How long does it take to rack up $1 trillion in debt?

Note: This is an article I wrote in May 2010.

The US debt is currently at $12.987 trillion and will surpass $13 trillion next week (to pick a date I will say 5/25/10). The $12 trillion mark was reached on 11/16/09. So that is only 6 months. The debt limit is $14.3 trillion, which should be reached in January 2011.

The Obama Administration claims that the budget deficit will be reduced to $912 billion in FY 2011 and $581 billion in FY 2012. This is due partially to the massive tax increases that will kick in on January 1, 2011 due to the expiring Bush tax cuts. However, I think that it is likely that the revenue raised will be less than they expect. Also, they project that spending will increase only 2% in 2011 over 2010, ignoring the massive costs of the Obama healthcare plan. So I think at best, the tax increases will only cover the increased costs.

Assuming the burn rate remains the same (which is very conservative since it is likely to increase), the government debt can be expected to reach the $20 trillion mark by the end of 2013, which is double what it was in 2008.

The real question is when does this become unsustainable. The US is still incredibly strong, and the dollar is still the global reserve currency. Europe will crack up before the US does. It may be able to manage a debt as high as 250% of GDP before reaching junk bond status. Right now the debt as a percentage of GDP is slightly below 100%, maybe 95% based on a GDP of about $14 trillion.

I am really making this up, but in 2020 the situation may look like: debt of $45 trillion, GDP of $20 trillion, debt/GDP ratio of 225%. It's not a pretty picture, but yes it is sustainable (as long as hyperinflation doesn't kick in) at least until 2020. But its hard to see how it could last much longer than that.

Edit: The real problem with this is interest rate jumps. Lets say the debt does reach $20 trillion. At 2.5% interest, this is only $500 billion/year, slightly more than 10% of the budget in 2014. But if the interest rate suddenly jumps, to say 12%, this would be $2.4 trillion/year in interest, making the deficit skyrocket from $2 trillion/year to $4 trillion/year. And when this changes it will happen very quickly.