SocGen's Dylan Grice thinks the US debt crisis is imminent.

Grice outlines how it may seem the U.S. is only paying 10% of revenues on debt payments right now, but if you consider other coupon like programs, it's much more.

The problem is that those federal government interest payments are calculated net of the coupons paid into federally run programs (e.g. social security) as these are deemed ‘intra-government transfers.’ Yet those coupons to social security are made to fund a real obligation to American citizens and as such, represent payments on a real liability. On a gross basis the US government pays out 15% of its revenues on interest payments, which makes for less comfortable reading.

That's some bad news. But things really get ugly when you take into consideration that the current interest rate level in the U.S. is well below its all time average.

Suppose the US government had to pay the 5.8% yield it has paid on average over the last two hundred years? The share of revenues spent on gross interest payments would be a staggering 30% (see chart above). If it had to pay the 6.9% it’s paid on average since WW2, those gross interest payments would account for 37% of revenues. So it’s not difficult to see the potential for a dangerously self-reinforcing spiral of higher yields straining public finances, hurting confidence in the US governments’ ability to repay without inflating, leading to higher yields, etc.

And here's the chart that shows how this would play out.

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