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Getbig Main Boards => Politics and Political Issues Board => Topic started by: SAMSON123 on March 09, 2011, 03:57:25 PM
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"No Way Out" of Debt Trap, Gross Says: U.S. Living Standards Doomed to Fall
Posted Mar 08, 2011 09:00am EST by Stacy Curtin
Debt, debt and more mounting debt is plaguing countries around the globe.
In the U.S., states across the country face a collective $125 billion shortfall for fiscal 2012, while Congress is facing a budget gap nearly 10 times that size.
PIMCO founder Bill Gross -- one of the world's largest mutual funds managers, who focuses mostly on bonds -- has previously said that if the United States were a corporation, no one in their right mind would lend us money. For the last decade, we’ve been “relying on the kindness of strangers” to help cover our debts, he tells Aaron Task in the accompanying clip.
By “strangers” he is referring to our foreign counterparts, like China for example. Basically, for years Americans have spent their hard-earned dollars on less-expensive Chinese made goods. With great gratitude, China turned around and used all those dollars to buy up U.S. Treasuries and other dollar-denominated assets.
But now after years of reckless spending, America’s debt level is nearing a breaking point and can no longer rely on foreign capital as a last resort. “When a country reaches a certain debt level, confidence in that country’s ability to repay that debt becomes jeopardized,” says Gross, citing the work of Ken Rogoff and Carmen Reinhart in This Time Is Different.
The Way Forward...And Your Pocketbook
The budget crisis situation unfolding - at the state and federal government level - does not bode well for working men and women in this country. There are really only two choices, says Gross. And, neither favors your pocketbook:
* Option #1 – Keep spending and do nothing
* Option #2 – Balance our budgets by cutting entitlements
House Republicans ran and won on a platform to cut $100 billion from the budget this year and last month managed to pass legislation that would strip $61 billion in spending.
But for President Obama and Congressional Democrats, those cuts go way too far at a time when the country is still struggling to recover from the worst recession since the Great Depression. Goldman Sachs and Bill Gross agree and have warned that cutting too much could stifle growth. (See: Gross "self sustaining" clip)
Meanwhile, neither side has gotten serious about reforming entitlement programs like Social Security and Medicare, which account for more than a third of Uncle Sam's budget.
If the country cannot come to grips and cut back on entitlement programs, U.S. debt will continue to grow and governments around the world will loose faith in the U.S. dollar. Foreign goods would become more expensive, says Gross, while our standard of living would drop.
Under the second option, if entitlement programs are cut, many Americans would naturally have to learn to live on less and take a hit to their standard of living.
“There is really no way out of this trap and this conundrum at this point,” says Gross. From an investment perspective his advice is to stay clear of “bonds in dollar denominated terms” and to be “wary of higher interest rates going forward.” (See: Gross "Most Overvalued" clip)
http://finance.yahoo.com/tech-ticker/%E2%80%9Cno-way-out%E2%80%9D-of-debt-trap-gross-says-u.s.-living-standards-doomed-to-fall-536001.html
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Hope and change bitches!
Keep spending! Recovery is only a few trillion more away.
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*Stop the wars, close and condense military bases around the world
*Sterilize the welfare breeders, more kids doesn't equal more benefits
*Seize assets of any US corporation that moves off shore so they don't have to pay taxes
*Scale back Union pensions and bring into line medical subsidies they receive
*Cut and freeze illegals on Social Security and Medicare
*Flat 20% tax on everyone
*Legalize marijuana, 10% state tax, 3% fed
Budget balanced, with surplus
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I think we should sell off land, oil, do across the board cuts year by year, etc.
We could drill oil off shore and make billions in taxes.
We need to put the welfare leeches to work, have inmates on chain gangs in coal mines, etc.
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.Gross Eliminates Government Debt From Pimco’s Flagship Total Return Fund
By Susanne Walker - Mar 9, 2011 2:09 PM ET
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Business ExchangeBuzz up!DiggPrint Email . Pacific Investment Management Co.'s Bill Gross. Photographer: Andrew Harrer/Bloomberg
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., eliminated government-related debt from his flagship fund last month as the U.S. projected record budget deficits.
