MICHELE NORRIS, host: The time for funnin is over, that's a quote attributed to Davy Crockett, Congressman Davy Crockett. And Bill Gross echoes that sentiment in his investment outlook for August. Gross is the founder of PIMCO, and he runs the world's largest mutual fund. He writes this about the debt ceiling saga in Washington: The whole world was watching, and what they saw was a dysfunctional government taking its country to the financial precipice and backing off at the very last moment. And Bill Gross is with us now for more on where this economy is headed and what the government can or cannot do. Mr. Gross, welcome back to the program.
BILL GROSS: Thank you, Michele. Nice to be here.
NORRIS: Now, we've just heard a report from Andrea Seabrook on this new supercommittee. I'm curious about your outlook on what this group can achieve and what it should take up first.
GROSS: Well, let's approach it with high hopes, but what, I think, government needs to do is to have some direct involvement in terms of job creation, whether it's infrastructure, banks or, you know, some directed type of policy in the area of green energy, et cetera. We need to take command here because the private sector basically is discouraged, frightened and in what economists call a liquidity trap, which basically means they have a lot of money, but they're unwilling to spend it.
NORRIS: And it sounds like the investment community is disgusted by the gridlock in Washington. Do you think that it might be better if lawmakers return from Washington, cut short the vacation and actually got back to work on fixing this problem, or is it better to have, sort of a period of detente and let the markets sort of settle itself?
GROSS: Well, I think they should come back. Even French President Sarkozy has come back. And I just heard that the president is leaving for Martha's Vineyard shortly. To me, it doesn't give the right signal to the rest of the nation who in small part might be on vacation, but for the most part are either unemployed or hardworking.
NORRIS: The markets seemed to be so volatile. I mean, just even in the last 24 hours, it's been like riding a roller coaster. Why are we seeing so much market volatility, and is that a result of the downgrade, or was the downgrade in some ways more reflection of the volatility that had already existed in the market?
GROSS: I think the latter. The downgrade was a reflection of the inherent problems, not just in the United States but the developing problems in Euroland. We would expect other countries there, such as France and the like, to be potentially on the rating chopping block. The consumer on both continents basically is tapped out in terms of spending power and leverage, and so now, the point comes where they must start saving money where they can't borrow on their supposedly endless credit card.
And that being the case, then these economies move closer to the zero line or perhaps even into recession as opposed to stronger growth. And so the financial markets begin to reflect a discouraged atmosphere for risk over the next several years.
NORRIS: You were seen as a wise man when it comes to figuring out what's going on in the economy. And in a moment like this, I bet you're a pretty popular person in your family and in your personal circle. All kinds of people are probably turning to you and saying, what the heck is going on right now? What do you tell them, and what do you tell them that they should be doing in their own personal investments to ride the storm out?
GROSS: Well, I tell them, first of all, to lower their expectations. The ability of financial markets to deliver historical expectations is very limited. Second of all, I tell them that now in a period of stress that they should be listening to that old sage reporter of the 1930s, Will Rogers. He said that I'm more concerned about the return of my money as opposed to the return on my money. And so, you know, be conservative. If you have to fund that college education or if you have to continue to prepare for retirement, there are solutions that involve more saving or perhaps an extended retirement period. But the ability of financial markets to be the salvation, I think, is over.
NORRIS: Bill Gross is the founder of the investment firm PIMCO, and he manages the world's largest mutual fund.