Cost of Credit Vs Creation of Credit: Sell GOLD

I was going through some of the financial news and this is a very interesting discussion .. I would say its an  "Insight" by Mr Bill Gross of PIMCO.. A MUST Must See..

Here is what I understand.

There is "Cost of Credit" and "Creation of Credit" 

Cost of credit: is basically the rate of interest you pay when you take out a loan.

Creation of Credit: If you deposit Rs 100 in the banking system.. the bank can due to "fraction reserve lending rules" create a loan of Rs1000 with your Rs 100 deposit. thus "creating credit". But if you remove Rs 100 from the banking system you reduce the available credit in the banking system by Rs1000/= effectively "destroying credit creation" 

What Mr. Bill Gross said in Financial Times: 

 Helicopter Ben Risks destroying credit creation by flooring maturities out to two years then, and perhaps longer as a result of maturity extension policies envisioned in a forthcoming operation twist later this month, the Fed may in effect lower the cost of capital.

Monetary policy at the Zero interest rate bound introduces a new dynamic that may conflict or even reverse standard logic that lower interest rates across the sovereign yield curve are stimulative to economic growth 

My understanding is that Mr Bill Gross is saying that "Zero Interest rate binding" which is supposed to stimulate economic growth by lowering the cost of capital .. but "Zero Interest rate binding"  will cause a lot of the money to be pulled out of the banking system thus stop the "Creation of credit Cycle" which will result in actually stalling the economic growth cycle.

The example Mr Bill Gross gives is: 

The FED has done a conditional "freezing" of 2 yrs treasury rates at 0.25% So by taking a 90% cash position and 10% in 30yrs treasury bonds we can get a 2 yrs yield of 0.50%. This conditional "freezing" of 2 yrs treasury rates has resulted in 90% of cash remaining out of the banking system.. causing a "Destruction of Credit creation"   Ideally we should have 100% in 2 yrs treasury to achieve the same.. and the money stays in circulation.

This explanation is Mind Blowing!! Revelation I must confess.!!

Mr Bill Gross delves further and states.. The banks instead of rotating the money in the banking system have parked all their funds with FED as "reserves" which is paying then a 0.25% return reducing "Credit" in the banking system.

Investment in "Gold" is taking the money out of circulation from banks causing "Destruction of Credit" As per my understanding Pvt holdings of Gold in India is "18,000 Tonnes "Largest reserves in the world. Its high time we be smart and reduce investment in this asset class (when the prices are high..) cause we are going to see a fall in price of gold. 

Conclusion: I would say if you have been investing in GOLD start lightening up. every time GOLD goes up "SELL" and invest in a productive asset. For me that would be "GAEL, Jayant, NHPC and Tata Communications" (Recommended Best Buys) News like this does not just flow.. its an indication that its time to switch from non productive assets such as gold into productive assets.. There is a SBI 9.5% 2026 bond where one can invest the cash if you are looking for fixed income. GAEL has 35Cr invested in the same bonds.