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OK... now you can panic and worry about inflation.


NEW YORK (Dow Jones)--Bill Gross, founder of bond powerhouse Pacific Investment Management Co., explained in his April outlook that he had dumped his U.S. Treasury holdings at the end of February because he sees little value in the market given the nation's mounting debt burden.

In addition to the $9.1 trillion in federal debt seen on the books, Gross is worried about the hefty portion of each year's budget that goes toward non-discretionary and entitlement spending. Including obligations for Medicare, Medicaid and Social Security, the "true but unrecorded" U.S. debt is $75 trillion, Gross said, which amounts to near 500% of gross domestic product.

"[I have] been selling Treasuries because they have little value within the context of a $75 trillion total debt burden," Gross said in his outlook published on Pimco's website. "Unless entitlements are substantially reformed, I am confident that this country will default on its debt," but "not in conventional ways."

Earlier in March, reports showed that the bond-fund company, which manages more than $1 trillion in assets, sold all its holdings in U.S. government bonds of more than 12 months maturity. While he had stressed his move was not to question the credit of the United States, Gross's April newsletter reflected his belief that the nation is ultimately in danger of default if deficit spending is not addressed.

"Unless entitlements are substantially reformed, I am confident that this country will default on its debt; not in conventional ways, but by picking the pocket of savers," Gross said, pointing to inflation, currency devaluation and low to negative real interest rates as the "stealth" forms of default--all of which are detrimental to Treasury holders.
 
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