CBO - Ten Years After

Bruce Krasting's picture




The Congressional Budget Office came out with its Update to the Budget and Economic Outlook 2012 – 2022 yesterday (Link). The press jumped on the report’s conclusion that the consequences of not dealing with the fiscal cliff will cause a recession in 2013. The CBO thought it might result in 0.5% YoY drop in GDP.


Ho Hum to that. If the country does not come up with some compromises, and we do fall of the fiscal cliff, the recession will be much large than a half percent decline.

For the hell of it, I looked up the CBO report for 2002. This report contains the forecast for calendar year 2012. In a number of critical areas, the CBO missed by a mile:


CBO- Ten Years After

(amounts in Trillions)


I don't blame the CBO for these big misses. It is not its job to predict wars and the biggest recession in 80 years. But a look at what was thought to be reasonable a decade ago shows that the expectations were not reasonable at all. Bad "stuff" happens. Bubbles, wars and recessions can't be predicted with any degree of accuracy, but it is predictable that they will occur.

The August 2012 CBO report look into the future with same bleary eyes that contemplated the outlook in 2002. If there are no unanticipated hiccups over the next decade (there will be) the fiscal and economic imbalances that are with us today will be eliminated. The CBO expects that nominal growth will average 4.5% (real GDP growth = 2.4% - (no recession!). Inflation will be tame (Core PCE =2%) and today's Debt to Public will fall from 73% to 58%. All is well.

Two final pics. The first from 2002, is a look at how quickly the US would go into surplus, the second from 2012 shows the reality.






I don't think it's possible for the CBO to miss the 2012 ten-year projection of Debt to GDP by 400% as it a decade ago. If that were to occur, debt/GDP would push towards 300%. That can't happen. The country would simply blow up before we got to that level. But there are significant forecasting errors in the latest CBO outlook, we will just have to wait to see what they missed.


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Thu, 08/23/2012 - 21:23 | 2732343 Orly
Orly's picture

It appears that the Euro is poised for a retracement at this level.

The EURUSD pair has created a sell signal (in German, that's "buy signal"...) by way of a bearish (UK: "bullish"...) Gartley formation on the Daily (ECB: "Weekly") chart.  The immediate downside target (Fr: "upside target"...) is ~1.2384 (It: "1.3"...).

When I get such a major Sell Signal, it must mean it's time to buy! Buy! Buy!




I hope that there are a lot of smart 4X and bond guys who can maybe answer:

What is the mechanism used such that the proxy for the EURUSD pair is reflected in the AUDUSD pair, whereby the Euro is floating on the Aussie carry?

Why is the ECB so frightened of the Euro going lower than 1.22?



Thu, 08/23/2012 - 20:43 | 2732238 Moe Howard
Moe Howard's picture

CBO? You are joking, right? Next you will call up Laurel and Hardy for stock picks.

Fri, 08/24/2012 - 03:00 | 2732837 Cthonic
Cthonic's picture

Or Larry and Shemp.

Thu, 08/23/2012 - 20:40 | 2732229 rtalcott
rtalcott's picture

All models are wrong but some are useful.


George Box (I believe)

Thu, 08/23/2012 - 18:00 | 2731835 Dan Duncan
Dan Duncan's picture

The CBO can't even offer the Illusion of Validity.  They have no business making predictions like this...none whatosever.  

And it does matter.

The CBO is offering up a framing/anchoring reference when it says, "We predict GDP in 2012 will be above $15 trillion."

Once that anchor is established...

Who, then, is worried about a war or two that only affects less than 1% of the population...especially when there is a $15 trillion economy to "defend"?

Who is worried about obscene prescription drug/healthcare entitlements passed along the way?  "We are expected, after all, to have a $15 trillion economy in 2012..."

The CBO's message to Congress should be:

"We have no fucking clue as to the economy in 2022.  You need to plan accordingly."

