Pimco's Gross: Pick Government Debt Carefully
Deciding on which country's debt to invest in comes down to three basic points, said bond king Bill Gross, which include a central bank's ability to use low or negative real interest rates to reflate its economy without creating a currency crisis.</br></br>In his monthly missive, the managing director of Pacific Investment Management Co. said, "2010 promises to be the year of choosing 'which government' can most successfully substitute the governments' fist for Adam Smith's invisible hand and for how long. Can individual countries escape a debt crisis by creating even more debt and riding another rocking horse winner? Can the global economy?"</br></br>To figure that out, Mr. Gross wrote there are many conditions, and they vary by country, but they boil down to three:</br></br>--Can a country issue its own currency and is it acceptable in global commerce?</br></br>--Are a country's initial conditions (outstanding debt, structural deficit, growth rate, demographic balance) moderate and can it issue future public debt as a substitute for private credit?