To get back in balance, allocators have a number of options — everything from using secondary markets and making valuations more realistic to doing nothing.
We use discounted cash flow analysis to measure the projected fiscal capacity of the U.S. federal government. We apply our valuation method to the CBO’s projections for the U.S. federal government’s primary deficits between 2022 and 2052 and projected debt outstanding in 2052. The discount rate for projected cash flows and future debt must include a GDP or market risk premium in recognition of the risk associated with future surpluses. Despite current low interest rates, we find that U.S. fiscal capacity is more limited than commonly thought.
