PIMCO's Gross says indebted U.S. to resemble Greece

Tue Oct 2, 2012 10:19am EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Sam Forgione

NEW YORK (Reuters) - Bill Gross, founder and co-chief investment officer of bond giant PIMCO, said he sees the U.S. going the way of Greece if it does not get its fiscal house in order.

Gross, writing in his most recent monthly investment outlook, said the U.S. must cut spending or raise taxes by 11 percent of gross domestic product over the next five to ten years in order to preserve its role as financial safe haven.

"If we continue to close our eyes to existing 8 percent of GDP deficits, which, when including Social Security, Medicaid and Medicare liabilities, compose an average estimated 11 percent annual 'fiscal gap,' then we will begin to resemble Greece before the turn of the next decade," Gross wrote.

Gross said that the current deficit of eight percent of GDP still makes the U.S. the most viable option for investment safety, or "the cleanest dirty shirt," but that annual data from the Congressional Budget Office, International Monetary Fund and Bank of International Settlements show that the U.S.' estimated future debts suggest a "budgetary crystal meth" habit.

Gross has used the "cleanest dirt shirt" metaphor in an earlier investment letter, but the "crystal meth" habit analogy is new for the founder of Pacific Investment Management Co., the manager of about $1.8 trillion in assets.

The proposed 11 percent deficit that the U.S. is running up will require spending cuts and taxes amounting to $1.6 trillion per year, Gross said.

Gross added that the debt and "fiscal gap" issues are characteristic of the U.S., Japan, Greece, the U.K., Spain and France while nations such as Canada, Italy, Brazil, Mexico and China and other developing countries are more in control of their budgets and have less debt.

Gross, who has referred in past outlooks to the unsustainable debt pile the United States continues to accumulate, added that rising debts will lead the U.S. Federal Reserve to print more money, stoking inflation and debasing the dollar.   Continued...

William Gross, Manager of the world's biggest bond fund at Pacific Investment Management Co. (PIMCO) participates in the Obama administration's Conference on the Future of Housing Finance in the Cash Room of the Treasury Building in Washington, August 17, 2010. REUTERS/Jason Reed