Pimco’s $237 billion Total Return Fund last held zero government-related debt in January 2009. Gross had cut the holdings to 12 percent of assets in January, according to the Newport Beach, California-based company’s website. The fund’s net cash-and-equivalent position surged from 5 percent to 23 percent in February, the highest since May 2008.
Yields on Treasuries may be too low to sustain demand for U.S. government debt as the Federal Reserve approaches the end of its second round of quantitative easing, Gross wrote in a monthly investment outlook posted on Pimco’s website on March 2. Gross mentioned that Pimco may be a buyer of Treasuries if yields rise to attractive levels.
Treasury yields are about 150 basis points too low when viewed on a historical context and when compared with expected nominal gross domestic product growth of 5 percent, he wrote in the commentary. The Fed is scheduled to complete purchases of $600 billion of Treasuries in June.
Gross in his February commentary urged investors to reduce holdings of Treasuries and U.K. gilts and buy higher-returning securities such as debt from emerging-market nations. “Old- fashioned gilts and Treasury bonds may need to be ‘exorcised’ from model portfolios and replaced with more attractive alternatives both from a risk and a reward standpoint,” Gross wrote.
Emerging-Market Debt
Gross last month increased holdings of emerging-market debt to 10 percent, the highest since October, from 9 percent in January. He cut holdings of mortgage securities to 34 percent from 42 percent in January.
The Zero Hedge website first reported the change in assets today. Pimco doesn’t comment on changes in holdings.
Treasuries returned 5.9 percent in 2010, according to Bank of America Merrill Lynch Indexes. The securities lost 0.6 percent so far this year.
Ten-year Treasury yields have risen for each of the past six months, according to data compiled by Bloomberg, the longest run since June 2006, as the economy showed signs of improvement and prices of commodities climbed. The 10-year yield fell six basis points to 3.48 percent today.
Gross kept the holdings of non-U.S. developed debt at 5 percent in February.
Inflation Outlook
Gross’ fund has returned 7.23 percent in the past year, beating 85 percent of its peers, according to data compiled by Bloomberg. It gained 1.39 percent over the past month.
As the Fed maintains its target rate at a record low range of zero to 0.25 percent and has made an increase in inflation a cornerstone of its monetary policy, Gross noted that inflation may be a bigger factor than many suggest.
Gains in so-called headline inflation matter more for the U.S. economy than Fed Chairman Ben S. Bernanke suggests and rising oil prices may cut U.S. gross domestic product by a quarter to half a percentage point, Gross said March 4 in a radio interview on “Bloomberg Surveillance” with Tom Keene.
“Bernanke tends to think this doesn’t matter -- at least in terms of headline versus the core -- we do,” Gross said.
Pimco’s U.S. government-related debt category can include conventional and inflation-linked Treasuries, agency debt, interest-rate derivatives, Treasury futures and options and bank debt backed by the Federal Deposit Insurance Corp., according to the company’s website. The fund can have a so-called negative position by using derivatives, futures or by shorting.
Derivatives are financial obligations whose value is derived from an underlying asset. Futures are agreements to buy or sell assets at a later specific price and date. Shorting is borrowing and selling an asset in anticipation of making a profit by buying it back after its price has fallen.
Pimco, a unit of the Munich-based insurer Allianz SE, managed $1.24 trillion of assets as of December.
To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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*Stop the wars, close and condense military bases around the world
*Sterilize the welfare breeders, more kids doesn't equal more benefits
*Seize assets of any US corporation that moves off shore so they don't have to pay taxes
*Scale back Union pensions and bring into line medical subsidies they receive
*Cut and freeze illegals on Social Security and Medicare
*Flat 20% tax on everyone
*Legalize marijuana, 10% state tax, 3% fed
Budget balanced, with surplus
Sounds good
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If this isnt a vote of n confidence in the current govt, i don't know what else is.
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Seing as the debt is increasing by the minute and the government doesnt seem willing to take the hard decisions required i would say yes
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If this isnt a vote of n confidence in the current govt, i don't know what else is.
He had this to say:
Ultimately, history has proven that both Democrats and Republicans have been big spenders and low taxers, he warns.
