America’s Fiscal Armageddon And How To Avoid It, Part 2

The CBO projection conveyed in Part 1 indicating that America’s publicly-held debt will reach $140 trillion and 166% of GDP by 2054 seems far-fetched on its face. But you only need to compare this 30-year lookback to 1994-2024 with CBO’s latest 30-year forward projection to realize that this staggering debt estimate is probably well under the mark, unless there is a radical change in US fiscal policy and politics. Thus, here are the relevant raw figures.

Annual GDP:

• 1994: $7.1 trillion.

• 2024: $28.2 trillion.

• 2054: $84.5 trillion.

Publicly-Held US Government Debt:

• 1994: $3.4 trillion.

• 2024: $27.5 trillion.

• 2054: $140.0 trillion.

1994-2024 Growth Rate Per Annum:

• Public Debt: +7.2%.

• Nominal GDP: +4.7%.

• Growth Ratio, Debt versus GDP: 1.53X.

2024-2054 Growth Rate Per Annum:

• Public Debt: +5.6%.

• Nominal GDP: +3.7%.

• Growth Ratio, Debt versus GDP: 1.50X

Publicly Held Debt As % Of GDP:

• 1994: 48%.

• 2024: 97%.

• 2054: 166%.

In short, CBO’s current policy baseline for the next three decades is essentially an arithmetic clone of the past 30 years, with debt growth outracing nominal GDP growth by the same unsustainable 1.5X ratio. In effect, the UniParty’s rotten built-in structural deficit just keeps on getting bigger in nominal terms and more oppressive as a burden on the US economy (% of GDP) as time rolls forward. And there is no evidence whatsoever from the most recent Trump/Biden UniParty rule that there is even a semblance of Washington interest in addressing the drivers of this self-evident calamity.

Indeed, the only difference with respect to the decades ahead is that the Fed is completely out of dry powder to print gobs of new central bank credits. So it won’t be able to massively monetize the public debt as it did during the past thirty years, meaning that the inherent “crowding out” and interest rate increasing effect of chronic Federal deficits will no longer be mitigated by the Fed’s printing presses.

In fact, during 1994 to the present the Fed monetized an additional $7 trillion of the public debt or more than 25% of current-year GDP. If it were to attempt that feat again in the next three decades, the Fed’s balance sheet would explode to nearly $30 trillion by 2054, self-evidently triggering an inflationary blow-off that would destroy financial markets as we now know them.