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Experts on the Deficit
Consider two components of the discretionary spending budget; (1) Food Stamps, and (2) the Earned Income and Child Credits.
1) Food Stamps cost the government $82b in 2012, up from $25b in 2003 (325% increase).
2) The Earned Income and Child Credits cost $80b, up from $33b in 2003 (240% increase).
These two categories of spending represent 12.5% of all discretionary spending. These costs go up when the economy is weak, they have never declined.
Now put your economist hats on and project what these two drivers of the budget will be in 10-years. Keep in mind that in a decade the cost for everything, especially food, will be much higher due to inflation. What's your guess?
According to the CBO the cost of Food Stamps and Child Credits will actually fall over the next ten-years. The CBO believes that Food Stamp costs will be 11% less than today, while Child Credit costs will fall by 3%.
Surprised by that result? I was. Do you believe that these cuts will be realized? I don't. It would take an economic miracle to achieve those results. The CBO is counting on that miracle happening. The CBO forecast is for uninterrupted growth in the economy. A few of the key variables that the CBO is hanging its hat on:
GDP in the USA is about to soar. 2013 will be so-so, but 2014-2016 will be a rip snorter, After the big surge in growth the economy will stabilize at at steady 2+% growth rate. The CBO is forecasting perfection:
With the great economy, unemployment will fall like a rock - any day now.
Even with all of this good stuff happening, there will be no inflation!
Labor income, as a percent of GDP has been falling for the past forty years! The CBO is forecasting that this trend will not only stabilize, but it will make a huge recovery. And this is going to start any minute now!
The CBO assumes there will be no recessions. Imagine that! Fifteen-years of uninterrupted growth is projected. The CBO has concluded that the business cycle is over. It thinks that governments have finally figured out how to avoid the laws of gravity. History tells a different story.
With all of the great stuff going on in the economy, interests rates will shoot higher. The move up in rates is going to start next year! Forget ZIRP. Forget QE. Forget the Fed. The Fed Funds rate is going to 4.5%(36Xs higher than today). At same time, the long end of the curve is going to get back to 5.5%! The CBO believes that long rates (AKA mortgage rates) are going to triple. This explosion of interest rates will have no, repeat no negative consequences at all! Housing and the economy will continue to boom even though mortgage rates are going back to 7%!
One more piece of the beautiful pie that CBO has created; there will be no OCO costs in the next decade. OCO - Overseas Contingency Operations - is the code word for war. No more of that stuff in our future!
I don't think that the CBO should be in the business of forecasting wars and recessions. That would be an impossible task. But the assumptions used and the conclusions drawn by CBO will not be realized. Fairyland doesn't exist, and the business cycle is far from dead. As a result, the economic future will not be as bright as CBO has presented.
When you put all of the pieces of the CBO forecast together you get a trajectory of future deficits/debt that looks manageable. After exploding higher the past five years, the red ink is going to stop. The US debt levels are going to level off. The good news is that big improvement is scheduled to start in just a few months!
I"m not denying that the US economy has stabilized. The 10% deficits we saw in 2009 will probably not be repeated any time soon. But I don't see how all of the good things the CBO is anticipating can happen. The problem with the CBO's optimistic outlook is that it has given ammunition to those who would love to ramp up discretionary spending.
Of course there will be more business cycles. There will be stock booms and busts. There will be geopolitical issues that force more of the unwanted OCO. There will be commodity shortages and weather chaos. Other key economic areas of the world will have their ups and downs too. All of these things have happened in the past. They will happen again.
When things do go wrong, the deficits will jump higher than CBO's projection. With the deficits, the debt will be much larger than assumed. What bothers me is that those who are now pushing the story that deficits aren't a problem, are the same ones who will be crying, "We never could have seen that happening", when the SHTF again.
Bernanke, Geithner, Greenspan and many economists like Krugman have all said they missed the dark clouds that were forming in 2006-2007. One of the reasons they all missed the signs was that CBO was telling them that the base case for the economy was blue skies ahead. From the 2006 CBO report.
The CBO never saw 2008 coming. Its projections for debt were way off the mark, about 250%:
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Food stamps will become your food ration card. Everyone will have one.
Nothing to worry about; the Fuhrer will be releasing our new secret weapons any day now; to stop the advancing Russian Hordes approaching our borders. Everything is under control. German official news broadcast 1944. When it gets serious, you have to lie.
Bruce, Forget about Red Deficits as far as the eye can see-----time to have a Party, Iam dying to meet Red Dress and impress hr with my credit cards, luxury cars, knowledge of algos and friends in Congress and Administration---besides Iam tired of dating Monica.
Never saw her again......Damn.....
there is confusion in my mind : CBO acronym stands for Congressional Budget Office.
But this is NOT the executive of the Treasury and its FED arm...
