We were expecting that Bill Gross would say in his PIMCO October investment outlook that the U.S. was on an immediate path toward the demise of the U.S. and hyperinflation hated by everyone but the most extreme of the gold bugs. That did not happen. Still, Gross was full of warnings that are coming up in the years ahead.
Mr. Gross keyed on studies from the CBO, IMF and BIS suggest that when you average out these studies the United States has to cut spending or raise taxes by 11% of GDP and rather quickly over the next five to 10 years. The real issue is that if the U.S. does not begin to close this gap, then the debt/GDP ratio will continue to rise and that the Federal Reserve would print money to pay for the deficiency. When that happens, Gross asserts that inflation would follow and the dollar would inevitably decline.
It is evident that Mr. Gross did not want to have to appear in the media for ten days or so defending his story because his comments are all farther out on the timeline and far less dire for anything in the immediate future. Here are some comments showing that the situation is bad, but where Mr. Gross decided to put off the most critical predictions and observations:
Here is the graphic used by Bill Gross to describe the Ring of Fire. This is an average of the structural fiscal gap (percentage of GDP) projections given by PIMCO, IMF, BIS, and CBO as of July 2012.
FULL OCTOBER 2012 OUTLOOK
JON C. OGG
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