Washington must close both the budget deficit, which entails spending and revenue during the course of a given year, as well as a "fiscal gap," which describes the amount that will be needed to pay for social programs such as Social Security, Medicare and Medicaid that have unfunded liabilities of tens of trillions of dollars, Gross said.

The CBO, BIS and IMF have concluded that the U.S. balance sheet "is in flames and that its fire department is apparently asleep at the station house," he added.

The current budget deficit is running at more than $1.2 trillion while the total national debt is more than $16 trillion and there is a fiscal gap of 11 percent of gross domestic product, which is currently $15.6 trillion.

Gross said Washington lawmakers need to find spending cuts and tax increases of $1.6 trillion a year to close to fiscal gap. Eliminating the so-called Bush tax cuts, enacted across the board during the George W. Bush administration and a favorite target of Democratic critics, would raise only $200 billion of that total, he said.

"Unless we begin to close this gap, then the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow and the dollar would inevitably decline," Gross wrote. "Bonds would be burned to a crisp and stocks would certainly be singed; only gold and real assets would thrive within the 'Ring of Fire,'" another Gross term for U.S. economic conditions.

Should that happen, the results both for investors and the U.S. economywould be catastrophic, he concluded.

"If the fiscal gap isn’t closed even ever so gradually over the next few years, then rating services, dollar reserve holding nations and bond managers embarrassed into being reborn as vigilantes may together force a resolution that ends in tears," Gross said. "It would be a scenario for the storybooks, that’s for sure, but one which in this instance, investors would want to forget. The damage would likely be beyond repair."

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