Who makes the Official budget of the Us Governement : is it the government agency, aka Potus, or is it the Congressional Office?
For what it's worth:
CBO is an agency of Congress, and makes projections based on unrealistic assumptions they are given.
The White House, by law, is required to submit a budget to Congress. It hasn't for about 3 years.
Only Congress can authorize spending, and all spending bills must originate in the House.
That's the Law, but they do what they please.
The White House, by law, is required to submit a budget to Congress. It hasn't for about 3 years.
That's not true. The President submits a budget REQUEST. The Obamanation has been submitting those requests, but Congress hasn't PASSED any of them.
perfect oligarchy play; keep playing ping pong!
That's the great thing about partisan politics: the only thing that matters is how you can find a way to blame the other team.
Congress was destroyed by the Clinton impeachment and the 9/11 attacks. It hasn't functioned since.
What part of the government is functional?
The Preznit can blow up any country or kill anyone on the planet at his whim. That's "functional," for sure, it just happens to be EVIL.
LOL. Yeah, thanks for the early morning giggle. For the record, the FBI just got through anouncing that Patty Hearst was probably in so. America, when she was videotaped holding up a sporting goods store in L.A. The DEA is corrupt and considered a joke by professional smugglers, dealers. The IRS has thousands of new agents, thanks to the Obamanation, that know nothing, and I mean nothing, about the Tax Code, and apparently, can't even read accurately. The EPA has done more damage to America than any foreign enemy, ever. The DOE is useless, and staffed with time servers. The SEC is dysfunctional. The CIA needs, badly; to be de-funded and wrrapped up once and for all. In other words; that's a damn good question.
Budget? There is no Budget, only the CR.
* China Feb trade surplus $15.3 blbn, $7.8 bln deficit eyed, exports +21.8% y/y, imports -15.2%, +10.1% and -8.8% eyed.
Not good, China imports collapsing
The spot price for iron ore delivered to China rose more than 80% to $158.9 a metric ton over a six-month period to February, marking a 16-month high in the price for the key raw ingredient used to make steel. The spot iron-ore price has since dropped to $146.30/ton, as of Thursday, according to data provided by the Steel Index.
China's national planning agency, the National Development and Reform Commission, said Wednesday that the price rise stemmed from the fact that the world's top three iron-ore miners and some traders had delayed delivery of stocks and were reluctant to sell iron ore, thereby "sending a fake market signal that there was a temporary supply shortage."
Read more: http://www.foxbusiness.com/news/2013/03/07/bhp-billiton-responds-to-china-iron-ore-price-manipulation-claims/#ixzz2MvI9KG8T Oh we get desperate now huh? Party is over, just the Fed (with it's mutated offsider:ECB) and the BoJ left.when you say debt held by the public you mean debt held privately by individuals?
but you're spot on about interest rates, but assuming the VALUE of the median home remains the same, the COST OF FINANCING increases, and the CORE or COLLATERAL VALUE of the home has to drop to balance the equation (remember the Fed can only inflate the money supply, not the economy) i would say the FED is tapped out,[ unless of course they unload their debt back onto UST ] which should be a great fight between a few members of the GOP and the rest of the lobbyist supported Congress [NOT]
The debt is not a problem.
Until it is.
Peeps don't see the onrushing petroleum-driven collapse taking place right under everyone's noses!
As in right this minute! All the 'smart talk' is we've got 100 years supply from fracking. Hallelujah, everything is all right. Lies and more Lies!
Meanwhile, Peak Oil has tanned Greece's hide over a matter of months and has hanged it on the shed. Is anyone paying attention? No, peeps aren't watching Syria, Yemen, Egypt, Spain and other states breaking down b/c of fuel 'problems' of one kind or another.
Peeps rather blame the outcome on the Troika or Bernanke or Krugman or the Queen of England, instead of following the money and seeing where the billions of Greek euros wound up ... in the pockets of Middle East sheiks and German automakers.
You might want to check out Greece's consumption (it has zero production): http://mazamascience.com/OilExport/
The Europeans are all are on the same track, for the same reason. The car industry is being annihilated: yes Virginia, there is peak demand and it is being crushed! Europe has to compete with China for fuel, and it is losing. Why must Europe compete? Because world-wide fuel supplies cannot meet demand there is a 'zero-sum' fuel environment.
The CBO denies reality and the government takes no steps to either solve the problem (stringent conservation/rationing) or prepare for the hard times that are on the nation's doorstep! Instead, more happy talk.
The end of 2014, if everything goes right and the CBs don't screw up ... less than two years. Then the cost of extracting new fuel will not be met by what the bankrupt fuel customers can borrow. Game over. BTW: Japan's central bank is indeed screwing up and will screw up even more.
