CBO Says Its Own Budget Estimate May "Significantly Underestimate" Short-Term Deficit Outlook
Those who were disappointed by the earlier CBO budget reestimate which increased total deficit by about $44 billion over the next two years, will have to weep more tears based on the just released statement by Congressional Budget Office director Doug
Elmendorf who said that in reality the budget deficit could come much higher than the just disclosed estimates, and the recent economic data releases have been "more negative" than data factored into the projection. Which, in government talk, means that the real deficit will likely come at least 20-30% higher, and since debt issuance tends to track around 40% higher than nominal deficits, the bottom line is that the US will have to issue a gross $3 trillion+ over the next two years. But who cares: one could add 10 zeroes to this number, and rates would likely drop to zero overnight.
Back to Elmendorf and this rare moment of truthiness, via Market News:
Congressional Budget Office director Doug Elmendorf said Thursday that his agency's new fiscal report may "significantly underestimate" the nation's short-term deficit outlook because of the requirements of budget estimating.
At a briefing following the release of the CBO's mid-year budget and economic outlook, Elmendorf emphasized that under budget law the CBO must make its baseline estimates by assuming that current tax and spending laws are unchanged.
He added the U.S. fiscal outlook would be "quite different" if other, arguably more plausible, assumptions were made.
Elmendorf said the U.S.'s long-term fiscal outlook is "daunting," adding that even using optimistic scenarios the U.S. level of public debt will hit 70% of GDP by 2020.
"This is an extraordinarily high level of debt" when viewed in the context of American history, he said.
Elemendorf said the CBO sees growth in the U.S. economy as "continuing at a modest pace." The recovery so far has been "anemic," compared to other American recoveries after deep recessions, he said.
Elmendorf said recent economic indicators since CBO completed its economic estimates have been "more negative" than it expected, but he added that the new reports would not have changed CBO's overall economic estimates significantly.
The CBO chief said that he expects interest rates in the U.S. to increase "as the recovery takes hold over time." He also said that large debt levels would put upward pressure on rates.
Elmendorf concluded his session of truthiness by saying the following thing so glaringly obvious, that nobody in the administration has figured it out yet:
Elmendorf said the CBO envisions a "slow decline" in the
unemployment rate over the next several years, but added that there is
now "great uncertainty" about the precise relationship between economic
growth and specific employment levels.
In other words the government is now sailing blind, without a rudder, and using untested navigation theories, through the biggest metaphorical hurricane this side of the pre-WWII years. This level of confidence will surely inspire Americans to reverse the trend of 15 sequential weekly outflows from domestic stock funds.