Bill Gross, Co-CIO, founder & managing director at PIMCO, outlines America’s severe spending addiction in his latest investment outlook.
the u.s. is addicted to budgetary crystal meth, those words from a man we are now calling breaking bad bill gross there he is. his new picture. he outlined america’s severe spending addiction in his latest investment outlook and he has got some eye-popping stats on how much debt we may really have. he joins us now in a first on cnbc interview. all right. enough enough of the pop culture references are. i had to do all could i to not drink heavily bufrt show when i saw the 60 trillion number. does america really owe $60 trillion? we do in terms of our stated current entitlements, the entitlements for medicare, medicaid and social security on a present value basis, brian, when you tack it on to the 15 trillion that we owe in bonds, you know, basically produces a total debt, yes, a debt to foreign countries but a debt to our own citizens expressed in terms of bonds and bills of $60 trillion. that is 500% of gdp, more than rival greece and other egregious countries rated junk or below. you think a possibility women start resemble greece, as it is right now? these are studies, mandy, from the imf and the cb. the congressional budget office and the bis, you know, these are all in unison, says, this isn’t pimco’s opinion, but their opinion, that basically says fiscal gap of 8, 9, 10%, actually an 11% average which is $1.5 tral year, these are their numbers, basically say unless we start to reduce these numbers that, yes, we can be downgraded, that yes, you know, ultimately, inflation and a lower dollar and ultimately, as i mentioned, you know, bonds being burned to a crips and stocks being singed all as a result, you know, basically of too much debt relative to gdp, inn ability or unwillingness to alleviate a conditn.io the road which the can can be kicked down, bill surks long, we are finding out. debt going up and the appetite for u.s. treasuries seems to be growing as well, a lot of that from our own fed to, of course. i ask you, when does come to roost? is there a breaking bad point, we can say november 12, 2022? a lack of funding date for the u.s. debt markets? not yes. they don’t look at this as an armageon for the united states. basically, we recognize that we are the reserve currency country, basically, a lot of things going for us. it is the fed buying 70 or 80% of the debt they are issuing, when do we reach that point, ed, which armageddon begins to be visible? we reach that point when, you know, the fed’s operations can no longer support a strong dollar, when the fed’s operations are buying for some of tho treasuries produced inflation and ac sell rating inflation. we don’t think that’s over the next 12 months. we are still invested in u.s. treasuries, i’m just simply issuing a warning on behalf of the imf, the cbo and the bis that things have to change. indeed, talking of treasuries, i saw stats today to say your bond fund lured $2.8 billion in new cash in september through september year-to-date over 12 billion dollars. these estimates basically say if we wait for another 12 months, waited the past 12 months and 24 months, basically our fiscal gap increase buys half a percent a year. what you want do as an investor, you don’t want to fight the central banks, buy what they buy before they buy it and that is basically the mortgage market today in terms of what people skoal buying and also beginning to look like italy in terms of what the ecb might be buying for or — four or six weeks down the road. billionaire sam zell on squawk abortion i think you saw it you tweeted about it i want to play a soundbite about recession and you comment on t here is what sam zell her to say this morning on cnbc. we run a company that does a lot of corporate enterprise. your response, are we headed toward recession? i don’t think we are headed toward recession, we are at 1 to 2% growth and probably stay there we have, you know, of course the fed buying mortgages and treasuries at an $80 billion clip per month. he stayed is fixable, get back to business, unleash animal spirits. i think he is discounting the structural elements slower growth in terms of new normal. we have an anorexic consumer, wages and con pen says down 5% relative to gdp. investment has nothing to sell to in terms of a consumer purse. we also have a very gem mow graphic situation urkt consumer, baby boomer is getting old, don’t buy as much. a lot of problems here in addition to debt. i feel like you’re a doctor delivering the bad news, telling me what my symptoms r i want the cure. what would you do right now to fix all of those symptoms you just listed? well, the cure, from our standpoint is a structural cure. you can’t necessarily cure it with easy money, which is what the fed is trying to do you can’t necessarily cure it with draconian fiscal measures which eliminate a deficit in a short period of time. you need to gradually, year by year, reduce that deficit gradually. raise interest rates over time, in addition, need to focus from a fiscal standpoint on structural financing and structural investment that you know, this country sorely lacks. anyone have the will, the political will to be able to make those tough decisions right now? we will hear on wednesday in terms of the debates, i suspect not. the political will is divided is for their own team as for their own team, not necessarily for the united states. we are a little dour in terms of the ultimate prospects. matter who wins the president city for the markets? i don’t think so brian. i think basically what we have here is a large deficit that won’t be reduced significantly. we have an easy fed that won’t change its habits the next several years, the structural solutions required are five to ten years down the road. later on in the show, going to be talking about a mystery city that shall be unveiled that is going through its up potential minifiscal cliff, a major pension crisis. what do you think about the increasing pension crisis we havend municipal bonds? i think there are situation in municipal space in terms of situations, situations in terms of what is underfunded. the interest rate views come down so significantly and quickly that all of these pension funds basically have not been able to immunize their portfolios, they haven’t invested long term in terms of the bond market and stocks, they are 20, 30, 40% under water, problems, much like student loans, will take a long time to eliminate. bill, thank you for joining us and i read in your newsletter that your brother is not doing well, our thoughts to him as well. thank you, brian. take care, bill. always good to have bill on the show.