Bill Gross on Weak Credit: Do Not Pass Go

It might sound like an oversimplification to discuss the current state of the credit markets in terms of a Monopoly game, but that’s exactly what Janus fund manager William Gross does in a recent Barron’s article.

In particular, Gross compares a player’s passing of “Go” and collection of $200 as representing “new credit that is responsible for the ongoing health of our finance-based economy.” Without it, he argues, “economic growth moves in reverse and individual player ‘bankruptcies’ become more probable.” To expand on the metaphor, Gross explains that in today’s economy central banks are more akin to Monopoly’s “community chest” than they are to the banker. That is, they have money available, but only if private banks choose to expand credit by lending. If banks don’t lend either to avoid risk or because there’s no demand for borrowing, then growth is stymied.

“That is what’s happening today and has been happening for the past few years,” writes Gross. “Credit growth which has averaged 9% per year since the beginning of this century barely reaches 4% annualized in most quarters now.” According to Gross, a highly levered economy such as ours depends on the creation of credit for “stability and longevity.”

While admitting that the comparison only skims the surface of the complex issues at play, Gross characterizes his larger view concisely: “If only Fed Governors and Presidents understood a little more about Monopoly…. our economy and its future prospects might be a little better off.”