Bill Gross Smells End Game Approaching

The US has been engaging in stealth default for years. For example, gold was removed from circulation and made illegal for citizens to own in 1934. Silver was removed from circulation in 1964. Also, the international gold window was closed in 1971. The stealth default, or paying debt in constant dollars, has been going on for years. Bill Gross has moved to a defensive position because he realizes the stealth default game has a finite (not infinite) duration. The movement of money speaks louder than words in this business.

Headline: The Vigilante

Why the man who runs the world's largest mutual fund sold all his Treasury bonds

And after that? I asked Reinhart the same question I asked Bill Gross: Is the U.S. government going to default on its debt?

Like Gross, she thinks such a scenario—​which she calls “debt with drama”—is unlikely. Instead, she predicts that the United States will engage in “financial repression,” a sort of stealth default. Financial repression relies on inflation, regulation, and fancy accounting instead of forced restructurings, or outright refusal to pay. In 1932, for example, New Zealand did a “voluntary” debt swap that converted short-term debt to longer-term debt at lower interest rates. “You look at this deal and you ask yourself, ‘Why would anyone do this? It’s insane,’” says Reinhart. “And then you see that they changed the tax rules, so that if you didn’t do the swap, you’d lose a ton of money.”

Source: theatlantic.com