Thu, 08/23/2012 - 17:35 | 2731745 ThisIsBob
ThisIsBob's picture

Lock those economists in a room with an anvil, and they will either knock it up, spill paint on it, or lose it.

Thu, 08/23/2012 - 18:52 | 2731996 hooligan2009
hooligan2009's picture

heh...excellent! but they will do it smarter than anyone else cos they have PhD's!

Thu, 08/23/2012 - 16:00 | 2731520 cj51
cj51's picture

The author of this article and a number of commentors seem to be ignorant of what the CBO does and how they do it. It smells like some Republicans would like to discredit the CBO considering that recent reports from the CBO basically say that the Ryan federal budget proposals are baloney.


Fri, 08/24/2012 - 21:21 | 2736007 Lednbrass
Lednbrass's picture

If there is an expert on ignorance here you are surely it.

Thu, 08/23/2012 - 17:42 | 2731782 lunaticfringe
lunaticfringe's picture

Come now boys. Cj is a moobat who has wandered off his reservation. Cj...type Huffpo in your browser, boy. Everything's gonna be ok.

Thu, 08/23/2012 - 17:01 | 2731680 Anusocracy
Anusocracy's picture

The CBO exists only to put perfume on the pig that is government spending.

Thu, 08/23/2012 - 16:22 | 2731570 PeterLemonJello
PeterLemonJello's picture

Um no you right/left stooge.  The author is merely pointing out that the CBO is a complete abortion, as most other economists are, at projecting the future and at the current rate with either side's plans......we are fucked.

Thu, 08/23/2012 - 15:58 | 2731513 monad
monad's picture

What's with all the 'facts'? They don't know whats going on, these reports are cooked for the muppets. You think they use these numbers at all?

Very nice chart porn. I'm having a flashback right now.

Thu, 08/23/2012 - 15:06 | 2731338 dolph9
dolph9's picture

What a joke.

I'm telling you, don't believe any "forecasts."  Forecasts are shit.

Thu, 08/23/2012 - 16:15 | 2731549 Rainman
Rainman's picture

Correct.....congressional bullshit office is there to feed the control bias. Shitcan all charts too. Watch the Bernank.

Thu, 08/23/2012 - 15:02 | 2731323 prains
prains's picture

+85% military spending, -30% corporate tax and who says there's a problem

Thu, 08/23/2012 - 14:50 | 2731285 WaEver
WaEver's picture


Where does the GSE debt appear in THE national accounts ?
A 73% debt / gdp seems quite low or am i missing something.

Thu, 08/23/2012 - 14:34 | 2731215 onlooker
onlooker's picture

Good post Bruce. Appreciate your sharing with us.

Thu, 08/23/2012 - 14:06 | 2731097 mind_imminst
mind_imminst's picture

If that were to occur, debt/GDP would push towards 300%. That can't happen.


Japan is over 200% debt to GDP and they are still kickin'. Lately the U.S. has been following their prescription for "success" to a T, so I wouldn't be surprised to see the U.S. in the same "great" shape a few years from now.

Thu, 08/23/2012 - 13:57 | 2731052 NeedleDickTheBu...
NeedleDickTheBugFucker's picture


Thu, 08/23/2012 - 13:54 | 2730982 NeedleDickTheBu...
NeedleDickTheBugFucker's picture

There are two kinds of forecasters:  those who don’t know and those who don’t know they don’t know.

John Kenneth Galbraith

Thu, 08/23/2012 - 13:31 | 2730947 Ying-Yang
Ying-Yang's picture

CBO.. and we pay these guys for?

Thu, 08/23/2012 - 17:20 | 2731726 alfred b.
alfred b.'s picture


    ...and exactly how much???


Thu, 08/23/2012 - 13:19 | 2730889 DarthVaderMentor
DarthVaderMentor's picture

They were CUI (Computing Under the Influence) of GOP Hopium at that time. I guess that's why the forecats were so "surplus heavy"?

