The US has roughly 20 years to change course on the size of its debt, or else a default of some form will be unavoidable, a Penn Wharton Budget Model determined in October.
Analysts looked at the $26.3 trillion of US debt held by the public, which excludes money the federal government owes itself in the overall outstanding debt total of $33 trillion.
“Under current policy, the United States has about 20 years for corrective action after which no amount of future tax increases or spending cuts could avoid the government defaulting on its debt whether explicitly or implicitly (i.e., debt monetization producing significant inflation),” the report said. “Unlike technical defaults where payments are merely delayed, this default would be much larger and would reverberate across the US and world economies.”
The 20-year timeline is actually on the optimistic side because it includes a future fiscal policy that will stabilize the debt. For now, PWBM’s approach found that US debt must not surpass 200% of GDP if the worst is to be avoided. Right now, it’s at about 98%.
Source: BI
