Gross: 'Ring of Fire' is closing in on the US
The US balance sheet, its deficit and its “fiscal gap” is in flames. Bonds face being burnt to a crisp warns Pimco veteran.
by Atholl Simpson on Oct 02, 2012 at 14:13
The latest investment outlook from top bond manager Bill Gross reads a bit like a script for a Hollywood disaster movie.
The PIMCO star says despite important institutions calling for the US to change its ways, attention is not being paid.
Unless drastic steps are undertaken the US fiscal volcano will explode and the ‘damage would likely be beyond repair’, says the manager of the world's biggest mutual fund the $260 billion PIMCO Total Return Bond fund.
He starts off by questioning all the naysayers on the state of the US economy.
‘How could the US still not be the first destination of global capital in search of safe (although historically low) prospective returns?'
How could the US not be considered the world’s ‘cleanest dirty shirt’ with a federal debt/GDP at less than 100%, Aaa/AA+ credit ratings, and the benefit of being the world’s reserve currency?
With its world-class universities, a mobile labour force and a firm hand on the tech industry there are still a lot of positives, he says.
‘Well, Armageddon is not around the corner. I don’t believe in the imminent demise of the US economy and its financial markets. But I’m afraid for them.’
He is not the only one, he says, and when global institutions like the IMF, the CBO (Congressional Budget Office) and the BIS (Bank of International Settlements) begin to speak in unison, attention must be paid.
‘What they’re saying is that when it comes to debt and to the prospects for future debt, the US is no “clean dirty shirt.”’
‘The U.S., in fact, is a serial offender, an addict whose habit extends beyond weed or cocaine and who frequently pleasures itself with budgetary crystal meth. Uncle Sam’s habit, say these respected agencies, will be a hard (and dangerous) one to break.’
All three are saying that the US’ fiscal gap must be closed with spending cuts, tax hikes or a combination of both which keeps a country’s debt/GDP ratio under control.
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