I agree with you Steve, energy (esp. oil) underpins fiat currency strategy, and this began accelerating strongly with the US formally exiting gold convertability in 1972. Every combat operation we've had since that time has been exclusively for petrodollar maintenance. Where this really went nuclear was in March of 2012, when the Kish Oil Bourse formally started trading (funny how this happened right around Fukushima). The huge ramping of CB gold buys in central and east Asia is to buttress the support mechanism for this trading. The surprise for me is how long it's taking for the currency war to move to actual combat.
"The CBO denies reality and the government takes no steps to either solve the problem"
Considering the US is in a soft depression, even the hawks at the CBO are keeping their mouths shut. When know one is willing to discuss the problem, its evident that the problems are no longer "fixable". The only option is to deny it and keep the game going for as long as possible.
"The car industry is being annihilated: yes Virginia, there is peak demand and it is being crushed!"
Well before the car industry collapses, the Aerospace industry must collapse first. Loss of airtravel\air frieght would free up 10 to 12 mbpd of consumption or about 12% of daily global production. That might delay a full blow energy collapse by a decade.
"Then the cost of extracting new fuel will not be met by what the bankrupt fuel customers can borrow. Game over."
Lately I come to the realization, that it isn't going to end with a economic crash. TPTB are driving us straight into a future global nuclear war. I was hoping that the debt collapse would happen which would reset the WW3 clock. unfortunately TPTB have speed up the clock. It took near 50,000 years for humanity to build civilization and these madmen will destroy it all in less than a decade.
When, (z/h) have you over the last 5 years. seen a ramp up on usd /jpy that is almost 400 pips?
This move was orchastrated by the MoF yesterday as stealth intervention. rather than bring forward 2013/2014 asset purchases the MoF decided to sell as much yen as possible before the march 12-13th meetings. This indirect intervention will be sold against next week. Japan is risky credit, and can't secure long term sovereign financing. ( shipping ports- airports)
Never. Big moves in F/X are routine, now. A 6 month move in years past now occurs over two weeks. Volatility wrung out of all the markets by design has migrated to foreign exchange. Forex is the new interbank lending market of 2008.
There is a distubance in the Force.
Steve, I appreciate the context of your post. I wish there was more liquidity in the F/X markets. You obviously are just learning the trade.
The F/X trade has lost over 30% of it;s retail traders over the last 3 years, mostly due to lack of liquidity(margin requirements) and the CFTC slamming hedging and CFD trading!
I'm all ears, If you have good suggestions?
@Yen sez:
Hahaha! Too funny!
I wanna put you in a box and send you over to Zero Hedge, they all believe over there that Bernanke prints money! I guess he's keeping it all or giving it to his grandchildren. LOL!
More liquidity = more overseas goods trade, not only does the world need four more Saudi Arabias, it needs ten more retailers like Walmart.
"buy oil" it would seem.
"buy oil" it would seem.
When things get serious you have to lie. The CBO knows they can't really get away with fudging things anymore so we're starting to see more and more of the data being totally disconnected from reality. It's starting to get scary.
Critical mass approaching.
its all BS - bruce is a Peterson tool - there is NO debt problem - eat up the promote - enjoy the experience
"Bernanke, Geithner, Greenspan and many economists like Krugman have all said they missed the dark clouds that were forming in 2006-2007." goddammit Bruce, they can't see those "DARK CLOUDS FORMING" when they've got their heads so far up their ASSES it would take $10 in postage to get the fucking memo to 'EM!
Laurence Ball, Douglas W. Elmendorf, N. Gregory Mankiw:
“The historical behavior of interest rates and growth rates in U.S. data suggests that the government can, with a high probability, run temporary budget deficits and then roll over the resulting government debt forever. …whenever a perpetual rollover of debt succeeds, policy can make every generation better off. … the adverse effects of deficits, rather than being inevitable, occur with only a small probability.”
http://www.nber.org/papers/w5015
*10-year yields hit 2%
Lol, oh dear and all that money printing...
chump666 What currency do you think Asia will be buying today? (hint) It isn't the $.
Definitely XAU.
Before payrolls and now risk on till 400 handle on the Dow. You got AUD, CAD, GBP, EUR bid...anything else v's the JPY. The USD is selling hard, but hey, what a run? It should be sub 80. If you rode the USD with risk on, which is what a lot did to hedge any stock market correction, which has been quashed via EUR (NY FED) supports. Well done.
But strange market overall, actually tight liquidity wise, noting USD strength and yields on the 10s etc. Leveraged up and nasty. Saw a wire report that a firm has locked in 14400 as extremely overbought on the Dow.
Asia has been buying,yen,gbp,usd all week. Flows are moving back into Asia over E/U uncertainties. Japan has lost 20% of it's (gross) exports to China.
