Gross Problem

I don't want to wait for our lives to be over
Will it be yes or will it be sorry?
--Paula Cole

Am not a huge fan of Bill Gross of Pimco, but he captures our problem pretty well. If we suppose that future entitlement liabilities were in fact fully funded via the infamous 'lockbox' by borrowing, then the interest expense on the $75 trillion in total debt required to fund these liabilities would be about $2.6 trillion. We currently pay about $250 billion in interest expense. 

As such, the total debt burden of the US approaches 500% of GDP. This is higher than Greece.

Gross posits that absent large entitlement cuts (which the federal government seems reluctant to do), then the US is likely to default on its debt. Rather than a 'conventional' default, which entails outright failure to uphold contractual obligations, the US would be more likely to default by printing money to pay the bills (i.e., inflation).

Perhaps the strength of gold can be explained in part by the possibility that increasing numbers of investors are factoring this scenario into their asset allocation decisions.

position in gold