A Threshold for Debt
Folks fond of those politically motivated “clocks” that show how much something has cost or how long we have to some catastrophe should update their debt clocks. According to Moody’s, the United States could be just a few years from a credit rating downgrade:
Spiraling debt is Uncle Sam’s shock collar, and its jolt may await like an invisible pet fence.
“Nobody knows when you bump up against the limit, but you know when it happens it will really hurt,” said fiscal watchdog Maya MacGuineas of the Committee for a Responsible Federal Budget.
The great uncertainty about how much debt is too much has tended to make fiscal discipline seem less urgent, rather than more. There is no obvious threshold beyond which investors will demand higher real yields for holding U.S. debt. Vague warnings from ratings agencies about the loss of America’s ‘AAA’ status haven’t added much clarity #151; until recently.
Estimates are that the threshold comes when debt service equals about one fifth of revenue. The Congressional Budget Office puts that date at 2018, but changes in circumstances — such as increasing interest rates — could move it up to 2013. In other words, debt cannot be a solution much longer, and given that a government that has spent the last year in a final flamboyant push of decades of spending increases will not be likely to undo what it has just accomplished, revenue will have to be raised.
And we know what that means.