Investor Bill Gross warns of over-reliance on quantitative easing

Well-known portfolio manager Bill Gross has warned that the US could fall into recession due to the over-reliance on central banks' quantitative easing policies, referring to it as the "methadone" which keeps the financial system running.

Gross wrote in his monthly Investment Outlook letter for his firm Janus Capital that such programs implemented by the European Central Bank and the Bank of Japan have done little to boost economic growth.

"Without that financial methadone, both bond and stock markets worldwide would sink and produce a tantrum of significant proportions," Gross said.

"I would venture a guess that without QE from the ECB and BOJ that 10-year US Treasuries would rather quickly rise to 3.5% and the US economy would sink into recession."

The investor asserted that there was at least $12trn attached to fixed income assets in central banks' balance sheets throughout the globe, allowing the private sector redirect $600bn away from state economies.

"In addition, individual savers, pension funds, and insurance companies are now robbed of the ability to earn rates of return necessary to maintain long-term solvency," Gross wrote. "Financial Armageddon is postponed as consumption is brought forward and savings suppressed and deferred."

Gross added that it was unlikely that central banks will change their policies any time soon, and quantitative easing will become more prominent.

"In order to control volatility, and keep a floor under asset prices, central bankers may be trapped in a QE-forever cycle, (in order to keep the global system functioning)," he said.