Bloomberg TV Talks With PIMCO's Bill Gross

Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. (PIMCO), talked with Bloomberg Television's Julie Hyman about the risk of default by Greece and other sovereign borrowers dealing with mounting debt and deficits today. PIMCO has assets under management in excess of $1 trillion and manages the world's largest mutual fund - The Total Return Fund. Here are the highlights from the interview, courtesy of Bloomberg TV.

"Well, I think in some cases and obviously the timing is in doubt what the ECB and euro land in general would prefer would be to drag this out and to hope that ultimately growth will bail out Greece and growth will bail out some of their southern neighbors. But I suspect that the growth required in order to shoulder Greece's debt burden is so excessive and that the fiscal restrictiveness being imposed upon the country is so restrictive that there will be no way out and that a restructuring at some point down the road, perhaps a year or two years down the road will take place."

"Well, the risks are in terms of a domino or a knock-on type of effect to the extent that other southern euro land neighbors have high levels of debt and obviously we're talking about Portugal and we're talking about Spain and in some cases Ireland. And you know, a good portion of the euro land, certainly the southern portion, you know, might be considered to be at risk. And that type of risk sort of snowballs in the credit markets, forces the ECB and the E.U. to invoke emergency measures and policy distortions. And the credit markets themselves tend to lock up."

"The United States has an exorbitant privilege at the moment in terms of their reserve currency and being perceived as the safe haven country. That won't always continue. You know, our deficits of 10 to 11 percent of GDP can't continue at that pace. And we in turn have to, you know, tighten policy, reduce spending, increase taxes and that in turn slows growth. So no country is really sacrosanct in this regard, and the United States, although number one, number two in terms of perception of quality cannot abuse that privilege for too much longer."

"Well, our perception in terms of the Fed funds rate, which you allude to, basically is a yes, a 2011, maybe a late 2011 type of scenario if the U.S. economy can rejuvenate itself a la, you know, previous cycles. Our view basically though is that we're at a new normal, a bumpy journey to a new normal, which means half size growth rates, perhaps two percent plus or minus going forward. And you know, it doesn't seem to us that the Fed can be aggressively raising rates even in 2011, 2012 at that point. And so, you know, current levels for the five-year, the 10-year, you know, are not overwhelmingly generous, but are still attractive from the standpoint of low inflation and a benign fit."