2012/02/26

New US Gov. Budget : public debt to GDP ratio will exceed 137% in 2016

[This is the part 3 of our series on US Debt : read part 1, part 2]

On February 13, 2012, the new FY2013 federal budget was released. It budgeted further major increases in the public debt each year up to 2016. We added these exact values to our open model we recently released and used to follow the trend of rising US public debt.

The US Gov. has made some assumptions about the future country GDP up to 2016, just to explain that the debt to GDB ratio will remain constant (or "under control" politically speaking). Our open model allows anybody to test with any other hypothesis.

Here are the main results for 6 scenarii : 
  • 1% growth per year  
  • 0% growth per year 
  • a scenario with required growth to meet the US Gov. debt to GDP goals each year. Yes you are right, US GDP needs to grow 7% in 2015 and 2016. 
  • 2% growth per year
  • and 2 different scenarii involving a systemic shock and a depression : one similar to 2008 crisis, and another one similar to the implosion of former USSR in 1990's.

Please note that none of these scenarii are taking into account an upcoming QE3 or any new massive bailout which will inflate the debt even faster (as US Gov. has always chosen this road). 
The first four scenarii are simple continuity of the past since 2009, if you're placing any confidence into these GDP figures :


Do you really think the third scenario, supported by the US Gov., is the most probable ? We don't think so. 
We therefore consider that the total public debt to GDP ratio will exceed 137% in 2016, and up to 250% when massive bailout, or worse, will surge again.