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CBO - Everything Is Going To Be Really-Really Great!

Bruce Krasting's picture




 

 

A few snippets of data from the Congressional Budget Office’s Budget and Economic Outlook 2003.

 

Estimated 10-year budge surplus = $5.6T.

Reality = $6.6T deficit. A 200+% miss.

 

Estimate for 2012 Debt Held by Public = $1.2T (5% of GDP).

Reality = Debt Held by Public = $11.6T. A 1000% miss.

 

Estimated fiscal 2012 GDP = $17.4T.

Reality = $15.8T. A $1.6T (10%) miss.

 

 

Okay, it was not an easy period to forecast. But the fact is, no period is easy to model and forecast. The CBO assumed that there would be no recessions in the 2004-2012 period. The CBO got hit on the head with that assumption.

 

I think the CBO is making the same mistakes again in 2013. It has a crystal ball of what the future will look like. The CBO assessment is that there is nothing but blue skies ahead. Some more snippets; this time from the just released 2013 CBO report on our future:

 

- GDP is about to soar! It going to more than double the current rate! Happy days are right around the corner. The economy is going to enter a sustained period of economic growth – and it’s going to star in just ten-months! Wow!

 

- Debt is not a problem any longer. Don’t worry about a thing. After ramping up the past five years, the Debt to GDP is going to flatten out, starting really soon.

 

debtto gdp

 

- Unemployment will be no problem at all. The rate is going back to 5.5% in a couple of years, and it is going to stay low for the remaining 7-years. There is Zero, repeat Zero (as in nada, no-way-no how) chance for a recession over the next decade. I find this very comforting.

 

unemployment

- Inflation is not going to be a problem. either. Not too cold, not too hot – the CPI will average less than 2% for well into the 2020’s. No chance of inflation picking up at all.

 

- There is even good news for savers. Interest rates will be going up very sharply. By 2015 the 10-year T-bond will be back to 4.5%, more than double where it is today. This backup interest rates will have no consequence to the economy at all. Not to worry one bit.

 

 

- There reason that the future is so bright is that the economy will prosper. GDP will grow to $25.9T in 2023. This comes to a 67% (uncompounded) increase. Think of that! We haven’t seen that kind of performance since…well, actually, we’ve never seen it. But who knows? You have to believe in miracles if you work for the CBO.

 

You can argue with me all you want about those CBO estimates. The fact is, no one really knows what will happen. But the CBO is using one assumption that is almost certain to be proven wrong. It is a very critical assumption: What will labor’s role be in the economy of the future?

 

- Labor income, as a percent of GDP, has been in a multi-decade decline (rise of the robots). The CBO is anticipating that the trend will not only stabilize, but will completely reverse.

 

labor income

 

 

I think the CBO is out on a limb with this critical assumption. I think they are all wet with the rosy outlook they believe is in our future. If you believe the CBO, the last thing you would do would be to address some of America’s daunting problems. After all, everything is going to be on easy street, so why sweat the small stuff?

I think the CBO has done our legislators, and the country a disservice with this report. I’ll be generous and give the CBO a D+for this effort.

 

d-plus-school-letter-grade

 

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Wed, 02/06/2013 - 00:08 | 3218926 DeadFred
DeadFred's picture

You are such an optimist. Only 10% inflation and a full year until the train wreck? I'd bet you on that but you'd probably pay me in rapidly inflating BennieBucks

Tue, 02/05/2013 - 20:06 | 3218235 TruthInSunshine
TruthInSunshine's picture

GDP is already contracting in real terms. It's only by pure manipulation of statistical data that it can be proclaimed otherwise.

Wed, 02/06/2013 - 00:24 | 3218972 willwork4food
willwork4food's picture

There are three main lies in government:

1. The check's in the mail.

2. The statistics support us.

3. We promise we won't cu....

Tue, 02/05/2013 - 19:13 | 3218063 Big Ben
Big Ben's picture

My guess is that we will have a 200%+ debt/GDP by 2025. The politicians have discovered that trillion dollar deficits are basically accepted by most voters (except for some Tea Party types who are viewed as far out of the mainstream), so we are never going to see subtrillion deficits again.

And in a few years we may have another recession that politicians will use to justify $1.5 trillion or $2 trillion deficits.

Tue, 02/05/2013 - 23:04 | 3218712 malek
malek's picture

Your guess is wildly optimistic in my opinion.

With your own numbers, how could it go up to only to 200% over the next 12 years? The only theoretical chance for that happening is GDP rises strongly over that period, at least nominally, due to high inflation.

Tue, 02/05/2013 - 23:36 | 3218825 Big Ben
Big Ben's picture

Well, I was leaving myself a little wiggle room. "by 2025" means it could happen in 2025, or possibly before. But I agree with you. Before 2025 seems much more likely.