Australia exports by more than 2.3x1 to China vs Japan. All the Asian "tier2" exporters are pissed off at Japan. usd/jpy just did a slow motion 'pop-off-top'. Japan is playing with fire. It's on like "Donkey Kong" with China now.
The PBoC has allowed the yuan to appreciate vs the $ to boost internal consumption and check inflation. Thay have also left margin available to crush the soon to be 100%+ JGB vs yen circulation in Japan. The shit storm is already here. The charts are just lagging, because the markets are not allowed to discover price in real time. (Bernanke thinks he's the q-ball)<> In reality he's the 8-BALL!
From my perspective it's the Asian and South American uncertainties, hence BRICs all lower, commodities going nowhere and gold trending lower since Oct 2012. That is not good, if the QE pumps can't inflate commodities, sink the USD and rally gold etc. Bernanke is a f*cking idiot, we have rates going up, deflation in commodities (iron ore and copper), inflation in oil/gas prices and a stock market bubble. So yeah, I dunno, only person that I have heard that we could be in for something major on all fronts, is Marc Faber, a classic contrarian. But hearing him say that if commodities fall in a money printing environment means something worst is brewing.
As far as Japan goes, that's a bad deal. You got China now that can make a move using North Korea. Japan, as you said, just pissed off it's neighbors with the YEN devaluation. More so South Korea. Messy and dangerous.
That was a pretty good summary Chump. I think you get better every day! I have a new teacher :-)
I focus more on Asia and Europe/North America and you offer great insight into South America. The biggest problem with South Korea. The currency isn't floated. You have to find a broker, If you don't have EBS access, and the spreads/liquidity are really wide.
I proxy that trade with hkd & sgd.
Hey I'm leaning too!
Good luck with your trades.
My cable trade is good. I stopped out and reversed on usd/jpy., to hedge my gbp/jpy position. The BoJ /MoF is full of shit and did a stealth intervention. usd /jpy moves over 400 pips in 5 trading days? 75% of the move comes after the BoJ meeting?
I never trust the Japs! They are worse then the Chinese. Please read this chump / Kuroda Seen Breaking Bank-Note Limit Buying JGBs - Bloomberg
Read this to/ BOJ holds fire as Shirakawa era ends, action eyed under new boss | Reuters
These articles give insight into how the BoJ and MoF finance debt.
Japan's money printing fest is leading it's self to war with China
http://www.bordermail.com.au/story/1347779/china-navy-to-wear-out-japane...
The US won't get involved, China could sink America just with a massive UST dump, no problems. Then issue war bonds to it's people.
I wonder if aliens are watching our bullsh*t, we are like a bunch of psycho ants down here.
Hey chump, you do the math http://www.google.com/finance?q=USDCNY
http://www.google.com/finance?q=USDJPY
It's not rocket science.
P.S. Thanks for the article Chump. I owe ya one/
i remember during the 1980s and early 90s the press crying, screaming, and cauterwailing about the deficits - how the world was going to end and predicting a recession every year since 1985...then all of a sudden, the predictions of recession ended in 1993 and the economy would boom....and then cries for recessions resumed c. 2000....but since 2008 abundant green shoots have vanquished recessions and of course the deficits don't matter any more.....
so all of those sub 4% gdp deficits would cause the world to end but 10% deficits are to help it continue?
the hypocrisy and deceit of the economists and press can be summed up easily: nazi propaganda.....
the cbo has been a joke at least since alice rivlin ran it.....forecasts are whatever you need them to be.....a gigantic crock of goat shit...if the government or its state controlled press report predictions - you can safely ignore them....
Deficits don't matter with a Democrat in the White House, especially a TeleNegro type.
Seen any anti-war rallies lately???
Deficits don't matter with a Democrat in the White House,
Eh? You're saying they mattered from '01 to '08? I don't think this is really a partisan thing.
That was sarcasm, ss.
I don't think so.
This time when it comes it will be larger, madder, more direct and a whole lot bloodier. The mac-daddy of protests: called insurrection. When the scales tip. I believe the Oblummer will be gone by then though and the replacement will face the wrath of desperation.
Mr. Krasting tossing a few expletives and sarcastic acronyms around. I like Mr. Krasting ;-) +1
I love the smell of Napalm burning on Treasury bonds in the morning.
Today we had a bit of bond barbecue with a serving ~stock hesitation~ sauce.
For dessert some ice cold Silver and Gold. It is advised to keep those in the fridge as they could be of further use when the burning of Treasuries gets really hot.
Good post Bruce. I got as many laughs out of this one as a Banzai post. Like Banzai, you don't even have to TRY anymore because the clowns just keep giving you more and more free content to roll with. Just assemble into a sensible flow and the comedy gold continues.
I'd laugh harder if it wasn't so sad. I think they must be overdosing on Prozac at the CBO.