is sputtering, and risk assets are reflecting that reality even if most players (including central banks) have little clue as to how the game is played,” he wrote. “They don’t believe in Monopoly as the functional model for the modern day financial system. They believe in Taylor and Phillips and warn of future inflation as we approach ‘full employment.’ They worship false idols.”