Tuesday, October 2, 2012

Bill Gross: Bonds Could Get Burned to a Crisp

In his monthly Pimco investor newsletter, Bill Gross intensifies his warnings about the bond market. He writes:
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 [ the Congressional Budget Office, International Monetary Fund and the Bank of International Settlements], will be a hard (and dangerous) one to break.
The current budget deficit is running at more than $1.2 trillion while the total national debt is more than $16 trillion and there is a fiscal gap. The "fiscal gap" describes the amount that will be needed to pay for social programs such as Social Security, Medicare and Medicaid that have unfunded liabilities of tens of trillions of dollars, Gross said. He goes on:
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'.
A few thoughts here. Gross is a little off on his financial history, bonds will certainly be destroyed by Fed printing, but not necessarily the stock market. Through many high inflation periods, stocks climb because of the assets they represent.

Second, although it is important to raise awareness of the looming debt crisis, there is a very real possibility that statists will use the concerns to raise taxes AND expand government interference in the economy. The only answer to out of control government spending should be cutting back government spending.


  1. He said stocks would get singed, not destroyed. Just look at the Europe Stock market as their bond markets implods. Stocks do not do well.

  2. Burn Baby Burn!!! Repudiate that sucka.