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Bill Gross: U.S. Will Lose Triple-A Rating

By Dan Weil   |   Friday, 22 May 2009 12:09 PM

Superstar bond fund manager Bill Gross says the United States ultimately will lose its triple-A rating, thanks to the exploding budget deficit.

“I think eventually” that will happen, Gross tells Bloomberg TV.

“That’s the trend. It’s certainly nothing that’s going to happen overnight.”

Financial markets already reflect that possibility after news that the U.K. may be downgraded, he says.

“The market knows and believes both the U.S. and the U.K. are quite similar in terms of their debt levels and their debt trends.”

What will drive the rating down? The level of outstanding debt as a percentage of GDP, Gross says.

“Interestingly enough, both of these countries start out at relatively low levels” on that score, he explains.

“The U.K. and U.S. are around 50 percent of GDP, where countries such as Japan and Italy are twice that.”

“Why are the U.K. and U.S. potential candidates for downgrades, whereas Japan and Italy are holding up better?” Gross asks.

Answer: “Both the U.K. and U.S. have … deficits of 10 percent (of GDP) annually as far as the eye can see,” he says.

“That means that at some point over the next several years, they may approach 100 percent of GDP (in terms of debt), which is a level at which country downgrades tend to occur.”

Warren Buffett is worried about the U.S. debt buildup too.

“A country that continuously expands its debt as a percentage of GDP … it’s going to inflate its way out of that debt,” he told CNBC.

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Superstar bond fund manager Bill Gross says the United States ultimately will lose its triple-A rating, thanks to the exploding budget deficit.“I think eventually” that will happen, Gross tells Bloomberg TV. “That’s the trend. It’s certainly nothing that’s going to happen...
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2009-09-22
 

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