With the Federal Reserve being the largest buyer of Treasury bonds in the last 3 years, free money is essentially being used to fund the deficits.

The key point made by Gross is that the money printing exercise is just backed by government or central bank trust. If investors doubt the capability of the sovereign to repay the debt, the bond market might not take much time to collapse. More importantly, it makes perfect sense to print money if it leads to an incremental impact on real GDP growth.

However, in the current scenario, the real economic activity remains weak (lowest money velocity in last 50 years) along with the weak real unemployment rate (U6). Therefore, it is time for the Fed to pause and introspect on its policies than to continue printing money. As mentioned by Gross, there is no doubt that the economy is headed for much higher inflation in the long term if the current policies are perused with.

From 1960 to 1980, the total credit market debt increased by USD3.9 trillion. In the same period, the GDP increased by USD2.4 trillion. In other words, one dollar of debt had an incremental impact of 61 cents on the GDP. 

Coming to the most recent decade, the total credit market debt from 2000 to 2011 increased by USD27 trillion while the GDP increased by USD5.2 trillion. The impact of debt on GDP growth during this period has witnessed a sharp decline. For every one dollar of debt, the incremental impact on GDP was just 19 cents.