Bill Gross doesn’t think so… well, kinda. In his latest commentary, he asks if a country can get out of a financial crisis by issuing more debt, and believes that it can as long as it meets three conditions:
1. Can a country issue its own currency and is it acceptable in global commerce?
2. Are a country’s initial conditions (outstanding debt, structural deficit, growth rate, demographic balance) moderate and can it issue future public debt as a substitute for private credit?
3. Can a country’s central bank be allowed to reflate via low or negative real interest rates without creating a currency crisis?
Based on this, its fairly safe to say that the US won’t default on it’s debt, but Treasury bonds are a far cry from good investment, especially given the deficit, which, in the end, may need to be solved by printing more money. And that thing called ObamaCare certainly won’t help.
On a side note, last month Gross talked about how corporate spreads may be tightening as sovereigns become riskier and there may be a “unicredit bond market.” Interesting point – which would be safer: a global AAA-rated corporation that is essentially currency-independent or a country with trillions of dollars of debt?
