When we will have a fiscal crisis

It will happen, I believe, when the credit rating agencies begin to seriously threaten a downgrade of Treasury debt. They have told us when that will happen: when interest on the debt reaches 20% of revenues (not spending). Under current CBO projections, we will hit that level in 2019/2020. But long before then, the credit rating agencies will be issuing stern warnings—far more stern than those we have seen in the past—about a downgrade that will raise rates and roil markets. Furthermore, I think the CBO is overly optimistic about its forecast of interest payments because I think it has underestimated the impact of the inevitable Fed tightening, which will raise the Treasury bill rate more than CBO has forecast. (The bill rate closely tracks the fed funds rate.) This will feed quickly into budget projections because so much of our debt is short-term. Once the Fed begins tightening, the projections of when we will hit the 20% trigger point will move up in time very rapidly, which will create a crisis. I also note that when that time comes the only thing that will help is to raise taxes, since the interest/revenue measure is the key one. It will be much too late for any amount of spending cuts to reduce the debt quickly enough to lower the interest/revenue ratio.