Bill Gross is one of the world’s largest mutual fund managers, focusing mostly on bonds. Called “the nation’s most prominent bond investor” by the New York Times, he co-founded Pacific Investment Management (PIMCO) and currently manages PIMCO’s Total Return fund (the world’s largest bond fund and fifth largest mutual fund) and several smaller ones. In other words this guy knows what he is talking about.
Gross spoke to CNBC today and made a startling accusation. When adding in all of the money owed to cover future liabilities in entitlement programs the US is actually in worse financial shape than Greece and other debt-laden European countries. Gross explains that while the public and the Congress is concentrating on our $14.3 trillion public debt, they are forgetting about the liabilities from entitlement programs, money guaranteed for Medicare, Medicaid and Social Security, which comes to close to $50 trillion, according to government figures. On top of all that are the debts created by the bailout of the financial system.
Taken together, Gross puts the total at “nearly $100 trillion,” that while perhaps a bit on the high side, places the country in a highly unenviable fiscal position that he said won’t find a solution overnight.
“To think that we can reduce that within the space of a year or two is not a realistic assumption,” Gross said in a live interview. “That’s much more than Greece, that’s much more than almost any other developed country. We’ve got a problem and we have to get after it quickly.”
Gross spoke following a report that US banks were likely to scale back on their use of Treasurys as collateral against derivatives and other transactions. Bank heads say that move is likely to happen in August as Congress dithers over whether to raise the nation’s debt ceiling, according to a report in the Financial Times.
Apparently Wall Street is concerned that our government will not be able to negotiate a solution to our debt problem.
“We’ve always wondered who will buy Treasurys” after the Federal Reserve purchases the last of its $600 billion to end the second leg of its quantitative easing program later this month, Gross said. “It’s certainly not Pimco and it’s probably not the bond funds of the world.”
Gross confirmed a report Friday that Pimco has marginally increased its Treasurys allotment—from 4 percent to 5 percent—but still has little interest in US debt and its low yields that are in place despite an ugly national balance sheet.
“Why wouldn’t an investor buy Canada with a better balance sheet or Australia with a better balance sheet with interest rates at 1 or 2 or 3 percent higher?” he said. “It simply doesn’t make any sense.”
Gross also predicts that if Greece become even more of a crisis, it will be German Debt not that of the United States would be the safe-haven of choice for global investors.
Its time our Government woke up and smelled the coffee, its past time we got serious about our debt.