The CRFB Sees Locusts, Plagues And Lots And Lots Of Budget "Impossibilities" In America's Future
The Committee For A Responsible Federal Budget Project has released its most recent BudgetWatch report, "The Cost of 'Current Policy'", which while required reading for all mathematically inept professionals in the administration (all of them), will likely get zero attention, due to conclusions such as this one:
This situation is economically impossible; at some point, U.S. debt would reach a level so high that creditors would stop lending us money. The question, though, is how the situation will be resolved. Will politicians confront the policy choices or delay them to the point where they will be forced upon us due to a fiscal crisis? The longer we wait to take on these issues, the worse they will get and the more painful it will be to change course.
Everyone hates those who tell the unsugarcoated truth (especially CNBC, whose guest policy has shifted to only inviting "analysts" who agree with Larry Kudlow that double digit unemployment is the greatest thing to happen to America). Alas, it is these very people who are usually correct, however their perspective is completely useless in retrospect.
So here are the CRFB's loathsome observations:
US Budget Watch has constructed its own “current policy” baseline by assuming select policies do not conform to current law (see http://crfb.org/blogs/understanding-currentpolicy for details).2 Over the next decade, keeping certain policies in place would result in roughly $3 trillion less in revenues than is scheduled under law and close to $2.5 trillion more in spending, including interest. Complying with current policies without offsetting the costs would result in drastically larger deficits between 2010 and 2019 and would cause the ten-year deficit total to grow from an already dangerously high $7.1 trillion to $12.6 trillion. Debt held by the public would rise to over 90 percent of GDP by 2019, as opposed to 68 percent without those changes.
With public debt accumulating on a compounding basis, extending current policies would create an even more dire long-run picture. CBO’s Alternative Fiscal Scenario, which generally assumes current policy (although it has not been updated to reflect CBO’s latest economic and technical assumptions), projects deficits will rise to 10 percent of GDP by 2027 (rather than 3.6 percent under current law), exceed 20 percent by 2045 (as opposed to 7 percent), and reach 42 percent by 2080 (rather than 18 percent).
You read that right folks: in 3 generations, deficits will reach an unfathomable 50% of GDP! Obama's legacy is to effectively enslave America to its creditor interests.
As for that $9 trillion 2019 deficit? Why, even that is low:
Primarily due to the cost of renewing most of the 2001/2003 tax cuts, indexing the AMT, and allowing physician payments to grow, the president’s own budget projects a 10-year deficit of more than $9.1 trillion. CBO would likely have estimated deficits closer to $10 trillion under the president’s budget.
And probably the most amusing observation is the CRBF's observation of discretionary spending:
Though not technically “current law,” the CBO baseline makes assumptions regarding the growth of discretionary spending that are probably unrealistically low. As a matter of convention, CBO assumes that discretionary spending (including supplemental spending for overseas operations) will grow roughly with inflation. In reality, the discretionary spending level is set annually by Congress, and absent any caps it can grow at any rate. Historically, the growth rate has been much higher than inflation— often closer to the pace of GDP growth.
At the same time, the cost of continuing the current policy of annually increasing discretionary spending is quite high. If regular discretionary spending is allowed to grow with GDP as opposed to inflation, it would add $1.7 trillion to the deficit over the next ten years (excluding interest). Even after assuming a gradual phase-down in spending for the war in Iraq, discretionary spending would still be $1 trillion higher than in CBO’s baseline.
And that's where you get an extra $1 trillion in additional budget deficits.
And the CRFB's unpalatable conclusions which will definitely be ignored by SPARC clusters, who, like the rating agencies, are only capable of chasing upward momentum:
The mounting debt under such a scenario would likely crowd out private investment to a significant degree, resulting in stunted economic growth. At the same time, it would ensure that government interest payments would consume a large and rising share of the budget, leaving little room for anything else. And, at some point, our rising debt would make continued borrowing prohibitive, as our lenders and investors cease their large-scale purchasing of U.S. Treasury bonds. If it came to this, the result would likely be a serious fiscal and economic crisis, followed by steep and perhaps crippling tax increases and spending cuts.
In essence, the very future of the American system is at stake. And somehow nobody in the administration is willing to do anything to prevent what will be a certain cataclysm absent some miraculous diametric shift in policy. Which of course will never come, as Obama has to be very worried about his sliding popularity and upcoming mid-term elections, while the oligarchy of Wall Street knows too well it has at best 2 years to collect on bonuses, and option incentives for massively mispriced underlying stocks, before everything eventually comes crashing down. And when it does, everyone will take off in their Textron made jets (which will by then likely be a Goldman LBOed company, purchased once the Conviction Buy becomes a Conviction Sell, and Goldman stealthily purchases all the stock), to live happily ever after on some quiet Pacific Island, far from the pitchfork armed crowd of what was formerly the American middle class (as all boats will have been purchased by Optiver's market manipulating liquidity providing multi-quadrillionaires).