THE BASIS POINT

PIMCO’s Bill Gross On Global Debt: Greece Can’t Grow It’s Way Out of Debt. U.S. Can But Growth Will Be Slim.

 

PIMCO head Bill Gross just published his June Investment Outlook in which he explores whether developed countries’ debt burdens stunt economic growth and investment returns. His conclusion: the world’s debt obligations mean a likely outcome for investors is 4-6% annualized returns for a diversified portfolio of stocks and bonds. Regarding Greece, he said that “there is no reasonable scenario which would allow Greece to grow its way out of” its debt burdens, and that its debt would have to be restructured a year or two years down the road. Regarding the U.S., this is what Gross had to say:

Several months ago I rhetorically asked whether it was possible to get out of debt crisis by increasing debt. Yes – was the answer, but it was a qualified yes. Given that initial conditions were favorable – relative low debt as a % of GDP, with the ability to produce low/negative short-term policy rates and constructively direct fiscal deficit spending towards growth positive investments – a country could escape a debt deflation by creating more debt. But those countries are few – the U.S. among perhaps a handful that have that privilege, and investors, including PIMCO, have strong doubts about U.S. fiscal deficits leading to strong future growth rates.

 

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