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Pimco’s Gross: UK and US addicted to ‘crystal meth’ debt

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Pimco founder and chief investment officer Bill Gross has warned that the UK and the US are among a raft of developed countries that are hooked on debt and are struggling to kick the habit.

In his monthly investment outlook, Gross said a series of developed nations – which also includes France, Japan, Spain and Greece – are sitting in a ring of fire as they are struggling to keep their budget’s and fiscal gap’s under control.

He says: “The US and its fellow serial abusers have been inhaling debt’s methamphetamine crystals for some time now, and kicking the habit looks incredibly difficult.”

Gross cited particular concerns with the US, saying that although he does not believe in the “imminent demise” of the US economy he is afraid for them.

Gross says: “The US 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 will be a hard and dangerous one to break.”

Pointing to reports from the likes of the International Monetary Fund, the Bank for International Settlements and the Congressional Budget Office, Gross says that to put US finances on a sustainable footing the US must cut spending or increase taxes by 11 per cent of gross domestic product over the next five to ten years.

He says: “To keep our debt/GDP ratio below the metaphorical combustion point of 212 degrees Fahrenheit, these studies (when averaged) suggest that we need to cut spending or raise taxes by 11 per cent of GDP and rather quickly over the next five to 10 years. An 11 per cent “fiscal gap” in terms of today’s economy speaks to a combination of spending cuts and taxes of $1.6 trillion per year.”

Gross says unless the US looks to address an annual 11 per cent fiscal gap it will turn into Greece before before the end of this decade.

He says: “Unless we begin to close this gap, then the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow and the dollar would inevitably decline. Bonds would be burned to a crisp and stocks would certainly be singed; only gold and real assets would thrive within the “Ring of Fire.”

“If that be the case, the U.S. would no longer be in the catbird’s seat of global finance and there would be damage aplenty, not just to the U.S. but to the global financial system itself, a system which for 40 years has depended on the U.S. economy as the world’s consummate consumer and the dollar as the global medium of exchange.”

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