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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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They'll be giving us meth in our water if it helps them keep us in line.
Bruce, easy read information of value and importance.
If I understand it correctly, the reason for the report is to show:
“”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.””
This is by projecting that
Again Bruce, you have shown that the spin masters have no grasp upon reality. Not even good spin. An insult to Americans. Nonsense.
EVERYTHING we believe in is a Lie. EVERYTHING they tell us is a Lie.
In case you still are a fucking Zombie
http://www.youtube.com/watch?v=5hfEBupAeo4&feature=youtu.be
Does anyone really believe in the CBO reports anymore? Like they're not puppets of TPTB via the GOV? The USSA has lost all creditabilty. So why believe anything coming from the CBO. Anyone in business thinks they know something the CEO should know about but can't tell him lest he be fired by those under the CEO. Believe me, the CEO knows but if you tell him you know, he will direct his underlings to fire you.
Their credibility comes out of the size of their military arsenal. Who can resist? And now, the coming of the cloud of drones to watch all. Give me some shakes in my flakes? Damn right it does - they're our peeps and they're willing to vaporize any who stand in the way - simple truth.
Bruce, nice post. Great technique of dissecting the CBO BS projections...
Bruce's libtard neighbors in the NE voted for this. Nice job turds.
I hate to be rude, but jeez you are clueless. There is no liberal in the US. Just different shades of fascist.
Our Constitution is incredibly liberal. Too bad it's not used to run the gummit anymore, eh?
Bruce,
The "recovery" and "deficits don't matter" narratives are a red herring. By creating this false reality - even if it only exists for a moment - the Powers-That-Be have given themselves an alibi, a cover story. You see, very soon we will have another SHTF event (or series of events): a full-blown war, currency crisis... you name it, there's a dozen very ripe crisis hanging on the branch. By creating their false narrative/reality of "recovery", all of these asshats will be able to say, " Everything was back on-track before (unanticipated events) happened and de-railed the recovery... It's not our fault."
This most recent construction of the false "recovery" narrative simply tells me that significant, 'unanticipated', negative events are just around the corner... like w/in the march/april/may timeframe. This false narrative technique has preceded every single major negative event of the past 20 years. It's a massive tell.
"This false narrative technique has preceded every single major negative event of the past 20 years."
I'd be interested in reading more about that...
God, it's almost like they're evil
But they don't see themselves as anything except 'saviors.'
Right up until the time they are guillotined.
Before Krugman believed that deficits don't matter, he believed that they did. And this was 2003, when the deficit in current dollars was barely more than half of what it is now. But of course this was when W was President. Here are few excerpts from his 2003 column. I recall reading it in my local paper. Google turned up this copy at the Portland Independent Media Center (http://portland.indymedia.org/en/2003/10/273352.shtml):
"A Third World country with the United States' recent numbers -- its huge budget and trade deficits, its growing reliance on short-term borrowing from the rest of the world -- would definitely be on the watch list."
And:
"The crisis won't come immediately. For a few years, the United States will still be able to borrow freely, simply because lenders assume that things will somehow work out.
But at a certain point we'll have a Wile E. Coyote moment. . . .
What will that plunge look like? It will certainly involve a sharp fall in the dollar and a sharp rise in interest rates. In the worst-case scenario, the government's access to borrowing will be cut off, creating a cash crisis that throws the nation into chaos.
I know: It all sounds unbelievable. But would you have believed, three years ago, that the budget would plunge so quickly from a record surplus to a record deficit? And would you have believed that, confronted with that plunge, our leaders would offer excuses rather than solutions?"
What a difference a change in Administrations makes!
We read those very same sentiments here everyday - both commenters and posts. The difference now is:
can't happen. Question is, what is the failure mechanism of QE/debt monetization?
They can monetize the debt as long as they want. The failure will be when other countries will no longer trade real products for those dollars. The price of your haircut won't be affected as much as the price of a 2X4 or a can of beans. Anything that can trade on the world market will soar. Anyone who has looked at the math behind cataclysmic events knows that They are playing with fire. Cramer won't be able to get his sheep out of the market when the the first trade of the day triggers the closing of the exchanges- day after day. The arrogance of those who are now playing with the lives of millions is mind boggling.
Lots of us have asked that question for a while now.
I'm beginning to think it will be the inevitable financial losses from the rate compression Jim Grant was talking about.
Cascading failures of insurance companies, banks (mostly small at first) and pension funds, even municipalities. No one who made promises based on yield can make that good. Sooner or later, that has to blow.
Or simply the temporarily delayed bankruptcies in retail, real estate, automotive, take your pick.
All deflationary, all point to holding cold hard cash. Not gold. Not silver. As long as the Fed allows banks to hold excess reserves for a profit, the money will never enter the market. The bank guaranteed profit program (BGPP, I release all rights) ending will be THE inflection point.
