PIMCO's Bill Gross describes well the "Ring of Fire" for U.S. and other countries racking up big debt

PIMCO's Bill Gross has long been known as the "bond guru" as an accomplished bond analyst and trader. And bond traders in general are considered among the best traders and keenest eyes on the economy, because interest rates are more closely reflective of economic conditions. So it's always interesting to know what Bill Gross writes and says - and his new February article on PIMCO's website is another good read. Below is a partial quote from his article, with one of his graphs, indicating the "Ring of Fire" he describes in which the U.S. and other countries fall due to massive debt - to piqué your interest in reading his full article on this alarming topic:

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2010/February+2010+Gross+Ring+of+Fire.htm

... These examples tend to confirm that banking crises are followed by a deleveraging of the private sector accompanied by a substitution and escalation of government debt, which in turn slows economic growth and (PIMCO's thesis) lowers returns on investment and financial assets. The most vulnerable countries in 2010 are shown in PIMCO's chart "The Ring of Fire." These red zone countries are ones with the potential for public debt to exceed 90% of GDP within a few years' time, which would slow GDP by 1% or more. The yellow and green areas are considered to be the most conservative and potentially most solvent, with the potential for higher growth.

A different study by the McKinsey Group analyzes current leverage in the total economy (household, corporate and government debt) and looks to history, finding 32 examples of sustained deleveraging in the aftermath of a financial crisis.

It's another description - more insistent, now that U.S. debt has ballooned yet more - of the deleterious consequences we should expect from piling more public debt onto the backs of the private citizens expected to pay for it, on top of the huge private debts they're already struggling with in this high-unemployment economy.

No wonder TLT is looking like it's going to follow through on the scenario we posted a few days ago here - saying, Got TBT? The scenario of a third wave down "wave 3 of c" that will sweep the prices of U.S. Treasury 10-year notes and bonds well under the prior lows of the range they've been trading in for months now. With bond yields (rates) pushing up to higher highs - and that won't be good for mortgage rates (which in turn will be bad for real estate prices, and ripple throughout the economy). It might be funny because in the past, it might mean stocks should rise. But it's really sad, because it's more likely the dire fundamentals will cause U.S. stock indices to decline (either into March, and/or after another rally leg cresting May/August) along with bond prices.