Where is the tipping point for the U.S.?

In Erin go broke, Paul Krugman discusses in his NYT Opinion piece Ireland's difficulties.

The recent IMF report detailed how in a recession paired with a financial crisis, monetary policy was much less potent than in normal recessions, so fiscal policy had to do the heavy lifting. But fiscal policy was only effective if the sustainability of public finances doesn't become a concern; i.e. the degree of public indebtedness reduces the effectiveness of fiscal policy (crowding out of private spending, plus higher interest rates). Due to the size of the financial sector problems in Ireland relative to GDP, that is exactly the situation the Irish face.

But, is Krugman right that the U.S. needs to be aware of this possible predicament but is not yet close to being in it? The IMF's report suggested that once debt levels exceed 60% of GDP (albeit with high uncertainty around this point estimate of the threshold), increased debt actually has a negative impact on the economy.

Let's assume that because of the special status of the U.S. as the world's reserve currency and deepest / most liquid market, it can sustain a higher debt-to-GDP level than other countries would. So 60% is probably not a relevant point estimate for the U.S. (particularly for the point when a foreign funding crisis begins, resulting in higher interest rates; however, I can't think of a reason why crowding out of private spending wouldn't happen in the U.S. at a similar level to as in other countries, and, in fact, given the impetus for private sector savings and deleveraging, I could easily believe that fiscal spending would lead to crowding out already)

U.S. public debt outstandinding is about $11T, while GDP is a little over $14T. So, on that basis, the debt-to-GDP ratio is already over 70%. However, federal debt held by the public is just $6.4T, so the ratio on that basis would be about 46%. But the market also knows the U.S. debt-to-GDP is calculated only on a cash basis, not an accrual basis, and it ignores all the unfunded liabilities that are a huge problem, particularly given the aging of the Baby Boomers. It also does not include all the promises the Feds have made to guarantee its banking system.

So, where is the threshold for the U.S. Who knows? (But the IMF's study suggests a debt-to-GDP ratio of 130% would be pretty unambiguosly negative (at a 90% confidence interval).

In America close to the tipping point, Benign Brodwicz concludes a little too definitively that if the IMF is right, the U.S. will tip into a debt-deflationary spiral. I still think that's the likely outcome (but not because U.S. public debt exceeds the IMF's point estimate). In any case, Brodwicz makes the very relevant conclusion that:

"The Democrats may have good intentions, but they’re listening to the wrong economists, Keynesians who have been out of power for too long and who now are listening to a scribbler of 70 years ago (that they read in their halcyon graduate school days), a Keynes, most of them seem not to realize, who was preaching to an America that was the largest creditor nation in the world, not the greatest debtor."


UPDATE: Andy Harless, in Ireland?, believes these fears are unfounded; one big reason why is that Ireland is in the Euro, whereas the U.S. has its own currency, so rather than spiking interest rates on government debt, the U.S. dollar would instead decline, which would help stimulate the economy (and which wouldn't be particularly inflationary in a deflationary environment).