New Projection: 2036

I couldn't help myself and ran a new projection.  First, start with the most recent CBO baseline, just released. The CBO projects deficits as low as 196 billion in 2018.  I think the CBO is smoking crack, and I don't see the deficit ever dipping below $1 trillion/year.

I take the revenues as given, but  adjust them for tax cuts extensions and AMT patch, as stated by the CRFB.  I accept the projections for Social Security, Medicare and Medicaid through 2022, except for 2012 when the CBO projects a decrease in Medicaid spending.  After 2022, I project Social Security and Medicare increasing by 7% per year, and Medicaid increasing by 8.3%.  For other spending I project it increasing by 1% per year through 2022, and then 4.4% thereafter.  Sorry, I just don't see spending actually decreasing.

I project nominal GDP as increasing by 4.4%/year after 2022, and revenue as maxing out at 20% of GDP and also increasing by 4.4%/year after 2022.  There are some other assumptions I made which are not mentioned.

I assume that the dollar is stronger than previously assumed and will be stable until the net debt hits 150% of GDP.  The tipping point is reached in 2036.  The problem is that Social spending will continue to increase faster than revenue, and interest rates will skyrocket from 1.7% of GDP in 2012 to 8.4% of GDP in 2036.

I have previously opined that the dollar could survive as long as there was no alternative.  Well, I think an alternative will emerge out of necessity.

Is there any way of forestalling this?  Yes, a combination of higher revenue, caps on social spending, and continued low interest rates.

Update 6/19/12: Model K-1