In an April 2011 column (“Maxed Out America: Coming Sooner Than You Think”), I wrote that “[T]here is a consensus (among economists) that a country reaches ‘a critical insolvency threshold’ once its public debt hits 90% of GDP. At that point, lender cutoffs and interest-rate premiums become real possibilities.” At the time, the Congressional Budget Office believed that we were a decade away from reaching that 90% threshold. Based on the true tracks of spending and economic growth, I thought it was more like six years or so. Today, thanks to the 2011 debt-ceiling deal, the proposed parameters of the next, lackluster growth, and the continued lack of any meaningful fiscal restraint, I believe it’s more like three.
Reid expects that any debt-ceiling deal will increase the limit by another $2.4 trillion, bringing the national debt’s grand total to $18.8 trillion and extending the next ceiling hit into early 2015, conveniently, barring another serious recession, after the 2014 congressional elections. If form holds, 91% of the new debt will be “public debt,” increasing its total to about $13.7 trillion. If GDP only grows by an annualized 2.2% during that time — a rate which roughly matches the economy’s anemic performance in the 13 reported quarters since the recession officially ended in June 2009 — the public debt-to-GDP ratio will be about 83%. Rinse and repeat for another year and we’ll hit 90% in the spring of 2016. If we have another recession, “fiscal cliff”-induced or otherwise, we’ll get there sooner — maybe much sooner. All of this additionally assumes that buyers of our debt won’t lose patience with our profligacy and either stop buying our debt or start demanding higher interest rates well before we hit economists’ admittedly arbitrary threshold.
So we have a government on track to function without a budget for a fourth straight year, a Treasury secretary who refuses to advocate any kind of fiscal responsibility while ridiculing anyone who proposes a sane solution, a significant plurality if not a majority of the population which believes that free stuff can and will continue without interruption, a president who believes that his second pathway into the history books (he thinks ObamaCare is the first) is ruthlessly taxing the rich, media apparatchiks who believe we should really return to 1950s-style 90% marginal income tax rates, and a Federal Reserve printing as much money as necessary to accommodate what is intuitively unsustainable.
Perhaps a case can be made for agreeing with Geithner that we should dispense with the annoying inconvenience of having a debt ceiling, given that the discussions over raising it seem to be more about artificial political theater than substantive debate. At least when the inevitable downgrades and increases in borrowing rates occur, Geithner, Obama, Democrats, and the press won’t be able to claim as they did last year (though they will of course try) that intransigent Republicans threatening a government default caused them.