USA government default risk

There is a concern if there is any default risk for the USA government debt, especially the T-bills. For our Chinese here, we worry about if the USA is capable of paying off China reserves invested in T-bills. Such a worry is not purely out of air. It is real, with a small probability.

The t-bill in finance is considered as a risk-free asset (no risk for default). No risk of default means that one's investment in T-bills can be paid with promised interest and principal at  maturity. In fact, it is far from risk-free. The total debt USA government has accumulated for unfunded entitlements is close to 53.0 trillion, among which 30tri is for medicare, 4.3tri from Federal debt (t-bills), 12.7tri for social security, 3.9tri for Fed and military pensions, and 2.2tri for other (see (1) below). The USA nominal GDP was about 14 trillion in 2008. The annual  federal revenue is about 18% of GDP. Based on my own forcasting, USA economy  likely grows at 3% to 3.5 % annually the next thirty years. One can calculate how many years USA can pay off its debt, without any gov-spending from now on.

The default risk is still small, if not nonexistence. The payoff of debt does not concentrate on a single year. One gets broken only if its total assets are less than total liabilities. I have no idea about the value of the total assets the USA government has (for example, what is the total worth of US national defense). If USA cannot pay China, I guess China can come to USA to take Wahington DC and the Capital Hill and use it as Capital for Chinese people. I do love to see this to happen:-}. The sooner the better.   


   
Reference:

(1). http://www.usatoday.com/news/graphics/debtcalculator/flash.htm
(2). IRS web

Seems the U.S. need at least twenty years to pay off its debts. Who will be the President then? He or She will face the dilemma of filing for bankruptcy.