The world’s largest bond fund began betting against the United States last month by taking short positions on its debt on expectations the nation’s shaky finances will drive interest rates higher and imperil its triple-A rating…READ MORE.
My Take: PIMCO is the ‘largest bond fund’ referenced above. As you may know, Bill Gross the Chief Investment Officer of PIMCO has expressed his concerns over excessive government debt in the U.S. for a while now. If the article is correct, Gross is now putting his money where his mouth is (in figurative terms).
I think Gross is of the opinion that big cuts to defense, medicare, medicaid and social security are very unpopular with the majority of Americans. Big cuts throughout these programs are not likely to be something that a politician can help get re-elected. If this is true, then the drive to make sufficient cuts in the budget are likely to be to weak willed to control the tide of government debt.
As government debts increase more Treasuries will need to be purchased. More debt will make the U.S. look more risky to investors, which will require a larger interest rates to be offered to attract buyers.
We live in very interesting and challenging times.