August 24, 2010

Guessing the Trigger Point for a U.S. Debt Crisis

Key materials

Leading authorities in the United States, including the Congressional Budget Office, use the term unsustainable to describe the long-term fiscal outlook. By the year 2080, spending on entitlements alone could exceed total federal tax revenues. In the very long run (meaning from the year 2035 through 2080), the problem is primarily one of excess costs in health care, meaning the tendency for health spending to grow faster than the rest of GDP. However, in the medium run, meaning from 2010 through 2035, the aging of the U.S. population is the dominant factor.

This paper explores the possibility of the U.S. experiencing a debt crisis in the medium run, meaning somewhere between 2015 and 2035. It is impossible to state precisely the trigger point for a crisis. At best, we can make guesses about some of the key parameters.