The government limit calculator looks at the current trends in debt accumulation, interest rates, government receipts, and more. Based on this information, it projects into the future the percent of total government receipts that just interest payments will consume. Significant economic issues are likely to arise well before interest payments on the debt consume 100% of government receipts. However, this point may serve as a good estimate of the economic point of no return. After all, how would we dig out of debt once just the interest payments exceed government receipts? Bond buyers should be very cautious of an entity that has so little financial capacity to make debt payments? Of course, financing new public debt is impossible without willing investors. Obviously, if interest consumes 100% of receipts, there is $0.00 available for other expenses.
Methodology
Because estimating future interest rates is an exercise in uncertainty, we track three different methods to project future interest rates. Designing the calculator to utilize three different rate estimations may provide a reasonable estimate of the range future interest rates may fall within. The model projects the outcome for each of the three interest rate methodologies. The “Quarters to Failure: Assumptions & Changes” table below summarizes the outcome under each interest rate methodology. Taken together over-time and coupled with the “Interest as a Percent of Receipts” table should provide a good understanding of the fiscal direction of the federal government.
What is “failure”? We define failure, in this model, as the point where interest payments consume 100% of the government’s receipts. Econ-Intel believes that there is still time to avoid such fiscal failure. However, the window to solve this problem is closing. Solving this problem requires serious thought and focused effort. The necessary political will and societal awareness for such a solution may be lacking.
Model Methodology Updated
A change in methodology heavily influenced outcomes for Q4 2022. At this time, we decided to no longer base the rate of increase in government debt off of the rate of increase in government receipts. As of the 4th quarter 2022, the rate of growth in debt is based directly off of the five year compound average growth rate of debt. Likewise, the estimated growth rate for government receipts changed from a linear calculation to utilize the compounded average growth rate in receipts over the past 5 years. This method takes into account the compounding effect of both components. Importantly, it also accounts for the fact that the two rates have diverged. Especially, since about 2000, the rate of debt creation is significantly higher than the rate of receipts growth. The newer methodology takes this into account.
This calculator is interactive. You can replace the key figures in the blue cells with your own numbers and see how the outcome changes.
To edit, single click-cell and type a new figure. To see the formulas, double-click the cell. Refresh the page to reset the calculator to the default settings.
Notice Regarding the Government Debt Limit Calculator:
| The government limit calculator is a tool to visualize roughly the impact on debt and interest payments over time based upon a given interest rate. It is not a projection of what will occur. It is only a tool to visualize these parameters roughly based upon current conditions continuing in a similar manner. Economic conditions, fiscal and monetary policy all impact the ultimate outcome. This model makes no effort at predicting in advance changes such as the Federal Reserve losing money, which has now eliminated remittances to the treasury both currently and until the Fed earns enough to recoup its losses. Monitoring and predicting all such outcomes in advance is a fool’s errand. However, the model does take current changes in net debt production into account, so these items are picked up and forecast forward as they materialize. This model is designed to be useful only to visualize interest payments based upon current trends and a projected interest rate to get a rough idea of the fiscal strain that the U.S. government will face at various times in the future. |
Quarters to Failure: Assumptions & Changes
| Description | Source | Q2 2022 Rate | Q3 2022 Rate | Q4 2022 Rate | Q2 2022 Qtrs. to failure | Q3 2022 Qtrs. to failure | Q4 2022 Qtrs. to failure(7) | Change from latest Qtrs. | Change from Initial figures |
| 10 yr. treasury rate projection (future years averaged) | Congressional Budget Office | 3.81% | 3.81% | 3.81% | 55 | 55 | 55 | 0 | 0 |
| Current 10 yr. treasury rate | trading economics | 2.97% | 3.80% | 3.75% | 61 | 55 | 55 | 0 | -6 |
| Long-term Avg. paid on U.S. debt | Federal Government Data | 6.86% | 6.84% | 6.82% | 37 | 38 | 39 | +1 | +2 |
| Average of # of mo. change | n/a | n/a | n/a | n/a | 51 | 49.33 | 49.67 | +0.33 | -1.33 |
Interest as a Percent of Receipts
| Actual Original | Original Projection for current Qtr. | Projection of current as of Prior Qtr. | Actual | |
| Based on CBO interest rate | 13.4% | 15.4% | 15.9% | 17.5% |
Analysis of Government Debt Limit Changes
Projections are always tricking. Conditions will change between now and the future quarters displayed in the calculator. However, evaluation of the relative accuracy and general direction is possible.
Total quarters to failure has decreased by an average of 1.33 quarters over the last two quarters (i.e. inline, but slightly slower than projected). On the other hand, interest expenses as a percentage of total receipts rose rather dramatically from 13.4% to 17.5% over this short time period.
Due to reaching the debt ceiling, we anticipate a temporary reprieve in debt growth for the 1st quarter of 2023. The government took on relatively little new debt during this time. This effect will be apparent in the first quarter of 2023.
Over the most recent three quarters, interest on the debt increase from 13.4% to 17.5% of receipts.
If spending and receipts trends remain similar to the current trends, the U.S. government may reach the point where interest consumes all receipts. Somewhere between about 9.75 years and 13.75 years from now at the assumed range of interest rates. In other words the true government debt limit may be reached within a number of years.
This is not a projection that it will happen, but it is the path that we are currently on.
Footnotes:
| 1) Total US government debt – See Federal Government Data page |
| 2) Based upon: U.S. Treasury Monthly Statement of the Public Debt For the quarter ending in question. The calculation takes the bills, notes, and bonds and has them roll off equally over the total number of potential quarters until maturity (4, 40, & 120 months respectively). All treasury bills by definition have a maturity of one year or less, all notes of 10 years or less, and all bonds of 30 years or less. Other securities are assumed to mature per the same schedule. |
| 3) Initially, this figure was set to be equal to the growth in receipts. Since about 2000, there has been a relatively steady trend of the rate of growth in expenditures significantly exceeding the rate of growth in receipts. As of the 4th quarter 2022, it was changed to utilize the compound average growth rate of debt over the last 5 years. Rolling one year periods are used at both ends to smooth quarterly fluctuations. |
| 4) This is likely one of the most uncertain numbers. Therefore, three different methods are utilized to provide a range of possibilities. There are two benefits of utilizing multiple methods. First, because a number of methods are used with different interest rates, at least one of the projected interest rates is likely to be relatively close to the future interest rate paid on the debt. Second, the range of interest rates also gives the reader a sense of how influential a change in interest rates is on the interest paid and length of time until interest payments consume 100% of government receipts. |
| 5) Quarterly receipts vary widely due to when the money is collected. This is the average of the most recent 4 quarters. See Federal Government Data page for details. |
| 6) Initially, this figure used a linear growth rate. As of 4th quarter 2022, it was changed to utilize the compound average growth rate over the last 5 years. See Federal Government Data page for detailed inputs. |
| 7) As of Q4 2022 the method of calculating the growth rate of new debt was changed from mirroring the growth rate in receipts to reflecting the compound average growth rate of new debt over the past 5 year period. At the same time the growth rate in receipts was changed from a linear calculation to the compound average growth rate over the past five years. Due to the rate of growth in debt being significantly higher than the rate of growth of government receipts. This change significantly shortened the period of time until interest payments alone consume 100% of government receipts. |
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