“Both are equally at fault here, and to suggest otherwise, I think, is not being realistic,” he says. “I don’t have too much faith and hope.”
Read more: Pimco’s Gross: US Has No Way Out of Debt Trap
Sounds more like a vote of no confidence in American gov't as a whole.
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.Gross Eliminates Government Debt From Pimco’s Flagship Total Return Fund
By Susanne Walker - Mar 9, 2011 2:09 PM ET
inShare.82More
Business ExchangeBuzz up!DiggPrint Email . Pacific Investment Management Co.'s Bill Gross. Photographer: Andrew Harrer/Bloomberg
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., eliminated government-related debt from his flagship fund last month as the U.S. projected record budget deficits.
Pimco’s $237 billion Total Return Fund last held zero government-related debt in January 2009. G
Notice it says in january 2009....At that point in time, treasury yields were almost negative..Most recently as dec 31, 2010..Gross had about 8 billion in US treasury futures...That's a shit load of futures, and leverage...
oldings as of Dec 31, 2010 Get Holdings for:
Overall Portfolio Composition (%)
Cash: 35.80
Stocks: 0.00
Bonds: 50.56
Other: 9.46
Top 10 Holdings (54.12% of Total Assets)
Company Symbol % Assets YTD Return %
Pimco Fds Private Account Portfolio Ser N/A 10.95 N/A
FNMA 4.5% TBA N/A 8.35 N/A
FNMA 5% TBA N/A 6.10 N/A
Irs Usd R 3ml/3.45 08/05/09 Myc N/A 4.94 N/A
Irs Usd R 3ml/3.0 02/04/09 Ryl N/A 4.60 N/A
Irs Usd R 3ml/3.0 02/04/09 Brc N/A 4.13 N/A
Irs Usd R 3ml/3.0 12/16/09 Myc N/A 3.96 N/A
Irs Usd R 3ml/3.45 08/05/09 Ryl N/A 3.91 N/A
FNMA 5.5% N/A 3.81 N/A
US Treasury (Fut) N/A 3.37 N/A
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Gross sees the writing on the wall.
You can't keep spending like this without triggering a collapse.
And yet - bama and the fellow traveling pofs senators will shut the govt down over a tiny 61 billion.
Unfreaking real how reckless these maddoffs are.
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*Stop the wars, close and condense military bases around the world
*Sterilize the welfare breeders, more kids doesn't equal more benefits
*Seize assets of any US corporation that moves off shore so they don't have to pay taxes
*Scale back Union pensions and bring into line medical subsidies they receive
*Cut and freeze illegals on Social Security and Medicare
*Flat 20% tax on everyone
*Legalize marijuana, 10% state tax, 3% fed
Budget balanced, with surplus
I like it except for the seizing of assets by the government to punish corporations that off-shore production and such. That is a recipe for not having any corporations do business here, it's to draconian. I would replace it with a totally new and more efficient tax structure. 15% flat tax for corporations and cut tax-subsidies that encourage off-shoring like the cut the U.S. gives to businesses that help lower the cost of moving said business off-shore. Citizen taxes should be simplified, the brackets condensed and the loopholes/write-offs/credits etc done away with for them most part. The peak is lowered the base is expanded and everyone fucking pays.
The wars need to stop, period. They are bleeding the military and the U.S. dry. Future weapons dev. is being put in jeopardy and outright cut. We build the weapons to achieve total dominance and to act as a deterrent. If we lose that ability we may well find ourselves in more conflicts.
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February federal budget deficit sets record (largest one-month increase in history)
AP ^ | March 10, 2011 | by Martin Crutsinger
** EXCERPT **
WASHINGTON (AP) -- The federal government's budget deficit grew by $222.5 billion in February, the largest one-month increase in history. Economists are forecasting the deficit for the year will be the biggest imbalance on record.
The Treasury Department says the February deficit surpassed the old record for any month, a $220.9 billion imbalance set in February 2010.
Through the first five months of this budget year, which began Oct. 1, the deficit totals $641.3 billion, 1.6 percent below the pace set last year.
(Excerpt) Read more at hosted.ap.org ...