Why Is the US Economy Broke?



Having its cake and eating it too

The US economy’s (SPY) (IWM) (QQQ) current outstanding debt is 100% of its GDP (gross domestic product). However, the shock extends beyond that. Social security costs, as promised by the US government under its various programs, account for about 400% of the GDP. According to Bill Gross, the US economy is broke!

Gross estimates that ~$16 trillion in debt and about $66 trillion of promised social security benefits put the US economy (IVV) (VOO) in a situation where it may want to term itself as “broke.” He estimates the present value of Medicaid as $35 trillion, Medicare as $23 trillion, and social security at $8 trillion. This brings the total promised under the existing program to $66 trillion or 400% of the GDP.

Article continues below advertisement

Not enough Millennials to take care of the Baby Boomers

The US has a substantial amount of debt. The debt continues to increase daily. Some politicians might suggest reducing the growth rate of debt in the economy. However, Bill Gross thinks that “reducing the growth rate of current government debt does little to help what in essence is a demographic not a financial problem.” The US doesn’t have enough Millennials to take care of the Baby Boomers.

This is a financial problem that no amount of social security “lock boxes” or Medicare or Medicaid “trust funds” can fix.

Gross explains his stance on why the current Baby Boomer generation could be a bigger burden on society than anticipated.


More From Market Realist