So assuming no inflation from the giant monetary base that is already printed, the CBOs 6% growth in entitlements , a freeze in spending at current Tax revenue at 2.6 trillion (so thats 1.5 trillion in cuts) , and a 5% growth rate in GDP ( which would be near impossible to sustain for the time scale we are considering, but just for fun) we find:
The National Deficit maxes out at around 17.5 Trillion in 2024 or so for this to work we have to borrow another 3.5 trillion over the next 12 years - and that is AFTER making reducing spending to current revenue.. thats 291 Billion a year.. a good sized Bush Deficit - for 12 years. It might be enough to avoid complete collapse, but the credit markets have aready abandoned us, and the only reason Bond yields ( and thus interest on the debt) isn't higher is because the Fed is creating artifical demand by buying the bonds themselves- in effect growing the monetary base and creating real inflation - and more pressure on bond rates to rise, forcing the Fed to buy more of the debt we put out.
But lets say, for some reason, 1.5 trillion in cuts and a spending freeze isn't politically likely in year one , and we reduce that spending by 10% EVERY YEAR.
Then we see this (again without interest rate increases) :
So the debt is almost close to turning around 30 years from now and we only need to borrow another 866 billion a year. But say somehow we push on Hauser a bit and can get 20% ( th calculations do change a lot with a small change in this value) - then the debt turns around in 2024 at around 25 Trillion so we only need to borrow another trillion a year for 10 years to make that happen. In the first example a collection of 20% and a spending freeze and 5% growth ralmost balances the budget.
Of course we are assuming that the government continues to borrow at 3% for this period. During a recovery, a lot more of the money supply will get loaned out, and if we are to avoid the GDP growth killing aspect of hyper inflation we need to raise that rate - but 3 is really low, so lets raise it to 6% - enough that it doesn't really hurt recovery and GDP growth but not crushing like 12% or higher would be. Then we see this:
Cantor's plan is a fine start and a great idea if you can implement it, but it WILL NOT cure our ills without alos makeing huge (an unlikley) cuts somewhere. . The giant monetary base and the loss of creditors willig to buy our bonds has made any more borrowing difficult, and there there is he very real difficulty in gettign a 5% growth rate in that environment, much less averaging that over a 12 year period.
