Guessing the Trigger Point for a US Debt Crisis

See:  Guessing the Trigger Point for a US Debt Crisis

The author looks at 3 numbers in determining whether a debt crisis is likely. 

First, the projected debt/GDP ratio.   Using only the debt held by the public, this ratio is currently about 67%

Second, the Low-Confidence Target. This is the maximum ratio of debt to GDP that a government can incur and still have reasonable interest rates.  I think that the US is in a different category than most countries because of its reserve currency status, but there still are limits.  For most countries, a 90% ratio would be the limit, but for the US, it should be higher, say 125%.  (This is the ratio of debt held by the public to GDP).

Third is the Pain Threshold.  This is the maximum amount of budget adjustments that a country can incur over the next 5 years, as a percent of GDP.  40% seems a reasonable number.

So if these assumptions are reasonable, a debt crisis is likely to occur if the debt held by the public exceeds 165% of GDP.  This point is likely to occur somewhere around 2025, which is now my latest prediction for a crisis.

Conclusion: "Scanning the tables in the previous section, it would appear to be quite likely that the United States will experience a debt crisis within the next two decades, unless the path for fiscal policy changes from what is projected by the Congressional Budget Office."

Update 6/19/2012:  Yet another theory.  Call it model H-1.