Crisis in 2041

 

Here is my latest projection showing that public debt will exceed 150% of GDP in 2041.  Compare to the previous forecast showing this would happen in 2049.

What is going to happen in 2041? Probably nothing.  We don't know exactly what the limits are.  But at some point it is clear that the system will totally break down.  For example, look at the interest projection in 2041, which I have as $1,800 (million), which is about 3.8% of GDP. The latest Long-Term Budget Outlook by the CBO predicts that the average amount of interest, as a percent of GDP, after 2041 will be 7.0%.  So for instance in 2043, if GDP is $50.1 trillion, then the interest paid in that year could be $3.5 trillion instead of the $2.0 trillion I have forecast in that year.  The CBO projects that the Debt Held By The Public in 2051 will be 202% of GDP, which is much higher than my forecast.  So my forecast above is conservative compared to what the CBO projects.

To go out a limb and do a little speculation, I think the dollar will be rejected internationally as a reserve currency after 2040, to be replaced by a cryptocurrency which does not currently exist.  And I think the American Empire will collapse, similar to how the Soviet Union collapsed, and by replaced by several countries. 

And this all may happen even sooner than my projection.  The above chart assumes long-term inflation of 3.5%, but we have good evidence that 8% is a better number to use.

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Update: This is what the CBO says is likely to occur after 2040:

Persistently rising debt as a percentage of GDP would also pose significant risks to the fiscal and economic outlook, although financial markets currently do not reflect those concerns. In particular, that debt path would have these economic and financial effects:  1) It would increase the risk of a fiscal crisis—that is, a situation in which investors lose confidence in the U.S. government’s ability to service and repay its debt, causing interest rates to increase abruptly, inflation to spiral upward, or other disruptions—and  2) It would increase the likelihood of less abrupt, but still significant, adverse effects, such as expectations of higher rates of inflation, an erosion of confidence in the U.S. dollar as an international reserve currency, and more difficulty in financing public and private activity in international markets. https://www.cbo.gov/publication/57038

The Budget Deficit for April 2021 was $225 Billion

 The federal government incurred a deficit of $225 billion in April 2021, CBO estimates—less than one-third the deficit in April 2020. The federal budget deficit was $1.9 trillion in the first seven months of fiscal year 2021, the Congressional Budget Office estimates—$449 billion more than the deficit recorded during the same period last year. Outlays were 22 percent higher and revenues were 16 percent higher from October through April than during the same period in fiscal year 2020.

https://www.cbo.gov/system/files/2021-05/57127-MBR.pdf

M5 for April 30 2021

M5 is a measure of money that includes M2, plus debt held by the public, less Treasuries owned by the Fed. Here is the current measure:

As of 4/30/21:

M2 (as of 3/01/21) = 19,896.5

Public Debt (as of 4/29/21) = 22,056.1

Fed Held (as of 4/28/21) = -5,014.8

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Total = 36,937.8

On 3/31/21, this was at 36,698.8 and on 9/30/20 it was at 35,296.8.  This is up 239.0 during April and up 1,641.0 fiscal year to date.  This is an annual inflation rate of 8.0%.

So actually I will call this SUSTAINABLE for the third month in a row because it is a hair below 8.0%.  If money supply only increased by $250 billion every month then I think we can live with the result.

However, note that M2 is 2 months behind because the Fed is hiding the current data.  But they can't do that forever.  When the March numbers are finally released at the beginning of June, they will show a huge increase.  I think M5 for May will show an increase of over $800 billion.

The Public Debt hits $22 Trillion

 As of 4/29/21, the public debt was at $22,056,055,138,417.67.

When did it first hit $11 trillion? On 5/31/12, within memory of this blog.  By the way, when did it first hit $5.5 trillion, one-half of $11 trillion?  On September 18, 2008, which was when the financial world almost collapsed during the global financial crisis.

So at current trends, this number will double every 9 years.  So it will hit $44 trillion on about May 1, 2030.  Add in another $6 trillion for governmental debt and this will mean the national debt is sure to hit $50 trillion about 1/1/30 , and then double every 9 years thereafter.