Bill Gross: You can't cure debt with more debt

Bill Gross
Andrew Harrer | Bloomberg | Getty Images

Central banks are trying to solve a debt crisis by piling on more debt, creating a "point of low return" for investors, bond guru Bill Gross said in a letter to clients.

The Janus Capital portfolio manager and Pimco founder takes the Federal Reserve, Bank of Japan and European Central Bank to task for using monetary policy to make it easier for governments to run up debt, all in the hopes of stimulating anemic global growth.

"How could they?" Gross asks, using nursery rhymes including the characters Punch and Judy to bemoan the possibility of "inflationary horror" that characterized the 1970s. It's probably better to read the Gross letter in its entirety—get it here—to see how he connects the dots, but his conclusion is stark:

Ah, policymakers. Perhaps the last five years have been one giant nursery rhyme. But each of these central bankers is trying to achieve the same basic objective: Solve a debt crisis by creating more debt. Can it be done? A few years ago, I wrote that this uncommonsensical feat could be accomplished, but with a number of caveats: 1) Initial conditions must not be onerous; 2) Both monetary and fiscal policies must be coordinated and lead to acceptable structural growth rates; and 3) Private investors must continue to participate in the capital market charade that such policies produced.