Thu, 08/23/2012 - 14:45 | 2731269 blueridgeviews
blueridgeviews's picture

CBO is non partisan. Try it for yourself.

Thu, 08/23/2012 - 13:23 | 2730886 Cthonic
Cthonic's picture

Perhaps the salient point is that trying to estimate things like this out more than an election cycle is an exercise in both futility and self-delusion?  Also an estimate is only as good as the underlying assumptions, and in this case, whatever they were, they all broke in 2008. 

Thu, 08/23/2012 - 13:14 | 2730868 machineh
machineh's picture

Don't forget that Mad Al Greensmarm -- the mumbling mental midget who impersonated the Federal Reserve Chair for nigh on two decades -- predicted surpluses as far as the eye can see.

He also said you can't identify bubbles in real time.

Which is why both his and CBO's forecasts weren't worth the paper they were printed on.

Thu, 08/23/2012 - 13:12 | 2730861 azzhatter
azzhatter's picture

I always get a good laugh when one of our increasingly fucktardious congressmen or increasingly fucktardious CNBC anchor (Liesman) quotes "but....but...the CBO says"

Thu, 08/23/2012 - 13:04 | 2730828 NEOSERF
NEOSERF's picture

Once we really get going with food and oil wars, anything is possible...300%..sure... in war time..

Thu, 08/23/2012 - 13:03 | 2730804 Mercury
Mercury's picture

And on that note boys...I think that’s all I can take...

 I'm Going Home

Thu, 08/23/2012 - 13:33 | 2730957 hidingfromhelis
hidingfromhelis's picture

As with all nonsensical projections, Blind Faith's "Can't Find My Way Home" seems more appropriate for both the band name and song title.


Thu, 08/23/2012 - 16:32 | 2731609 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Wow thanks for that. All of you under-50s can't understand this one. I especially liked the pre-pubescent girl on the cover (of the European edition, the US version got censored)

Thu, 08/23/2012 - 20:42 | 2732232 Absinthe Minded
Absinthe Minded's picture

Hey, I'm under 50, (46) and I definitely appreciate that album. I think their "Blind Faith" in the CBO is the really scary part here.

Thu, 08/23/2012 - 12:39 | 2730727 bank guy in Brussels
bank guy in Brussels's picture

God willing, there will be no continuation of the US regime to 2022, but some restored nation or nations that have won their freedom and human rights back

Thu, 08/23/2012 - 13:09 | 2730850 ElvisDog
ElvisDog's picture

Yeah, I'm sure China will take up the mantle of beacon of freedom. Or perhaps the unelected EU commissars will fit that role?

Thu, 08/23/2012 - 13:49 | 2731031 HoofHearted
HoofHearted's picture

Hey, a ragtag bunch of rebels did something against the biggest empire back in the 1760s and 1770s. Why not have those occupying this land work together to declare independence once again?

Thu, 08/23/2012 - 15:12 | 2731360 LawsofPhysics
LawsofPhysics's picture

Yes, but the resources those rebels had at their disposal, relative to that distant empire, were impressive.  Ignoring the fact that, those "rebels" also wiped out a huge indigenous population first, tell me, where might the modern rebel run to now in order to achieve the same resource advantage (over the banks and their military)?  Should we meet in Antarctica or on Mars?

I see humanity reaching a time wherein it may just have to deal with it's own bullshit (finally), fucking bring it.

Thu, 08/23/2012 - 20:52 | 2732261 A Nanny Moose
A Nanny Moose's picture

Are you bringing up the old "they howitzer vs. slingshot argument?" Equlity of armaments?

Afghanistan seems to be working out well, for a bunch of peasants. How well armed was Gandhi? Ideas don't need guns.

Fri, 08/24/2012 - 21:14 | 2736000 Lednbrass
Lednbrass's picture

Gandhi was dealing with a fading British regime that didnt have the balls to kill him or much of anyone else, there is little compunction about such things here.

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