You never know. There might be a huge debt implosion/hyperinflation episode in Japan that could put the fear into US politicians and cause them to cut the deficit. But I am probably being optimistic again. A Japanese debt implosion seems very possible, but I think that most people in the US would watch that and say "Well, it couldn't happen here." and continue on just as before.

Tue, 02/05/2013 - 19:09 | 3218045 chump666
chump666's picture

China must be advising the CBO how to Goldilock the books.

Nasty.

Tue, 02/05/2013 - 19:24 | 3218075 Orly
Orly's picture

Watch the reversal in the yen pairs as the Euro takes a breather.  The surprise pair?  No surprise: Cable.  Watch for jumpy upside candles as the market digests mongo profit-taking.

:D

Speaking of Britain, does anyone besides me think that Quentin Tarantino looks like Richard III?

http://uk.news.yahoo.com/richard-iiis-face-revealed-first-time-500-years-133121027.html

Tue, 02/05/2013 - 20:00 | 3218219 chump666
chump666's picture

Yes profit taking, notice the Dow on close, just in time for the next leg or final flow on monies - that being retail.  Fleecing the dip buyers late to the party, poor mom and dad investors. So we are probably in the final stages of a stock bubble.  Top?  Unsure.

Bearish signs emerging is HK slaughtered last session (everyone study your pre 1987 crash cues), EUR sell off with Euro stocks (Monday).  POMO won't be able to stop an avalanche sell off, also the 30yr bond collapse a week or so back is a warning sign to the Fed, they encourage all in on equities.  Bonds could collapse, yields spike.  We may just get our central bankers will be punished trade.

Tue, 02/05/2013 - 20:22 | 3218264 Orly
Orly's picture

Sounds like the EURJPY is going to get blistered on that day.  I'll be waiting.

:D

What are the chances Draghi lowers rates this week?

Wed, 02/06/2013 - 00:29 | 3218987 WTFUD
WTFUD's picture

what are the chances that Draghi lowers his trousers this week?

ben dover

Tue, 02/05/2013 - 20:45 | 3218332 chump666
chump666's picture

Good, the EUR sell off probably freaked him also the PIIGS spreads widening.  His brain is wired to the 'we get EUR bid on USD weakness, so I print'.  When the ECB prints, markets rally and USD sells. But...

*Blue market ARS (ARSB=) closed +1.7% 7.56/59 having hit 8.0 last week, traders suspect C/B intervention.

The inflation beat-down emerging markets continues on and on...with darling of the Keynesian lunacy legacy: Argentina.

Tue, 02/05/2013 - 22:12 | 3218519 Orly
Orly's picture

Andy Xie on MarketWatch had a half-way interesting article the other day about dollar strength and inflation in emerging markets.  Basically, they borrow to the hilt when they have relative currency strength but when the USD comes back on them, their financing costs go through the roof and they're left holding their own bags.

"In a dollar bear market, the liquidity goes into emerging economies, causing their currencies and asset prices to appreciate. The double gains attract more inflow, eventually causing inflation.

When the dollar changes direction, so does liquidity. The virtuous cycle on the way up becomes a vicious one on the way down.

The emerging economies already suffer inflation. The liquidity outflow leads to currency depreciation, which worsens inflation."

That's what happened with the Asian contagion and the previous South American financing crisis.

It is hard to understand him because he writes like a third-grader but at least his English is far better than my Chinese.

http://www.marketwatch.com/story/consequences-of-a-strong-dollar-andy-xie-2013-02-04?pagenumber=2

:D

Tue, 02/05/2013 - 23:38 | 3218831 chump666
chump666's picture

I saw that article, good timing for Andy, the thing is for at least 8mths the Asians have been mad buying USDs, more so oilers, companies etc.  It seems like a diversification out of YUAN and into USDs to offset inflation.  They are following the Brazilian/Argentina inflation rule book for companies and inflation eating own country currency values.  The dollar has been somewhat stable for the last 6mths, it should have collapsed under 0.79 Monday, but Europe caused it to spike.  Story goes a sh*tload of shorts were squeezed and quickly covered, so the bearish bets on the USD are not as strong as you would expect.

I would say that the inflation to war story is gaining traction.  For me, it is Japan and China getting closer than Israel and Iran.

If we do get war, USTs may not be as bid as Asian inflows will pick up.  Could sink the USD and USTs, as Asian countries bring cash/investments back home.  They might go bid, as the West tanks...until we go to war.

A theory.

Tue, 02/05/2013 - 23:46 | 3218858 Orly
Orly's picture

Interesting theory; exactly the opposite of what you think would happen.

I understand a Chinese destroyer locked and loaded on a Japanese ship last week.

