Latest Projection

This is similar to the last one with some adjustments.  My assumptions:

1.  The breaking point is when net public debt reaches 100% of GDP.
2.  GDP is 24633 in 2021 and increases by 5% annually.
3.  Revenue is 4923 in 2021 and increases by 5% annually.  In other words, revenue remains constant at 20% of GDP.
4. Fed ownership of government bonds is 1569 in 2011 and will grow 5% thereafter. (In other words, I have already priced in future quantitative easing).

5.  Outlays are split into 3 categories: a) Social Spending, which is 2670 in 2021 and will grow 6.6% thereafter; b) Interest, which is 5.3% of the previous years net public debt; 3) other spending, which is 1844 in 2011 and will increase 3% annually.

Under this scenario, the system will remain solvent until 2049.  In that year GDP will be 96565 and net public debt will be 97404 (i.e. $97 trillion).  Revenue is 20% of GDP, social spending is 16.55% of GDP (up from 9.89% in 2011), other spending is only 5.87% of GDP (down from 12.23% of GDP in 2011), interest is 4.98% of GDP (up from 1.76% in 2011), and the deficit is 7.42% of GDP.

The problem here is mostly social spending.  I think only a 6.6% growth rate is optimistic.  It is not possible to increase revenues or reduce other spending enough to compensate for this.

So in conclusion, while this projection seems more optimistic than earlier ones, it still seems like it is inevitable that a crisis will occur.

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I guess a related question is how can the system possible last that long?  Well, I am assuming 5% GDP growth.  So if the spending were just to freeze at current rates then the problem would quickly cure itself.  The problem is spending is increasing more that 5%/year.  I am also assuming 5% Fed asset (money supply) growth.  This eats up some of the deficit.  I don't think this could increase much more without causing massive inflation.

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Update 6/19/2012:  This is model J-3.  It seems too optimistic, assuming 5% growth in GDP annually.