Gross says the US may not be a Greece just yet and may have averted its debt crisis and ratings downgrade, but the situation has irrevocably stained its reputation.
He explains: “The whole world was watching and what they saw was a dysfunctional government taking its country to the financial precipice and backing off at the very last moment.”
Gross feels nothing in the Congressional compromise does anything to make a significant dent in the country’s $1.5trn deficit. He says that now the immediate situation has passed, investors must look at how the country will meet its obligations and how much they really are.
While most look solely at the US’s ‘paper debt,’ in the form of the existing nearly $10trn of outstanding Treasury debt, Gross says the expectations of the 330 million Americans means the country has a “near-unfathomable $66trn of future liabilities at ‘net present cost.’”
The compromise reached to solve the immediate problem is just one small step towards fiscal solvency, he points out. Trillions of further spending cuts and hikes are necessary to stabilise the US ‘official’ debt to GDP ratio of around 90%.
Gross suggests investors should instead favour ‘cleaner’ countries with higher real interest rates such as Canada, Mexico, Brazil and Germany. In addition he feels they should look to buy commodity-based real assets before reserve surplus nations do.