Getting scary.

Tue, 02/05/2013 - 19:29 | 3218125 shovelhead
shovelhead's picture

I bet if we buried him for 500 years under a parking lot, he'd look Exactly like Richard III.

Maybe a bit taller.

Tue, 02/05/2013 - 19:35 | 3218144 Orly
Orly's picture

Well, the scoliosis thing...so it works out.

Tue, 02/05/2013 - 20:04 | 3218231 chump666
chump666's picture

Kinda looks like him...

Poor Tarantino, he looked hammered on UK television when that awful reporter tried to pick a beef with him over gun violence etc. dumbest interview i have seen in a long time

Tue, 02/05/2013 - 20:38 | 3218314 Orly
Orly's picture

I understand the same look was given by Richard III when he was asked about axe control.

He reportedly said, "Yeah, I need that %@&* like I need a hole in the head."

(Forgive me.  I simply couldn't resist.)

:0

Tue, 02/05/2013 - 19:09 | 3218044 Everybodys All ...
Everybodys All American's picture

and the CBO is supposed to be apolitical.  Trust me this is not the case and never can or will be under Obama.

Tue, 02/05/2013 - 19:04 | 3218028 Orly
Orly's picture

Per Adam Button over at forexlive.com:

  • "Congressional Budget Officer sees it at $616B in 2013
  • First time below $1 trillion in years
  • Sees debt-to-GDP at 77% in 2023

The numbers assume automatic spending cuts on March first and fiscal cliff taxes. Overall, the projections look rosy but the political risks are so high and changeable that they make any estimate a pure guess."

So, it means that if we can all just get along, everything would be great!

I've been saying that for years...about 25 years, in fact.

:/

Tue, 02/05/2013 - 18:59 | 3218011 geno-econ
geno-econ's picture

What a nice present from the CBO for Valentines Day.  However I get the feeling their real intention is to screw us again.   Beware of the Greeks and the CBO bearing gifts.

Tue, 02/05/2013 - 18:56 | 3217993 Clowns on Acid
Clowns on Acid's picture

Ministry of Propaganda.... when there is ZIRP and $85MM/ mth printed dollars being used to provide liquidity to banks by buying MBS and USTs......what do the Gov't figures mean / show..?

There is no reason to buy equiites except for the Fed...

The Fed is being used as a blunt tool to transform the socio-political landscape in the US. Would :

  • Obamacare stand a chance of becoming law, unless the Fed was propping up the economy with printed dollars?
  • Would Obama get a tax rate increase with out the Fed printing?
  • Would the illegal immigrant amnesty Act have a chance of passing w/o Fed printing?

It is not about "financial" performance any longer...it is about changing the socio-political landscape.

Not going to end well....

 

Wed, 02/06/2013 - 04:18 | 3219248 cossack55
cossack55's picture

Don't know if it is going to end well, but am quite sure it will end where reality wishes it to.  Certainly going to be painful tho.

Tue, 02/05/2013 - 18:50 | 3217967 Bear
Bear's picture

Congressional Budget Office ... Oxymoronic entity doing moronic job ... a dozen monkeys each guessing could come up with a better estimate. Politicians are in the over-under business  ... Over promise, Under deliver

Tue, 02/05/2013 - 18:49 | 3217961 JustObserving
JustObserving's picture

A D+ grade for a 1000 percent miss?  Is February 5th, reward the incompetent day?  

What is the budget for the CBO?  $100 million a year at least?  

With hundreds of people to do research and they miss by a mile, the grade should be F.  And that is being generous.

Wed, 02/06/2013 - 12:36 | 3220260 pomlad5
pomlad5's picture

Nobody was able to predict Lehman. Ok. Hank was. What was his research budget?

Wed, 02/06/2013 - 00:02 | 3218912 willwork4food
willwork4food's picture

Thank God we finally got rid of these tax sucking leaches.   Oh, wait.

Tue, 02/05/2013 - 19:43 | 3218171 blu
blu's picture

The CBO miss on purpose. It's a lot of work. They get a $100M per year budget from Congress to be clever because Congress really needs clever mo'fos right now.

Bruce gave them a D+ for being mo'fos.

See the CBO didn't fail, they did their <cough> job, but it was a shitty back-stabbing job for lying mo'fos. Which they do really really well.

So it's like they should get an A+ for motherfuckerology or something.

Tue, 02/05/2013 - 18:52 | 3217974 Orly
Orly's picture

Now, now.  Bruce is just being harsh.

No worries.  Everyone gets a trophy.

:D

Tue, 02/05/2013 - 21:44 | 3218455 knukles
knukles's picture

Everyone gets a trophy.

