Axis 1: Interest Share of the Till ("income")
interest / total federal receipts · interest / tax revenue.
Use the toggle buttons to switch between using receipts or
tax as "till" in the denominator.
Axis 1 enters the Danger Zone if annual payment on
interest is a Top 5 major budget function in its own right alongside
National Defense, Medicare, Health, and Social Security; in other words,
about 20% (one fifth) of the government
till. When interest payments approximate or exceed Social Security as
the #1 largest budget function — at about 30
% interest / till — the axis enters the
Restructuring Zone wherein about 5% or
more of GDP would be spent on interest — well above every historical
postwar US year — and a restructuring of debt and fiscal policy
becomes necessary to service the obligation.
Axis 2: Debt held by the public / GDP
Debt Held by the Public / GDP
A country's GDP can be thought of in a way similar to the
"creditworthiness" of an applicant seeking to take out a loan in the sense
that it serves as the revenue base or capacity metric
that helps quantify the country's debt-carrying capacity.
Debt Held by the Public is the dollar amount of the debt that
the US has already issued and owes to creditors outside the US
government such as banks, institutions and other countries. This
is marketable debt that must be paid back, which makes it
distinct from
intragovernmental debt that US government agencies owe to
each other internally. Therefore, the quotient Debt Held by the Public /
GDP provides a measure of how much of its debt capacity the US has
already used. There is no hard maximum limit to
Debt held by the public / GDP other than what "the public"
(meaning, "public financial markets") are willing to accept in order to
be willing to buy debt from the US Treasury.
A 2025 long
term budget projection by the Congressional Budget Office
(CBO) outlines how Congress could feasibly adjust spending and
revenue from 2025-2055 to bring down the primary deficit, but the plan
requires maintaining debt/GDP at 100%.
Therefore, that level is taken to be the entry to the Danger Zone for Debt held by the
public / GDP. Above 100%, the metric moves
deeper inside the zone; dropping below 100% means
that this metric moves toward sustainability. The Restructuring Zone was set to 140%, because at that point the metric
would reach Italy/Greece-crisis levels. Countries like Japan have
certainly exceeded 140% Debt held by
the public / GDP, but Japan enjoys the advantage of a captive
domestic bid for refinancing that the US does not share.
Axis 3: Refi Gap
marginal (market) rate - the treasury's coupon rate
Here, the name "coupon rate" is assigned to the overall interest
rate that the treasury pays on its marketable debt that it owes to the
public, taking into account that at any given point in time it has
taken out loans having a variety of different maturity periods and
interest rates. "Coupon rate" captures that overall rate.
Similarly, the marginal rate describes what the new coupon
rate would be if the Treasury refinanced its debt
stock by selling new debt into the market and using the income to pay
off its old ones.
The Refi Gap is marginal - coupon; the difference
between these rates, expressed as percent. The gap can be thought of
as a measure of the cost (if gap > 0) or benefit
(if gap < 0) that the Treasury realizes, in terms of interest, when it
issues new debt to pay off old debt — which it does, year after
year, whenever it runs at a deficit. From 1999-2001, during the
Clinton "balanced budget" era, the Treasury did not run at a
deficit, and in fact retired about $400 billion market-held debt.
2001 was the last fiscal year for which this was the case. Every year
since, the Treasury has issued new debt to fund government operations
and to pay interest on existing debt.
In the current budget process, a session that actually improves the
primary deficit in the same fiscal year is usually tens of billions of
dollars. The 2023 Fiscal Responsibility Act is the recent template:
CBO scored about $1.5 trillion of deficit reduction over ten years, but
the binding first-year cash was a discretionary cap on the order of tens
of billions (House Budget cited ~$40 billion of FY2024 nondefense
reduction; CBO’s two-year cap savings were about $245 billion). That is
roughly 0.1–0.4% of GDP in the year the law bites — we use 0.25% of GDP
as the middle of that band.
We therefore treat a refinancing roll whose first-year extra coupon
equals that same amount — about 0.25% of GDP — as the level at which
the auction matches what a typical Congress can legislate against it
in that same year, using caps and ordinary reconciliation.
On a public-debt stock near 100% of GDP, with about one-third of
marketable debt due inside twelve months, that first-year cost
translates to a refi gap of about +75bp.
That is the entry to the Danger Zone:
the year’s roll is as large as the primary improvement a typical
session can actually pass.
The Restructuring Zone is a different
process. “Restructuring” here means a law in the family of the
Omnibus Budget Reconciliation Acts of 1990 and 1993: Congress changes
statutory tax rates and the major mandatory programs (Medicare and
the like), not just this year’s appropriations. CBO scored the 1993
act at about $433 billion over five years, on the order of 1% of GDP
per year in that window. A standing extra coupon of that size, on a
book near 100% of GDP, translates to a refi gap of about
+100bp. At that point the usual annual
toolkit — discretionary caps and a thin reconciliation title — cannot
reach the interest account or last as long as the new coupon. The
remaining instruments are the tax code and the big mandatory
programs. That is the entry to the
Restructuring Zone.