Yet another projection

I started this blog to express my concerns about the rising national debt. I concluded a few months ago that it could be continued indefinitely. Obviously there are all sort of assumptions one could make, but one important item to take into account is interest costs. So here is another projection, based on the following assumptions:

1. Start with the budget projections at: http://www.cbo.gov/ftpdocs/123xx/doc12316/BudgetTables.pdf

2. For revenue, I start with the 2011 number of 2314, and then assume a 7% growth through 2021 and a 5% increase thereafter. The 2012 amount is 2476, 2021 is 4549, 2022 is 4776 and so on.

3. For outlays, for discretionary spending, I start with the 2011 of 1353, and then assume a 3% increase through 2021. Total outlays, excluding interest, are 5100 in 2021, and then increase by 5% thereafter. The 2022 outlays are 5355.

4. I think the interest amount is extremely low and this won't continue. Right now the interest payments are only 1.5% of the national debt. So I start with the 2012 projection of 238, and then assume a 20% annual increase through 2019, to get interest of 854. Then I assume that interest will gradually increase from 3.5% of the national debt to 5% of the debt. So the 2020 amount is 3.6% (totalling 892), and the 2034 amount is 5.0% (totalling 2879). This is a little complicated, but the key thing is that long-term interest is assumed to be 5%.

5. There is also some minor effect from the expected savings from the Committe on Debt Reduction. In general I assume that these savings will be only half of what the CBO projects and that they will be phased out by 2024.

I don't know if someone could follow this, but here are a few line items:
2021: revenue 4549, outlays 5100, interest 969, committee savings 70, annual deficit 1451, total national debt 27653
2022: revenue 4776, outlays 5355, interest 1051, committee savings 50, annual deficit 1580, total national debt 29233
2032: revenue 7780, outlays 8723, interest 2428, annual deficit 3371, total national debt 53948
2042: revenue 12673, outlays 14209, interest 4839, annual deficit 6375, total national debt 103151
2058: revenue 27664, outlays 31017, interest 13117, annual deficit 16470, total national debt 278810

I previously speculated that 10 times revenue might be some sort of limit, so this indicates that the system is no longer sustainable after 2058. This is nothing to be panicky about, and is better than some of my previous postings, but that is my current doomsday date and I am sticking to it, for now.

The national debt will exceed $1 quadrillion dollars in 2080.

Is this sustainable? Interest will exceed 10% of revenue by 2013, 20% of revenue by 2019, 30% of revenue by 2031, 40% of revenue by 2046, and 50% of revenue by 2063. This is assuming a constant interest rate of 5%.

I previously speculated that Federal Reserve assets could be used to offset the national debt. Maybe this is so, but even so once interest costs keep rising as a percent of revenue, then I think the trend is irreversible.

Using the CBO numbers, they show interest as 9.6% of revenue in 2011, rising to 13.3% in 2021.

Update 6/19/2012:  This is model C-3.