Boomer-Geddon & The Ring of Fire

Posted by Bill Gross & Other Authors

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Bill Gross, the head of PIMCO, the world’s largest bond manager, has published a jeremiad (see below) that makes my “Boomergeddon” thesis look Pollyanna-ish by comparison. To avoid an economic meltdown, says the money mogul, the United States needs to close its fiscal gap by $1.6 trillion, equivalent to 11% of the GDP. In my book, I anticipated the need to close the budget gap by a measly $1 trillion — and found the task to be so daunting as to be almost impossible.

My thought in trimming spending and/or raising revenues by $1 trillion a year was to create a U.S. budget surplus over the course of a normal economic cycle, factoring in modest surpluses during boom years and modest deficits during recessions. But Gross looks beyond the current business cycle, emphasizing crushing long-term obligations to Social Security, Medicare and other entitlements that are only beginning to kick in and will become more onerous in the decades ahead. Scarily, in his most recent essay, he doesn’t even mention the debilitating burden of paying interest on a national debt that recently passed $16 trillion and is growing relentlessly higher.

Looking at the fiscal balance sheets of the world’s major economies (as well as Greece for a point of comparison), Gross shows the U.S. in a fiscal “ring of fire” in the company of the United Kingdom and Japan. As seen in the chart above, the current deficits of all three countries are as high as Greece’s and their structural (long-term) fiscal gaps are larger.

Armageddon is not “around the corner,” Gross opines, but he does see the possibility of a “fiscal train wreck over the next decade.” It is often said that the U.S. is the cleanest of the dirty shirts, implying that we have less to fear than others do. Gross disagrees. “When it comes to debt and to the prospects for future debt, the U.S. is no ‘clean dirty shirt.’ 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 … will be a hard (and dangerous) one to break.”

… the Writer’s bottom line HERE

Bill Gross, the Ring of Fire, and Gold Prices

Deborah Baratz via Money Morning

That’s because Gross, the Pacific Investment Management Co. (PIMCO) founder and co-chief investment officer, released his October 2012 investment outlook Tuesday that came with a warning for the U.S. and investors. 

Gross said that U.S. fiscal problems have put the country in a “Ring of Fire” that’ll burn investors if they aren’t protected by gold and real assets. 

Gross warned that recent studies have concluded that “[T]he U.S. balance sheet, its deficit and its “fiscal gap’ is in flames and that its fire department is apparently asleep at the station house.” 

……read more HERE


(The Ring of Fire of Essay by Bill Gross)

– The U.S. has federal debt/GDP less than 100%, Aaa/AA+ credit ratings, and the benefit of being the world’s reserve currency.

– Studies by the CBO, IMF and BIS (when averaged) suggest that we need to cut spending or raise taxes by 11% of GDP and rather quickly over the next five to 10 years. 

– 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.

… Bill Gross’s The Ring of Fire  HERE