2015-06-16

Comedy Budget Office: Debt to Reach 107% of U.S. GDP in 2040

Bloomberg: Government Debt to Reach 107% of U.S. Economy in 2040, CBO Says
U.S. government debt held by the public is expected to rise to 107 percent of the economy in 2040 from 74 percent this year, the Congressional Budget Office said, citing an aging population and rising health-care costs.
Total debt is already 103% of GDP. The gap is due to intergovernmental debt, which is mostly the Social Security Trust Fund (SSTF).
Social Security’s total expenditures have exceeded non-interest income of its combined trust funds since 2010 and the Trustees estimate that Social Security cost will exceed non-interest income throughout the 75-year projection period. The Trustees project that this annual cash-flow deficit will average about $77 billion between 2014 and 2018 before rising steeply as income growth slows to its sustainable trend rate after the economic recovery is complete while the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. Redemption of trust fund asset reserves from the General Fund of the Treasury will provide the resources needed to offset Social Security’s annual aggregate cash-flow deficits. Since the cash-flow deficit will be less than interest earnings through 2019, reserves of the combined trust funds will continue to grow but not by enough to prevent the ratio of reserves to one year’s projected cost (the combined trust fund ratio) from declining.
Inflows haven't covered outflows since 2010, and starting in 2020, outflows will exceed even the accrued interest, depleting the trust fund. At that point, assuming conditions haven't radically changed, the SSTF will redeem its bonds with the U.S. Treasury. Since the Treasury doesn't have the money to pay the bonds, it will issue new bonds to the public to pay the SSTF the money it is owed. Even if the government runs a balanced budget from here on out, the public debt will rise from $12 trillion today to $18 trillion because the intergovernmental debt will mature.

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