One Heck Of A Mess

That’s because Mr. Gross is no dummy. He knows that economic growth is highly dependent on public sector spending. This is fact – right or wrong. Economic growth will crash faster than public support for increased taxation if the flow from the spending spigot is restricted too quickly. States, according to the Constitution, cannot declare bankruptcy (at least not yet) and unlike their Federal counterpart they lack the ability to devalue to meet their growing obligations. This means the federal government, like it or not, is coming to the States' or peoples’ rescue sooner or later. It will likely be sooner rather than later. The "rescue" will be either through direct cash infusions to State coffers or indirect federal stimulus and quantitative easing to combat the massive drop in local, state, and personal spending. It could be characterized as one heck of mess, but that might be an over simplification.

Headline: PIMCO Gross urges slow pace of deficit cuts

Bill Gross, co-chief investment officer of PIMCO, the world's biggest bond fund manager, on Thursday urged lawmakers to cut the massive federal deficit but not so swiftly as to choke off the nascent economic recovery.

Speaking exclusively to Reuters Insider, Gross said: "Let's cut the deficit, but let's do it gradually," so that real economic growth can take hold.

Lawmakers struck a deal on Wednesday that delays for two weeks a showdown over the current year's spending plan. Republicans are seeking some $61 billion of cuts to help reduce the deficit, estimated to hit $1.65 trillion this year, but Senate Democrats are preparing a measure that would keep funding essentially flat.

Source: finance.yahoo.com