Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Thomas Cook COLLAPSE! 300,000 Passengers Stranded, Flights Cancelled, Planes Grounded - 23rd Sep 19
Massive Stock Market Price Reversion May Be Days or Weeks Away - 22nd Sep 19
How Russia Seized Control of the Uranium Market - 22nd Sep 19
Dow Stock Market Trend Forecast Update - 21st Sep 19
Is Stock Market Price Revaluation Event About To Happen? - 21st Sep 19
Gold Leads, Will the Rest Follow? - 21st Sep 19
Are Cowboys Really Dreaming of... Electric Trucks? - 21st Sep 19
Gold among Negative-Yielding Bonds - 20th Sep 19
Panicky Fed Flooding Overnight Markets with Cash - 20th Sep 19
Uber Stock Price Will Crash on November 6 - 20th Sep 19
Semiconductor Stocks Sector Market & Economic Leader - 20th Sep 19
Learning Artificial Intelligence - What is a Neural Network? - 20th Sep 19
Precious Metals Setting Up Another Momentum Base/Bottom - 20th Sep 19
Small Marketing Budget? No Problem! - 20th Sep 19
The Many Forex Trading Opportunities the Fed Day Has Dealt Us - 19th Sep 19
Fed Cuts Interest Rates and Gold Drops. Again - 19th Sep 19
Silver Still Cheap Relative to Gold, Trend Forecast Update Video - 19th Sep 19
Baby Boomers Are the Worst Investors in the World - 19th Sep 19
Your $1,229 FREE Tticket to Elliott Market Analysis & Trading Set-ups - 19th Sep 19
Is The Stock Market Other Shoe About To Drop With Fed News? - 19th Sep 19
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Things To Know About This Week’s CBO US Debt Report

Interest-Rates / US Debt Jun 30, 2018 - 04:05 PM GMT

By: F_F_Wiley

Interest-Rates

Here are six things you might like to know about the Congressional Budget Office’s 2018 Long-Term Budget Outlook, which was released on Tuesday.

  1. The CBO’s baseline scenario shows federal debt held by the public rocketing upward at a trajectory not seen since 2009, but this time on a sustained basis and breaching 150% of GDP by 2048. Here’s the chart:

  1. In case GDP percentages are too abstract for you, we can translate into something more meaningful. Using the CBO’s own population and inflation figures, we convert the projections to dollar amounts per capita (in constant 2018 $), and then with figures from usdebtclock.org, we estimate dollar amounts per taxpayer. Here’s the adjusted chart:

  1. But the baseline scenario is two tads optimistic. First, it assumes the elimination of scores of tax breaks that in real life Congress extends every year-end, routinely, as if mailing the annual holiday cards. Second, the baseline-scenario economy runs more smoothly than Justify—labor productivity growth rises by over half a percent from the 1% pace of the last 12 years, and the average unemployment rate over the next 30 years drops to an all-time record low of 4.6%. (The lowest 30-year average on record is 5.1% from 1948 to 1977, and that result was weighed down by conscription during the Korean and Vietnam Wars.) Here’s a chart showing just how optimistic the CBO is with regard to the unemployment rate:

  1. If we construct an alternative scenario to allow the usual legislative “fixes,” while adding a moderate recession to the otherwise pristine economic outlook, we find that debt increases almost 50% faster than shown in the baseline. (You can find our analysis here.) For example, instead of breaching $200K per taxpayer in 2034 as in the chart above, debt breaches $200K per taxpayer as early as 2028. This won’t surprise our regular readers, since we’ve been producing our alternative debt scenario for six years now. But this time we have company—our scenario shows nearly the same 2028 estimates as the “business as usual” and “recession” scenarios produced recently by Goldman Sachs and summarized in this report by ZeroHedge (recommended).
  2. The CBO is increasingly warning of a potential fiscal crisis, as shown in the next chart. We extrapolated the chart’s upward trend (layering a projection on a projection) and reached a conclusion that in 2047 the CBO will rename its annual budget report The Coming Fiscal Crisis, and by 2059 it’ll be distributed by the Office of Financial Crises (OFC).

  1. As a reminder of what “debt held by the public” means, all figures mentioned above exclude the roughly $5 trillion that the government owes the Social Security and Medicare trust funds and various employee retirement funds (intragovernmental debt). Congress justifies excluding these liabilities by pointing out that it can eliminate them with the stroke of a pen—it would only need to enact legislation saying it doesn’t really have to pay these amounts. Of course, politicians remind us all the time that they’re desperate to take away our Social Security and Medicare benefits—especially when they’re on the campaign trail—so their justification is totally consistent.

Another Fun Fact

If we add intragovernmental debt to our alternative scenario to project “gross” debt, it shows debt per taxpayer breaching $200K twice as quickly—in 2023—at which time the debt-to-GDP ratio would be 120%. That figure ties into research we conducted a few years ago using hundreds of years of data maintained by Harvard’s Kenneth Rogoff and Carmen Reinhart, along with about twenty other data sources. We found that no country has ever reduced its debt-to-GDP ratio from over 120% to under 90% without either 1) haircutting its creditors in a restructuring or outright default, 2) achieving a budget surplus over the debt reduction period, and not just a primary surplus but an honest to-goodness surplus of the type America has only seen twice in the last 57 years or 3) both.

In other words, the popular belief that public debt can be “inflated away” fails to explain how debt problems were resolved through history. Generally, financial repression was more powerful than inflation (without repression, inflation drives up interest costs, sometimes worsening debt ratios), but neither has solved a severe debt problem without a more important role being played by payment adjustments, fierce fiscal discipline or both. (For details of every episode of gross debt exceeding America’s current total of about 105% of GDP, see our book Economics for Independent Thinkers.)

A Final Fun Fact

When the CBO evaluated its forecasting accuracy in 2015, it found that its projections for government revenues for five years into the future were 5.3% higher than actual outcomes, on average, over 28 years of forecasting. It attributed the big forecasting errors mostly to “the difficulty of predicting when economic downturns will occur,” while noting that the largest errors occurred at business-cycle peaks.

In other words, like everyone else, the CBO becomes overly optimistic as economic expansions age. (We’re all human, right?) Having discovered this bias, you might have expected to see upward adjustments to the unemployment rate projections, the unemployment rate being one of the biggest revenue drivers and a budget-killer in recessions. But after checking the full forecasting history for the unemployment rate, we found that:

  • The projected 30-year average of 4.6% (shown in the chart above) is the lowest ever
  • The projected endpoint of 4.7% (for years 2037 to 2048) is also the lowest ever
  • Both of those figures are significantly below corresponding figures from 2015 (5.3% for both the average and the endpoint), when the CBO revealed its optimistic forecasting bias.

So much for learning from your mistakes. When it comes to unemployment, this is the most optimistic outlook ever, and yet it still results in federal debt exploding higher.

Conclusions

Argentina, here we come?

F.F. Wiley

http://ffwiley.com

F.F. Wiley is a professional name for an experienced asset manager whose work has been included in the CFA program and featured in academic journals and other industry publications.  He has advised and managed money for large institutions, sovereigns, wealthy individuals and financial advisors.

© 2018 Copyright F.F. Wiley - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules