The graph of our overall debt has been increasing steadily since 1980. We have some basic data points to which we can now do an insightful analysis of where we are going with our fiscal crisis. First, we have to make some basic assumptions:
1) our debt is growing exponentially and can be modeled using
Debt = A x B(raised to the t power)
not unreasonable when you look at graphs like this
Debt 1940 to Present or this Debt As A Percentage Of GDP
and where A and B are coefficients to be determined in this equation; x
means multiplication; t equals
time as a variable.
2) That our future performance will follow what we've done in the past i.e. politics won't change our economic situation and we will proceed like lemmings off of a cliff.
Here are our data points:
1980 is our year that our debt is considered zero (actually not true but close enough).
2000 is year 20, Debt is 5 trillion dollars
2008 is year 28, Debt is 10 trillion dollars
2012 is year 32, Debt is 16 trillion dollars
2016 is year 36, Debt is ???? This is what we want to find.
2 data points and an exponential curve. That's easy. 10 = A x (B raised to the 28th power) then we solve for A and get A = 10 / (B raised to the 28th power). Now we take the solution for A and plug it back in to the original equation using the 2012 data points: 16 = (10/ B raised to the 28th power) x (B raised to the 32nd power) and solve for B = 1.125.
Now we take B and plug that back into the original equation 10 = A x (1.125 raised to the 28th power) and solve for A = .373
So now we have our equation Debt = (.373) x (1.125 raised to the t power)
Plug in for the year 2016 (year t = 36) and you get 25.5 trillion dollars! So if nothing changes we are going to go from 16 trillion to 25 trillion in the next 4 years.
So what you say? Look at our debt to GDP ratio. Right now we are 16 trillion in debt and our GDP is 15.5 trillion so essentially we have a debt to GDP ratio of approximately 1. When we raise our debt to 24 trillion then 24/15.5 = 1.68 . Sound familiar? Well Greece has the same ratio and is in the middle of an economic melt down. The bottom line is that in 4 years we will be Greece if we don't make the hard decisions now. The ball is in your court.
Monday, September 17, 2012
Subscribe to:
Post Comments (Atom)

No comments:
Post a Comment