Here is an extract from the excellent “Debt clock”
US DEBT CLOCK
We are going to take two numbers : 31% of the GDP as “Revenue” and 47% of the GDP as “Expenses” or “Spending”.
We suppose that year 1 has no history before (that is simplistic, but allows simple reasoning)
Here is a spreadsheet for 10 years on (Figure 1), supposing that the growing rate of the spending is yearly 1.75% and of the revenue is 1.50%. Those
are quite conservative rates.
You see that the deficit grows, from 16% of the GDP to 19% of the GDP.
But this is a false view : In order to spend 47 when you have 31, you must borrow 16.
Then, you must pay-back the borrowings. (Hypothesis : average loan rate of 3.5%)
So the spreadsheet becomes this one (Figure 2) :
The “Debt load” is what is spent yearly in order to pay-back the borrowings.
You see that ten years after, the debt load is equal to the whole revenue of year one !
The debt is equal to 300% of the GDP.
Notice that this is the result of a gap of only 0.25% between the growing rate of the spending versus the revenu’s.
Let’s be optimistic : we now suppose that the growing rate of the revenue is THREE times the spending’s. Here is the result :
You see that even in this (very) optimistic figure, the yearly debt load 10 years after is 25% of the GDP and the debt 250% of the GDP.
Conclusion : we are plunging down like a stale plane.
Suppose now, that we are like Greece, in a profound crisis, and due to international pressure, we diminish yearly the expense yearly by 10%, the
revenue plunges down yearly by 5% (due to exploding unemployment), the loan rate goes up to 6.5% (State bonds becoming Junk bonds).
The deficit GROWS from 11 to 15, the debt GROWS to 110% of the GDP.
This situation is unsustainable without defaulting.
Look at this terrible and actual evidence :
This is 360% of the GDP.
Take care …