Tags: pimco | gross | u.s. | credit | downgrade

Pimco's Gross: US at Risk of Another Credit Downgrade

Tuesday, 01 May 2012 04:31 PM

The U.S. could suffer another credit downgrade, similar to the Standard & Poor's decision to strip the country of its coveted AAA rating in 2011, says Bill Gross, founder of Pimco, manager of the world's largest bond fund.

The U.S. is running a structural deficit, a deficit a country would post even while running at full capacity, that is seriously jeopardizing the country's health.  Until the government addresses massive liabilities, the country is headed for another downgrade.

Standard & Poor's currently rates the country at AA, while Moody's rates the country at AAA.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

"Let's look to the liability structure of the United States. It's not just $15 trillion in terms of current debt, but it's probably three to four times that in terms of Medicare and Medicaid and Social Security," Gross tells CNBC.

"Unless the United States begins to make some inroads, that's called the structural deficit that the CBO and the IMF basically identified as, perhaps 6 percent to 7 percent to 8 percent greater than any other country other than Japan and the United Kingdom — until we address that structural deficit, yes, we're headed to that territory."

Adding to the country's more short-term woes is a fiscal cliff fast approaching.

At the end of this year, the Bush tax cuts are set to expire while automatic spending cuts are due to kick in, a combination that will immediately siphon hundreds of billions of dollars out of the economy and threaten to counter what little growth the economy is posting.

Only Congress and the White House can change that, and not the more autonomous and decisive Federal Reserve. Many worry that nothing will get done during the election year.

Others say the problem is so dire that elected officials will check their egos and political interests at the door and solve the problem quickly.

"I think coming up to the edge of Niagara Falls in the rowboat might finally force Congress and the president to do something," says Keith Poole, a professor at the University of Georgia who has studied political polarization, according to the AFP newswire.

Standard & Poor's downgraded the U.S. in 2011, when the country waited to the last second to raise its debt ceiling and avoid default.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

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