Bad medicine

The bond world’s biggest star, Bill Gross, has posted a controversial open letter to “President Obama” advising on how he can go about fixing W’s mistakes and reigniting the U.S. economy. It makes for entertaining reading, especially when you know that Gross is a card-carrying Republican.

But his advice seems risky to say the least. He advises the soon-to-be-Pres to double the U.S. budget deficit to US$1 trillion a year during his first term, all while holding interest rates relatively low. He knows this will trigger rising inflation (likely not to hit until his second term, he says) but Gross is okay with that. He also seems fine with the idea of much higher taxes for himself and the rest of his super-rich pals.

The spend-spend-spend advice seems like radical economic surgery to me.  Could it be that Gross is laying the groundwork for a massive short-sale on U.S. treasuries? All this seems to me like a recipe for sending the greenback toward parity with the peso.