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Bill Gross: US Debt Worse than Greece (!)

Posted on Thursday, 16th June 2011 @ 05:50 AM by Text Size A | A | A

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,
Pimco’s Bill Gross told CNBC Monday.

Much of
the public focus is on the nation’s public debt, which is $14.3
trillion. But that doesn’t include money guaranteed for Medicare,
Medicaid and Social Security, which comes to close to $50 trillion,
according to government figures.

The
government also is on the hook for other debts such as the programs
related to the bailout of the financial system following the crisis of
2008 and 2009, government figures show.

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
.

The
move reflects increasing concern from the financial community over
whether the US is capable of a political solution to its burgeoning debt and
deficit problems
.

 

“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.”

Pimco, based in Newport
Beach, Calif., manages more than $1.2 trillion in assets and runs the
largest bond fund in 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.”

Should the debt problem in
Greece
explode into a full-blown crisis—an
International Monetary Fund bailout has prevented a full-scale meltdown
so far—Gross predicted that German debt, not that of the US, would be
the safe-haven of choice for global investors.

—Jeff Cox is co-author of the recently released “Debt
Deficits and the Demise of the American Economy”
(Wiley).

© 2011 CNBC.com

URL:
http://www.cnbc.com/id/43378973/

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