Bill Gross on Deficits and the Fed

This month's column is about Bill Gross, who heads Pimco, the world's largest bond fund.  We spent a couple of hours talking about his portfolio, and why he's bearish on Treasury bonds.  When this news came out, a lot of commentators seemed to think that this meant that he was predicting a high likelihood of imminent default, but that isn't the case.  What he's worried about in the near term is the low yields, bred of Fed intervention and the global "flight to quality".


But over the longer term, of course, he's worried about the deficit.  But unlike many deficit hawks, he doesn't care how we close it.  I asked him specifically whether he though it mattered whether we closed the deficit using tax hikes or spending cuts, and though he said he personally thinks we ought to raise taxes on people like him, he professed himself basically indifferent between higher taxes or lower spending--he doesn't think that the economic effects of one are obviously worse than the other.

Keep that in mind when you hear people arguing about austerity:.  People like Bill Gross are the ones we ultimately need to convince, because they're the ones whose defection will precipitate a crisis.  And he's not buying either supply-side claims that tax hikes will cause disaster, or the super-Keynesian argument that we can't cut spending because the economy will contract so fast that we'll actually end up with a bigger deficit.  All he cares about is the math: do the numbers add up, or not?


Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

The Blacksmith: A Short Film About Art Forged From Metal

"I'm exploiting the maximum of what you can ask a piece of metal to do."

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

Riding Unicycles in a Cave

"If you fall down and break your leg, there's no way out."

Video

Carrot: A Pitch-Perfect Satire of Tech

"It's not just a vegetable. It's what a vegetable should be."

Video

An Ingenious 360-Degree Time-Lapse

Watch the world become a cartoonishly small playground

Video

The Benefits of Living Alone on a Mountain

"You really have to love solitary time by yourself."

Video

The Rise of the Cat Tattoo

How a Brooklyn tattoo artist popularized the "cattoo"

More in Business

Just In