When will the national debt reach a tipping point?
So assume that there is some sort of tipping point for the US, even if it is not actually 80% of GDP. That raises a question that I haven’t seen well-answered: how close should we be willing to get to that crucial point?
On the one hand, any threshold will have some give in it; it’s not as if every single country that hits a debt-to-gdp ratio of 80% suddenly, almost mechanically, tips into the abyss. (Japan still borrows at attractive interest rate with a ratio that is somewhere between 50-150% higher than that, depending on how you calculate.)
On the other hand, getting too close to the threshold dramatically raises your risk and narrows your choices. Countries in deep contractions have grave difficulty balancing their budgets even when they’re trying pretty hard. (Imagine, if you will, trying to cut the US budget in half overnight. No, stop cheering, conservatives: going to shut down border patrol and leave all those soldiers and tanks and thinks stranded in Iraq? Or does your mother suddenly stop getting her social security and medicare? Even if you think the budget should be cut in half, “overnight” is not the correct time frame.) So if they run too close to the edge, they may find themselves pushed over the threshhold when things go south–or be forced to do ham-fisted and destructive austerity to avoid going there. So you probably want to leave a pretty big buffer between yourself and the dangerous debt levels, just in case.