PIMCO's Gross Warns of U.S. Debt Default
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In his April investment outlook, PIMCO's Bill Gross warns if there is not substantial budget reform, the U.S. will default on its debt.
Gross said a default will not come in the traditional way, but through inflation, currency devaluation and low to negative real interest rates.
Gross notes that Medicare, Medicaid and Social Security now account for 44% of total federal spending and are steadily rising.
"The only way out of the dilemma, absent very large entitlement cuts, is to default in one (or a combination) of four ways: 1) outright via contractual abrogation – surely unthinkable, 2) surreptitiously via accelerating and unexpectedly higher inflation – likely but not significant in its impact, 3) deceptively via a declining dollar– currently taking place right in front of our noses, and 4) stealthily via policy rates and Treasury yields far below historical levels – paying savers less on their money and hoping they won't complain." Gross said.
You can read his entire Investment Outlook here.
Gross said a default will not come in the traditional way, but through inflation, currency devaluation and low to negative real interest rates.
Gross notes that Medicare, Medicaid and Social Security now account for 44% of total federal spending and are steadily rising.
"The only way out of the dilemma, absent very large entitlement cuts, is to default in one (or a combination) of four ways: 1) outright via contractual abrogation – surely unthinkable, 2) surreptitiously via accelerating and unexpectedly higher inflation – likely but not significant in its impact, 3) deceptively via a declining dollar– currently taking place right in front of our noses, and 4) stealthily via policy rates and Treasury yields far below historical levels – paying savers less on their money and hoping they won't complain." Gross said.
You can read his entire Investment Outlook here.
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William H. Gross, Pacific Investment Management Company, LLC (PIMCO)Sign up for StreetInsider Free!
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