'OK', says the Bernank, "with this situation now growing by multiples, we have to increase buying from $85 billion to $850 billion per month until the entitlement problem is brought under control.' So, why not? What's the difference? Just a matter of scale of money they have no way of paying back either way.
$1 = 1 Zim dollar
An alternate reserve currency(s),gold backed.
With WWIII before or after its intro.Maybe another 24 months,maybe not.
My gut feeling is the coming fall will begin much sooner than most expect. April 2013.
Tomorrow! Or maybe the day after!
Anti GWOT,drones etc., also back then.
A hypocrit and a Quack.
A Hypoquack ?
A hypoduck. Big quacker who eats peoples savings and poops paper.
The CBO's forecasts have always looked like this. They could just throw all this crap away, quit wasting theirs and our time producing bullshit, and simply come out with the one line lie, "We think it's going to get better from here on"
True. And they're paid with our tax money....ironic isn't it?
Spain, Greece, and Italy are telling similar fairy tales.
Good luck with that.
Hell hath no fury like a Central Bank ending its QE program.
With all that QE being pumped into economy, total income is sure to rise. However the rise will not be spread according to traditional income and wage patterns leading to further income disparity . Furthermore , outsourcing will continue unabated along with tax avoidance at upper levels and by large corporations. So , In addition to a rising deficit, what has really changed ? The politics are certainly the same no matter who is in the White House or who controls Congress and any efforts to rein in spending is paltry at best.
With the marginal value of debt now negative, total income no longer has to rise.
Unless you're a bankster.
Wage inflation requires a semi-functional economy. A point in time which is long since past.
Bruce, shouldn't give Business Insider a second thought.
Joe Wheezy was hired by Carney (now at cnbc) because they were friends. Wheezy wrote the intro to Dealbreaker back in 2007-2008 when Carney was breaking stories (lehman weekend broke BAC/MER deal).
Wheezy was a california kid writing an intro on a financial blog that about 200 people read. Since then he has read a couple of books, got his degree from the FRED school of finance, and figured out (like an economist) how to monetize being 50% right. He is a 30 year old kid who has never worked on a desk, never worked in investment business and has sweat equity with Business Insider.
Not sure why anyone considers him a legitmate commentator on finance or the economy. Although Business Insider can do a great slide-show, and much of their content competes with TMZ.
I was so happy to see that the FED will have to stop easing around the middle of 2015 when the unemployment rate hits 6.5% ... and they will have added 2 trillion (in Treasuries) to their Balance Sheet. I didn't think they were ever going to stop!
Bear, Jamie will live on ( fxBriefs.com)/ Right now you need to focus! snap snap < bitch A huge gap needs to be filled, and it's not your Chilean boy toy! Wake the fuck up! Master of Fibi Extensions- Elliot Wave retard- TRIX-TARD. Yes i remember everything.
errr...I think that is 20 trillion
But the Unemployment Rate as calculated by the Bureau of Labor Statistics will never again reach 6.5% as the political entropy demands perpetual near zero interest rates for its constituency thereby leading to endless baseline adjustments and refined and redefined seasonals, a veritable plethora of anomalies and refinements at the behest of the BLS's funding source, overseer and Congressional Master.
THIS!:
http://www.youtube.com/watch?v=e3zElydYywQ
If .gov can print $118 million per <edit> HOUR (not day) for the banksters, why not for the citizenry?
Of course the deficit is not a problem; when you can bail out malfeasant banks, insurers, and corporations with the people's money while debasing the currency - deficits have no meaning.
Food Stamps (SNAP/EBT) are the last thing they are going to reduce or cut; most major cities could not handle the backlash - physical, political, or economic.
The subsidies are not only keeping the populace quiescent (not rioting), they are keeping retail and big Ag. afloat (not to mention J.P. Morgan Chase doing the banking for EBT, Welfare, and Unemployment and raking in fees and cash on the balance sheet).
... because then the people, not the banksters, get to spend the money before it becomes worthless...
ebworthen- besides as you know, food stamps are big bad bama's constiuency. he and they don't want it to stop. theyse all livin large
Just livin', not large. People aren't THAT stupid. If you can't get to the top, stay on the bottom. Middle class is a rip-off.
CBO= Completely Butthole Observations
please correct me if wrong...i have heard many times that the cbo works with others imput.....so lets say someone tells them rainbows and skittles , than we get rainbows and skittles.....
Looks like another Kobayashi Maru test...
Time to hack the simulator then.
Except there's nothing but redshirts on the ship. Redshirts and tribbles.
No doubt one of the redshirts is named "Kowalski".
Bruce, The fed is monetizing 1.9 million per minute, indefinitely for christ's sake. The game is long "over", get your tribe in order. Eventually debt is "cleared" one way or another, prepare for the next paradigm. It's long been a "rentier" society and I suspect it will be even more so now. Providing that supply lines hold, and your observations very much speak to the latter.
I suppose it's possible the GDP might soar in nominal dollars, but not so much, or not at all in inflation-adjusted dollars.