Congressional Budget Office

madhedgefundtrader's picture

Expect dire reactions by financial markets when the US debt/GDP ratio soon tops 100%. With the current spending trajectory and the new tax compromise, total debt will reach $23 trillion by 2020, or some 160% of today’s GDP, 1.6 times the WWII peak. China and Japan might even demand a retreat from our $150 billion a year commitments in Iraq and Afghanistan to protect their bond holdings. Who were the real big spenders?

CBO's Revised Budget Sees 2011 Deficit Rising By $500 Billion To $1.5 Trillion; $4 Trillion In Deficit Through 2013 Guarantees QE3+

No surprise: the projected deficit just went up by another half a trillion: "For 2011, the Congressional Budget Office (CBO) projects that if current laws remain unchanged, the federal budget will show a deficit of close to $1.5 trillion, or 9.8 percent of GDP." This is up from $1.07 trillion: a very small margin of error there. But don't worry - like true Keynesians the CBO expects that future deficits will have no choice but to go down: "The deficits in CBO's baseline projections drop markedly over the next few years as a share of output and average 3.1 percent of GDP from 2014 to 2021. Those projections, however, are based on the assumption that tax and spending policies unfold as specified in current law. Consequently, they understate the budget deficits that would occur if many policies currently in place were continued, rather than allowed to expire as scheduled under current law." So between 2010's $1.3 trillion, 2011 $1.5 trillion, and 2012's revised $1.1 trillion, we have $3.9 trillion just in deficit costs to plug. And as Zero Hedge has repeatedly demonstrated the actual debt to be issued is usually about 33% higher than the deficit funding need, meaning that over the next 3 years the US will need to issue about $5 trillion in debt. Which means further debt monetization is guaranteed as foreign investors have now fully withdrawn and the Fed is all alone in gobbling up every dollar in gross issuance. QE3 is guaranteed and we are stunned that the market continues not to realize this.

Today's Economic Data Highlights

After this morning's sobering news on mortgage applications, we have new home sales, CBO budget update, and the FOMC statement….There is no POMO today.

madhedgefundtrader's picture

The road to ruin ahead of us is clearly laid out. US debt is about to exceed 100% of GDP for the first time since WWII. By 2020, the Treasury will have to pay a staggering $5 trillion a year just to roll over maturing debt. The capital markets will emerge as the sole source of any fiscal discipline, with the return of the “bond vigilantes.” Will China and Japan demand a retreat from our $150 billion a year commitments in Iraq and Afghanistan to protect their bond holdings? (TBT), (TMV).

A Look At The H1 2011 Fiscal Calendar With An Emphasis On The "Debt Ceiling"

Goldman's Alec Phillips has compiled a great docket of key events on the US fiscal calendar for the first half of 2011, of which easily the biggest wildcard is the initiation of the debate debt ceiling increase. While Zero Hedge believes that most of the rhetoric surrounding this issue is primarily of a polemic nature, with lots of ins, lots of outs, and most certainly lots of theater, the ceiling will be passed right on cue, by anywhere between $1.6 and $2.0 trillion: enough to fund the deficit for the next year and leave a small buffer. One thing is certain: discussion will most certainly not commence until as late as possible, which means sometime in late March, early April (as such we urge readers to aggressively sell the InTrade Feb 28 "debt ceiling" contracts).

asiablues's picture

James Bullard, President of the Federal Reserve Bank of St. Louis was on CNBC Monday, December 20, 2010 mostly defending the Fed’s QE2. What struck me as totally self-contradictory were some of Bullard’s statements regarding the QE2, and inflation, which I will outline and rebuff here.

Moody's Warns There Is Increased Likelihood Of Negative Outlook To US AAA Rating In Next 2 Years

And now for some woefully overdue attempts at regaining credibility from farce agency Moody's, which after realizing that US debt may soon hit $16 trillion has noted that the US tax package increases the likelihood of negative outlook on the US AAA rating in next 2 years. What is worrisome, is that Moody's apparently did not get their Christmas bribe from Wall Street/the Administration, and actually dares to speak the truth: "From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth." As the announcement has pushed the DXY even lower, expect semi-formal validation that America will soon be insolvent to result in yet another surge in stocks.

Guest Post: The Key to Understanding "Recession" and "Recovery": The Wealth Pyramid

The top 20% are prospering and spending money; the bottom 80% are not, but thanks to vast wealth disparity, the top slice of households can keep consumer spending aloft. This provides an illusion of "recovery" that masks the insecurity and decline of the bottom 80%. There is statistical and anecdotal evidence supporting both a "we never left recession" and "the economy is recovering" interpretation. The key to making sense of the conflicting data is to understand that there are Two Americas. Roughly speaking, we can divide the U.S. economy into "Wall Street"--the financialized part of the economy which encompasses the FIRE (finance, insurance and real estate) economy and its bloated partner in predation, the Federal government--and "Main Street," the looted, overtaxed remainder of the "real economy" which isn't a Federally supported corporate cartel (i.e. the military-industrial sector, the "healthcare"/sickcare sector, Big Agribusiness, etc.)

22 Luminaries (And Dick Bove) Sign Open Letter To Fed Demanding End Of QE2

As if the rest of the world telling Ben Bernanke he has finally flipped, was not enough, here comes the opposition from within, after 23 public figures, among which economists, financiers, hedge fund managers and Dick Bove (not sure what he is) have sent an open letter to the Bernank demanding QE2 be immediately pulled. With the imminent market collapse that would follow such an action we are not surprised to see Jim Chanos among the list of signatories, although that long-biased Paul Singer of Elliott Associates would endorse such a contrary to his interests letter, is interesting to say the least.

Goldman: "The Dollar Needs To Fall A Lot Further From Here"

In today's note by Goldman's Robin Brook, the analyst takes an inverse approach of looking at what a dollar drop implies for CPI and general prices, in an attempt to settle a debate whether the expected drop in the USD as a result of QE2 will have a meaningful impact on both inflation, currency wars, and other derivatives of monetary policy.  As Goldman concludes: "the ‘pass-through’ from Dollar declines to US consumer price inflation
is small. This in turn means that – if indeed the Fed sees the Dollar as
one of its key policy levers for preventing inflation from staying
below its mandate for a prolonged period
the Dollar needs to fall a lot further from here." The quantification of  "lot" is not provided but is sufficiently indicative from a qualitative standpoint. Of course, the biggest issue here is with the construction of CPI itself, which is driven far more by a collapse in leveraged input prices specifically as pertains to shelter, then spiking prices in items most see as critical in day to day use. Nonetheless, as Goldman is one of the Primary Dealers whose opinion is now a part of the "reverse inquiry" methodology in determining monetary policy, the fact that the hedge fund is comfortable with a substantial drop in the USD implies that the Fed should be just as comfortable with a shock and awe approach to QE2, as a pronounced effect on the dollar would likely have to come from a stepwise drop as opposed to a gradual wear down which would be intercepted by other central banks. The key question remains: what level on the DXY is Goldman, and thus the Fed comfortable with as ""modestly inflation stimulating, and what will the price of jeans be, gold, and other commodities be, not to mention what the final level of excess reserves and margins for Chinese exporters, once that level is finally attained.