Bond king Bill Gross called on presidential nominee Barack Obama to double the federal budget deficit to $1 trillion by fiscal 2011 if he became president.
The economy will need an additional jolt of $500 billion or so of government spending real quick, said Gross in a <http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+July+2008.htm>letter to President Obama posted on Pimcos Web site. It must replace both reduced residential investment and consumption whose decline has placed the U.S. economy near, if not in a recession. Gross noted that this years budget deficit should be about $500 billion. By doubling that to $1 trillion in three years, that would put the deficit at about 6% of gross domestic product, a mere pittance by Japanese standards. He said its deficit exceeded 10% at its peak a decade ago. In taking shots at President Bush and the mess Obama would inherit as chief executive, Gross - a registered Republican - said, Although your campaign slogan says, Yes we can, I have my doubts. While saying increased income taxes under an Obama administration would end an eight-year lease extension on the high life, he called on the presumptive Democratic presidential nominee to drop pretenses of Obamas plans not adding to the budget deficit. While the Republicans will blame you for years and label you Trillion Dollar Obama in future campaigns, there is in fact not much that you or any other President can do, said Gross. Youve inherited an asset-based economy whose well has been pumped nearly dry with lower and lower interest rates and lender of last resort liquidity provisions that have managed to support Ponzi-style prosperity in recent years. As a result, What you need now is fiscal spending and lots of it. No ordinary Starbucks will do, Mr. President, you need to step up for a six-pack of Red Bull. Gross noted that the spending will help push inflation higher still early next decade, with Treasury yields likely to continue rising into a potential second Obama term. Your term will not go down in history as investor friendly, he said. Kevin Kingsbury and Shara Tibken <http://feeds.wsjonline.com/%7Ea/wsj/economics/feed?a=xJcvUS> []
