Pimco's Gross Urges Slow Pace of Deficit Cuts.

How utterly un-American of him! :)


Wed, Mar 2 2011
PIMCO's Gross urges slow pace of deficit cuts.


NEW YORK | Thu Mar 3, 2011 3:23pm EST
(Reuters) - Bill Gross, co-chief investment officer of PIMCO, the world's biggest bond fund manager, on Thursday urged lawmakers to cut the massive federal deficit but not so swiftly as to choke off the nascent economic recovery.

Speaking exclusively to Reuters Insider, Gross said: "Let's cut the deficit, but let's do it gradually," so that real economic growth can take hold.

Lawmakers struck a deal on Wednesday that delays for two weeks a showdown over the current year's spending plan. Republicans are seeking some $61 billion of cuts to help reduce the deficit, estimated to hit $1.65 trillion this year, but Senate Democrats are preparing a measure that would keep funding essentially flat.

The first negotiations on the budget are expected to take place on Thursday, according to congressional aides. Wednesday's deal averted a government shutdown as funding for daily operations had been due to expire on Friday, March 4.

Gross, who oversees $1.2 trillion of assets at the Newport Beach, Calif.-based, investment management firm, said he does not expect a credible deficit reduction plan until after the 2012 elections.

Addressing the risk to markets from the mushrooming budget deficit, Gross said Treasuries are moving toward being "less of a triple-A credit," echoing a concern many bond investors have how long the United States can retain the highest possible rating designated by credit rating agencies.

Gross, who has been avoiding U.S. government debt securities recently, said he suspects the yield on Treasuries will move higher this summer after the Federal Reserve brings an end to its $600 billion Treasury purchasing program.

In a more normal environment, the yield on benchmark U.S. 10-year notes would more closely track the nominal rate of gross domestic product growth, which Gross estimates to be roughly 5 percent.

A yield that high is not likely in this environment, but a 4.0 percent yield for 10-year notes is a "rational expectation" if the Fed "disappears as the buyer of last resort," Gross said. The note currently yields 3.56 percent.

Turning his attention away from the situation, Gross saw European Central Bank President Jean Claude Trichet's comments Thursday on the inflation threat in the euro zone as signaling a near-term rate hike but not the beginning of a trend.

Trichet's use of the term "strong vigilance" following the ECB's monthly policy meeting was "tough talk, there's no doubt about it," Gross said.

The ECB left benchmark rates for the region unchanged at a record low 1.0 percent. Gross said he now expects 25 basis points of increase thanks to high prices for oil and other commodities, which feature more prominently in the ECB's inflation math than in the Fed's.

Still, Gross said sufficient headwinds remain in the euro zone recovery to prevent any near-term rate increase from becoming a trend any time soon. (Reporting by Dan Burns, Jennifer Rogers and Jennifer Ablan)

LOL. I sold a bunch of shares he manages just yesterday.

As I have said in the past, it is a shame our economy is so tied to government spending.

U.S. Economy Is Increasingly Tied to the Rich


Who cares how the rich spend their money?

Well, perhaps everyone should these days. Consumer spending accounts for roughly two-thirds of U.S. gross domestic product, or the value of all goods and services produced in the nation. And spending by the rich now accounts for the largest share of consumer outlays in at least 20 years.

Jaguar shopping, or boosting the plutonomy?
According to new research from Moody’s Analytics, the top 5% of Americans by income account for 37% of all consumer outlays. Outlays include consumer spending, interest payments on installment debt and transfer payments.

By contrast, the bottom 80% by income account for 39.5% of all consumer outlays.

It is no surprise, of course, that the rich spend so much, since they earn a disproportionate share of income. According to economists Emmanuel Saez and Thomas Piketty, the top 10% of earners captured about half of all income as of 2007.

What is surprising is just how much or our consumer economy is now dependent on the rich, and how that share has increased as the U.S. emerges from recession. In the third quarter of 1990, the top 5% accounted for 25% of consumer outlays. That held relatively steady until the mid-1990s, when it started inching up past 30%. It dipped in 2003 and again in 2008, but started surging in 2009 amid the greatest bull market rally in history, with the Dow Jones Industry Average rising nearly 50% in the last nine months of the year.

Mark Zandi, chief economist for Moody’s Analytics, cites two main reasons for the increase. First, the wealthy panicked during the financial crisis and stopped spending. When markets rebounded, they came out of their shells and started spending again. “I think that pent-up demand was unleashed,” he said. “It was an unusually high rate of spending.”

The second reason is that those people in the middle- and lower-income groups are struggling to pay off debt and stay afloat amid rising unemployment, as today’s data remind us. That has crimped their spending.

The data may be a further sign that the U.S. is becoming a Plutonomy–an economy dependent on the spending and investing of the wealthy. And Plutonomies are far less stable than economies built on more evenly distributed income and mass consumption. “I don’t think it’s healthy for the economy to be so dependent on the top 2% of the income distribution,” Mr. Zandi said. He added that, “In the near term it highlights the fragility of the recovery.”

Great post. We should tax those damn rich. That's the answer. Then we can give it to the bottom. That's fair. LMFAO. We need more central planning and less personal responsibility. At least you're consistent; I have to hand you that.

Your inconsistency is consistent. :)
I think you forgot that you said you were alright with the tax cuts expiring on the upper 2%. lol
By the way, I'm one of "those damn rich". What are you worried about it if im not?
You claim to be a moderate while you predictably line up with Fox on almost every issue.
Doesnt take central planning and less personal responsibility. All it takes is a simpler and fairer tax system.
My grandfather paid over 80% in income tax. Now thats a real burden.
I dont have a problem paying in the mid to high 30's. Do you?

Well, yes, 30% would suck. I don't make your kind of money, and my grandfathers never made enough money to get taxed at 80%. If I go by the fidelity web site, both of my kids college funds are tremendously underfunded. I need the money. On the other hand, I am grateful that a fund exists.

And yes, I don't mind "taxing the rich", but I don't believe it is "moral" or "fair" or "just" to tax the rich. It is not a mandate to me as it is to you and your fellow like minded friends.

And yes again, I am a registered "non party affiliate", but as you observe, I am clearly not "liberal", and don't want to be. That I can say with certainty. Candidly, I want to spend some of that stimulus money on typing the DNA of a liberal and a conservative with the hypothesis being that it is encoded into our beings.

I will agree that the tax code should be simpler, and even fairer, but what is "fair" would have to be discussed because I'm sure your "fair" and my "fair" are somewhat different.