The U.S. dollar could lose 20% of its value as a result of the trillions of dollars the Federal Reserve is pumping into the money supply by purchasing long-term government bonds through QE II, or quantitative easing, part two, Bill Gross, co-chief investment officer of PIMCO, told Reuters.
“I think a 20% decline in the dollar is possible. When a central bank prints trillions of dollars of checks, which is not necessarily what QE II will do in terms of the amount, but if it gets into that territory, that is a debasement of the dollar in terms of the supply of dollars on a global basis,” Gross said.
“QE II not only produces more dollars but it also lowers the yield that investors earn on them,” he said.
Primary dealers expect the Fed to purchase at least $500 billion of long-term securities, according to a Reuters poll.