How bad is current public debt situation in US? Here’s what I found on internet-just some rough numbers to play around with:
In US approx. 10% of GDP is government income (taxes I suppose) and public debt runs at approx. 100% of GDP. Deficit: approx. 9% of GDP.
Lets assume GDP is 1000 (nice round number): So why not consolidate this info into simple P&L:
tax income: 100 (10%)
Minus Interest on 1000 (100% of GDP) at say 3.5% (my estimate mixture old old and on the run bills and bonds)=35
So if deficit is 9% of GDP or 90 then all other government expenditure (ex interest) must be approx 155? So US government would have to cut expenditure by 30-40% for an instant balanced budget. But this would affect GDP adversely and therefore tax income therefore not likely to happen?
Option 2: question is if economic growth can be strong enough to increase tax income sufficiently to make up shortfall? Well tax income would have to go up 90% to 190. Is this possible? Say earnings and hopefully tax income grow at 10% pa at moment (not so much due to GDP growth but cost cutting at moment but this shouldn’t matter?) then it would take a long 8 years to get back to a balanced budget (but debt would have gone up during that time) . Problem then: After 8-10 years economies are often at end of economic cycle>> tax income down>>> debt up even further.
Option 3: Innovation>>>> Maybe the big problem is that the last big technological advance (computer, robots) in 1980s have now been developed to a point where increases in productivity have become small so GDP growth at moment comes mostly from larger population base. Innovation would be great way out of Debt crisis? Maybe alternative energy and health care will be next?
Option 4: Create inflation and inflate out of debt: Even this seems to be hard to achieve as current inflation AFTER all this monetary stimulus is still only around 2%. Why??? Not sure but maybe CEO’s don’t believe in economic recovery and don’t invest and hire enough to get unemployment low enough for higher inflation outlook.
Option 5: default…better don’t go there!
Just scribbling here and very few hard facts but interested in your thoughts on this!