Except the people paying for the people making the laws about everybody getting a trophy, designing the trophys as well as the proper politically correct trophy awards guidelines and trophy enforcement administration, passing them out and employed by the State Trophy Regulatory Commission and Dog Shit Recycling Facility.

Wed, 02/06/2013 - 01:08 | 3219054 old naughty
old naughty's picture

D+ You are not generous, you are encouraging them to better their confidence-building game.

I would give them AAA, so they are peaked, only sliding down from there.

Urge states to legislate away these useless DC divisions. That's the only trophy they deserve.

Tue, 02/05/2013 - 18:45 | 3217949 Joebloinvestor
Joebloinvestor's picture

Interest rates will go up when the account is gold based.

That trick has already been tried, but will probably still work again.

Tue, 02/05/2013 - 18:43 | 3217943 masterinchancery
masterinchancery's picture

F---. CBO should be disbanded and/or sentenced to prison time for enabling the spendaholics in DC.

Tue, 02/05/2013 - 18:47 | 3217955 Joebloinvestor
Joebloinvestor's picture

Non-partisan gets you just as fucked up of an answer.

Tue, 02/05/2013 - 18:35 | 3217928 Ham-bone
Ham-bone's picture

Mehhhh...assumptions are all too ludicrous to even debate any further. 

Tue, 02/05/2013 - 18:33 | 3217918 Dan Conway
Dan Conway's picture

Unbelievable that anyone would approve the release of this garbage!  Shame on us for paying attention!  lalalalalalalala

Tue, 02/05/2013 - 18:27 | 3217885 Orly
Orly's picture

What would really be great would be instead of a chicken in every pot, could we get free pot with every chicken?

:D

http://www.youtube.com/watch?v=Hf53oFb4IKA

Tue, 02/05/2013 - 18:28 | 3217908 machineh
machineh's picture

Free pot with every chick sounds better ...

Tue, 02/05/2013 - 18:52 | 3217975 ihedgemyhedges
ihedgemyhedges's picture

In a lot of places, if you've got the former the latter is free.  Just don't make the mistake of marrying the latter..............trust me.

Tue, 02/05/2013 - 18:33 | 3217920 Orly
Orly's picture

Meh.

Wed, 02/06/2013 - 01:10 | 3219029 old naughty
old naughty's picture

Meh....eh... Free pot with every chicken...May I ask how much does the chicken cost?

Couldn't help it but thinking of the spiderman towel give-away.

Can't trust those fucksters (eh fraudsters).

Wed, 02/06/2013 - 11:02 | 3219912 Imminent Crucible
Imminent Crucible's picture

"Yeah, that ain't workin, that's the way you do it...

You play the sheeple on-a CNBC

You get your pot for nothin and your chix for free."

 

We are definitely in dire straits.

 

Tue, 02/05/2013 - 18:04 | 3217820 edwardo1
edwardo1's picture

Bruce,

The Government and it's ancillary agencies are, first and foremost, in the business of bolstering confidence in the system.  If the CBO happens to get it even close to right-as opposed to egregiously wrong- with one of its forecasts that will simply be a happy accident and nothing more.

Tue, 02/05/2013 - 19:19 | 3218096 newworldorder
newworldorder's picture

Bruce - Thanks again for your excellent analysis.

The CBO is a non accountable Division of Congress. It serves no function other than to serve the Majority Leaders of Congress and the Executive Branch, in whatever numbers those institutions need to have to support whatever rosy economic picture they want to present to the public

If they were a Division of any Fortune 5000 company, most would be fired without recourse.

Wed, 02/06/2013 - 08:34 | 3219413 blindfaith
blindfaith's picture

Your assignment:

 

read a 10Q

Wed, 02/06/2013 - 00:00 | 3218903 willwork4food
willwork4food's picture

"Fired, blackballed & laughed @...all the way to their jobs at Hardee's.

Tue, 02/05/2013 - 18:50 | 3217964 ihedgemyhedges
ihedgemyhedges's picture

I think the CBO is right with their 4.5% projection on rates.  Problem: inflation will be around 9 to 10%.  Excuse me, non-BLS inflation will be around 9-10%.........................

Tue, 02/05/2013 - 21:16 | 3218402 AlaricBalth
AlaricBalth's picture

The Federal Reserve Bank of St. Louis did an extensive study of CBO projections, and their conclusion based upon empirical evidence and exhaustive analysis, was that the CBO projections are in fact... USELESS.

http://research.stlouisfed.org/publications/review/12/01/21-40Kliesen.pdf

Tue, 02/05/2013 - 21:19 | 3218408 knukles
knukles's picture

Now there's another grand use of time and funds.
Forsooth!
Mayhaps they shoulda taken a look at the FED's very own proprietary models which likewise have been about as useful as a bucket of warm shit in the hot afternoon sun.

(cynicism)

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