Submitted by Taps Coogan on the 17th of October 2018 to The Sounding Line.
Founder of DoubleLine, Jeffrey Gundlach, recently spoke with CNBC to warn about a massive increase in debt that will hit the market in the current fiscal year as a result of increasing deficit spending, increasing entitlement liabilities, and the Fed’s shrinking balance sheet.
“Investors are starting to realize just how many bonds are coming at us in the year or two ahead… We’ve had a budget deficit in the United States that went up from around $600 billion a couple years ago to now the official number for fiscal ’18 is a little over $900 billion. But that doesn’t really capture the amount of debt that’s being added to the national debt of the United States, because if you just look at the deficit, there are certain things that are not included in there. Importantly, there is a loan to the Social Security system… and it takes the increase in national debt for the fiscal (year) 2018, not (to) $900 billion, (but to) $1.271 trillion and that’s a cash accounting way of tracking the growth in the debt. If you use accrual accounting, which companies have to do when they report their situation, they have to accrue things like pension liabilities. Well, we have pension liabilities in the Unites States too, like the veterans benefits, and so on, that have been increased… (A couple years ago) we had about $400 billion of accrual that is obviously going to have to be borrowed in the future at some point for these liabilities. So in essence, the actual growth in liabilities is more like $1.7 trillion dollars in the United States and on top of that, you have the Fed now cranking up quantitative (tightening) $50 billion a month, which is another $600 billion for fiscal year 2019 if they continue on that course, which takes you to around two-and-a-quarter trillion dollars of debt increase… and this is at a time where we are supposedly in a good economy… We are supposed to be having a surplus and the deficit is expanding. Ladle on top of that the debt-to-GDP ratios in many other countries and ladle on top of that $10 trillion, per a McKinsey study that came out about a month or two ago that global corporate bond maturities are something like $10 trillion dollars over the next five years. So, there is kinda a problem with the compounding curve on debt service and I think that people are starting to realize that we are going to have to take down an awful lot of bonds…”
For what it is worth, I believe that Mr. Gundlach means fiscal year 2019 when he refers to fiscal year 2018. There is more to the interview so enjoy it above.
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