Pimco Total Return Fund manager and bond guru, Bill Gross, states the obvious. Now that the debt ceiling debate is over, we have to realize that this whole kerfuffle did not make a dent in the budget deficit. By the way, you heard it here many times that we would, in fact, get a debt ceiling increase and that all the drama was overdone.
Here is what Bill Gross wrote on our growing government debt in his latest monthly Investment Outlook column [emphasis added]:
- Nothing in the Congressional compromise reached over the weekend makes a significant dent in our $1.5 trillion deficit.
- In addition to an existing nearly $10 trillion of outstanding Treasury debt, the U.S. has a near unfathomable $66 trillion of future liabilities at “net present cost.”
- Aside from outright default, there are numerous ways a government can reduce its future liabilities. They include balancing the budget, unexpected inflation, currency depreciation and financial repression.
Now, that the debt ceiling legislation has passed, we can and should move on to the greater and far more important issue — huge annual budget deficits and burgeoning debt. Despite all the talk about trillions in budget cuts, Gross points out that there is very little substance to those claims:
…The Office of Management and Budget (OMB) estimates that future deficits will be reduced at most by .5%…
Did you get that? OMB estimates a 0.5% (1/2 percent) decrease in future deficits. Right now we are hearing anguished cries about budgets being slashed, but the reality is that there is nothing in the debt ceiling compromise other than a modest slowing of the rate our debt is growing.
Let’s take a look at the future deficits as foreseen by the Congressional Budget Office (CBO) and you can judge for yourself if there is any budget cutting at work.
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According to the CBO projections, deficits will be at or above $1 trillion as far as the eye can see. So, we will quickly burn through this latest debt ceiling increase and we will have to go through this whole thing again.