Bill Gross, Pimco founder & co-CIO, says banks haven’t been aggressive buyers of Treasurys up to this point. “We always wondered who will buy Treasurys,” he tells CNBC’s “Squawk Box.
What I find ironic is that Gross stated that the US has $100 trillion worth of total liabilities, much more than the quote number of ~$14 trillion. As I stated previously many other respected economists and investors, like Bob Rodriguez have stated the same. However, Gross was buying treasuries when the yield was 3.5% on the 10 year just a few months ago. Now the yields have dropped about 50 bps. The liabilites of America did not go up ten trillions of dollars over a few months. So what made Gross bullish on treasuries a few months ago and now a huge bear? Either he did significantly more research into the US’s fiscal state, or the cynical side of me says the more media attention he gets the more assets under management, which equals more money.
Gross is a smart man and therefore I assume it is the later.
However, while on the topic… one thing I do think that has changed in the past few months is that there is now a real risk of a US default (even if small) even on short term treasuries. This is almost unprecedented, and although I am a centrist/slightly to the right on economic issues I am urging the GOP to raise the debt ceiling no if ands or buts.
I stated in an article on a site I write for:
“While, I oppose the GOP raising the debt ceiling as an attempt to force concessions from the Democrats, there is an alternative. The GOP can vote to increase the debt ceiling but threaten President Barack Obama with voting down every single bill until drastic action is taken to reduce the deficit.”
Playing with the debt ceiling is just a very dangerous game to all Americans. There is no way that the Government can cut its debt load overnight. It will be a gradual (and still painful) process.