Go S&P! Bill Gross Reacts To The Downgrade

Bill Gross

, to AA+, despite White House claims that its analysis was off by trillions. The ratings agency confirmed the error but maintained its rating.

S&P received flak for its move, and was widely criticised for having done so, because the media expected an announcement. But PIMCO’s Bill Gross has backed S&P saying, they “finally got it right. They spoke to a dysfunctional political system and deficits as far as the eye can see. They are enforcing some discipline.” And in doing so disagrees with the likes of Warren Buffet.

In an interview with Bloomberg Television, Gross said he thinks the biggest impact of the downgrade will be on the currency:

We’re not seeing that tremendously tonight in terms of the dollar, but when you put the pieces together, the ECB action in terms of supporting euro land, when you look forward to the next few days in terms of the Fed and what they might do to ease interest rates to a certain extent, those in combination – in addition to S&P’s downgrade that speaks to the longer-term vulnerability of the United States – Put all that in a package and it’s the dollar more than anything that is vulnerable on the downside.”

Gross said the problem is a lot bigger than the cuts reflected in the debt deal. He put liabilities of the U.S. at $12 trillion in terms of treasures, but said medicare, medicaid, social security, what he calls the ‘debt men walking’, would be another $60 trillion.

For the moment Gross expects an immediate impact of 10 – 25 basis points to U.S. Treasuries. He added that Chinese revaluation of the yuan, specifically an appreciation of the currency could help stabilise global growth.

Watch the entire interview at Bloomberg Television:

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