Don’t count Bill Gross, managing director of the giant investment management firm PIMCO, among those expressing relief at the government’s recent debt ceiling compromise or any subsequent package of budget cuts that may materialize over the next 10 years.

Gross, whose company manages more than $1 trillion in assets, said the deal — which he characterized as a display of “dysfunctional government" — scarcely touches the current year’s $1.5 trillion deficit.

Worse yet, he said that even if the scheme to have 12 members of a “super committee” of six House and Senate Republicans and six House and Senate Democrats does manage to come up by with another $1.5 trillion worth of budget cuts over the next decade, it would only reduce future deficits “at most by 0.5%”

The cuts made in the debt deal are predicted by the Congressional Office of Management and Budget to bring down the country’s “official” total debt/GDP ratio from a current level of 100% to around 90%, with the deficits in 2012 and 2013 averaging 7% to 8% of GDP each year.

But that drop in the debt/GDP ratio, Gross warned, is premised on an assumption that the U.S. economy will grow in 2012 and 2013 at a rate in excess of 3% per year.

But as Gross said, “Recent trends give pause to these estimates, as does PIMCO’s New Normal, which believes 2%, not 3%, is closer to reality.”

The bad news: If growth is closer to 2% per year instead of 3%, “deficits move right back up to near double-digit percentages of GDP.”

And there’s another catch.

The rosier scenario for the debt/GDP ratio assumes interest rates hold at current 2% levels. If rates were to rise, either because of inflation or to defend a falling dollar, for example, Gross said every 100 basis point increase “raises the deficit by 1% and erases any hoped for gains.”

The government’s action on the deficit this week pales almost to insignificance, Gross warns, when one looks at the net present cost of future liabilities in the Medicare, Social Security and Medicaid programs, which he puts at a staggering $66 trillion.

These enormous future debts can be addressed, he said, but not without taking steps to improve the efficiency of our healthcare system, reduce benefits, raise retirement ages, and, yes, increase tax rates, “or a combination of all of the above.”

Gross said the government also has the option of depreciating the currency and/or maintaining artificially low or even negative real interest rates.

Not a pretty picture to be sure.

Gross’s advice to investors: favor countries with higher real interest rates like Canada, Mexico, Brazil and Germany. Diversify equity and fixed income investments out of the dollar and into developing nations “with stronger growth prospects.

He also advocated investors buy commodity-based real assets “before reserve surplus nations do,” and “above all, don’t be lulled to sleep by congressional law makers that promise a change in Washington.”

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