Wednesday, April 10, 2019

An Unsustainable Fiscal Path

The debt-to-GDP ratio was 78 percent at the end of fiscal year 2018 and under current policy is projected to be 84 percent by 2022, over 100 percent by 2030, and 530 percent in 2093. The change in debt held by the public from one year to the next is approximately equal to the budget deficit, the difference between total spending and total receipts. The debt-to-GDP ratio rises continually in great part because higher levels of debt lead to higher net interest expenditures, and higher net interest expenditures lead to higher debt. The continuous rise of the debt to-GDP ratio indicates that current policy is unsustainable. These debt-to-GDP projections are higher than the corresponding projections in both the fiscal year 2017 and fiscal year 2016 Financial Reports. For example, the last year of the 75-year projection period used in the fiscal year 2016 Financial Report is 2091. In the fiscal year 2018 Financial Report, the debt-to-GDP ratio for 2091 is projected to be 513 percent, which compares with 293 and 252 percent projected for that same year in the fiscal year 2017 Financial Report and the fiscal year 2016 Financial Report, respectively.
https://fiscal.treasury.gov/files/reports-statements/financial-report/2018/03282019-FR(Final).pdf

I previously projected that the national debt in 2093 would be $1.137 quadrillion based on 3% average growth in GDP and a 600% debt-to-GDP ratio.  It seems that 530% is a better estimate for debt-to-GDP, but that GDP would increase at a 4% nominal rate per year.  What would this calculate to? $2.07 quadrillion.  At a 3% interest rate, this would be $62 trillion per year in interest.

Do you think this is a likely scenario?  If not, how would you prevent it from occurring?



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