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Pimco's Gross Calls US Economy 'Supernova' on Path to Extinction

Bond guru Bill Gross of Pimco warned on Thursday that the U.S. economy has become too credit-reliant and is requiring more and more government stimulus to produce ever-diminishing rates of growth, much like Japan has experienced over the past decade.

Jan 31 Bond guru Bill Gross of Pimco warned on Thursday that the U.S. economy has become too credit-reliant and is requiring more and more government stimulus to produce ever-diminishing rates of growth, much like Japan has experienced over the past decade.

Using a supernova as a metaphor for the U.S. financial system, Gross said the universe is expanding so rapidly now that in the far future it will end in a "big freeze." Dependence on credit for growth will produce similar results, he said.

"Our current monetary system seems to require perpetual expansion to maintain its existence," Gross said in a Pimco investment outlook commentary for February posted on the firm's web site. "The advancing entropy in the physical universe may in fact portend a similar decline of 'energy' and 'heat' within the credit markets."

Gross said in the 1980s it took $4 of new credit to generate $1 of real gross domestic product, while over the past decade it took $10 and since 2006, $20 to produce the same result.

U.S. government, corporate, household and personal debt is now $56 trillion, a monster that needs ever increasing amounts of fuel, Gross said, calling it a "supernova star that expands and expands, yet, in the process begins to consume itself."

Gross runs the $285 billion Pimco Total Return Fund, the world's largest bond fund.

Copyright 2010 by Reuters. All rights reserved.

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