Pimco’s Bill Gross vindicated by S&P ‘negative’ tag on US debt

Scathing words Pimco’s Bill Gross directed at America’s policymakers this month in tackling the debt mountain seemed vindicated today as Standard & Poor’s assigned a ‘negative’ outlook to America’s AAA credit rating.

S&P’s move, citing the rising budget deficit and debt facing the US as reasons, sent the dollar and US shares falling.

Pimco’s managing director Bill Gross said earlier this month America was “out-Greeking the Greeks” in its public liability levels and a default was not out of the question.

He said: “It is incumbent that entitlement spending be reduced and future liabilities be addressed in terms of health care and social security cost containment.”

No lender would lend to the US were it a corporation in its present state, he said.

A report released today by S&P said: “We believe there is a material risk that US policy makers might not reach an agreement on how to address medium-and long-term budgetary challenges by 2013.”

The ruling Democrats and Republicans are locked in a battle over how to reduce the ballooning US deficit.

Their fight led to a stalemate that almost shut the public sector earlier this month.

Last week, Moody’s signaled President Obama’s plan to cut $4trn in cumulative deficits within 12 years may be a “positive” for the nation’s credit quality.

David Walker

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