CBO Report: "The future is rosy"

Bruce Krasting's picture

The Congressional Budget Office released their ten-year outlook for the US economy today. It is a very complex analysis. There are dozens of critical variables that go into this long-term report. A Base Line set of assumptions is put into a (very big) computer. The report makes projections on future debt levels.

This document is significant as virtually all other long-term federal budgets are built around the operating assumptions that CBO uses. Economists and politicians will use this report to push their own agendas. That is how things work.

My crystal ball is cloudy these days. I’m having trouble looking down the road past a week. I don’t have a clue what conditions will be like in five years. Neither does the CBO. But they have to produce this report and they have to make assumptions to do that. I think the variables were set at levels that are on the optimistic side. But I’m a pessimist so I’ll let you decide if these are reasonable assumption.

The most critical variable is GDP. The folks at the CBO see clear sailing and high growth for the whole ten years. Their average growth rate is ~15% higher than the previous decade. That is because of the big 08 recession. The CBO believes that won’t happen again. No "dip" in ten-years. There is no basis for that. The US has a recession every 5-6 years.

Another central assumption that drives the results is the rate of unemployment. According to the CBO happy days are right around the corner. Unemployment will fall to 5% in just a few years and stay at that level forever. We should be so lucky.

With the drop in unemployment would come an increase in hourly earnings. At least that is how the CBO sees it. Note that the hockey stick of improvement is supposed to happen, well, about a six months ago. Maybe I’m not looking in the right places.

Inflation drives many components of the federal budget. I’m not sure what number to use. The CBO thinks it will be tame. Maybe. But I doubt it. We are in a ‘short’ resource world and the monetary authorities are pumping high-octane fuel. It would be helpful if the CBO were to stress test this at 4 or 5%. The results would be quite different.

There are numbers for the revenue and expense side. Once again, the CBO plugs in some rosy assumption about the direction of income and spending. Just about every arrow is pointing in the right direction.


The bottom line from the CBO is that debt held by the public will rise from its current level of $10T to $14.5T over the decade. The good news is that the percentage of debt to GDP will fall from the current level of 67% to 61%. The conclusion is we’re headed in the right direction.

To do that the USA will have to hit the numbers that the CBO has set out. I see little chance of that happening. There’s too much ‘up-side’ built into the projections.

When S&P went to the White House and told them they were going to cut the USA’s AAA the Treasury Department went on the offensive. Tim Geithner led that charge and did his very best to convince the American people that S&P had it all wrong. That they were incompetent and did not understand the macro economic dynamics that drive our debt profile. Geithner used these CBO projections to make his case that the US was on a good track.

S&P said “No Sale” to that argument. Looking at the assumptions that Geithner relied on to make his case I don’t blame them.


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
chinawholesaler's picture

Muslim Products
Pet Supplies

Wholesale Helmet
Sport Items
Lady Beauty Care

Wholesale Ashtray
Wholesale Bangle
Gift Box

Consumer Electronics
Wholesale Earphone
Silicone Products

Wholesale Earphone
Wholesale Keychain
Wholesale Scarf

Wholesale iPod iPhone
Wholesale Raincoat
Wholesale Watch

Computer Accessories
Wholesale Massager
Wholesale Furniture

Wholesale Tableware
Wholesale Ruler
Wholesale Flashlight

Eye Mask
Wholesale Stationery
Wholesale Waterproof Case

Wholesale Poncho
Wholesale Coaster
Digital Photo Frame

Photo Frame
Gift Box
Tape Measure

Wholesale Golf Products
Flash Gift
Writing Instrument

Arts Crafts
Wholesale Scissors
Wholesale Knife

Wholesale Lanyard
Wholesale Towel
Wholesale Gift Bags

Wholesale Stress Ball
Cleaner Products
Sport Support Products

Wholesale Bag

malek's picture

a (very big) computer

LOL - you think they use a model with intricate feedback loops, Bruce?

thegr8whorebabylon's picture

Stay safe Bruce up in Indian Arm

always a pleasure to read your stuff.

aerial view's picture

The Central Bullshit Office (CBO) doesn't have a clue what will happen tomorrow, 10 years out or any time in between.  Who would have predicted TBTF bailouts, ponzi schemes, changing accounting procedures and massive fraud with no prosecutions, etc. The system is corrupted beyond repair and we can either continue to live in denial and trust our leaders or work together to design a better system. Let each state set up their own system independent of the federal govt. 50 experimental state governments will eventually separate the "wheat from the chaff" and lead to a much better way of goverining ourselves.

orangedrinkandchips's picture

"THE FUTURE IS SO BRIGHT I HAVE TO WEAR SHADES".....great song...Timbuk3? sang it??

honestann's picture

If it wasn't so common these days, it would be mind boggling how transparently corrupt the predators-that-be are today.  Let's see.  S&P downgrades.  Government has CEO fired and replaced by known fraudmeister.  CBO purposely issues utterly completely insanely hyper-over-optimistic projections.  Citing these fraudulant figures, new S&P CEO dictates rating by raised back to AAA.  A freaking kindergarden kid could see through this with his eyes closed.  How dumb and clueless are people, anyway?

Ponzi Unit's picture

The CBO fiction seems a variation on the Soviet joke that circulated when the wheels were coming off in the late 80s-- the Russians love black humor: "We pretend to work and they pretend to pay us." The CBO pretends that prospects look peachy and the political class pretends to believe them.

Or, in the words of Les McCann, "Tryin' to make it real compared to what?"

Ergo's picture

Wow.  I don't know if the CBO has turned desperate, or if they're just political hacks now.  But I do know their report is absurd, and I highly suspect they know it too.   Smoke that hopium.  GDP isn't going asymptotic w/o Weimar style inflation, and then other problems might go asymptotic too. 

From Rodney Dangerfield's Back to School:

Dr. Phillip Barbay: Now, not withstanding Mr. Melon's input. The next question for us is where to build our factory?
Thornton Melon:  How about Fantasy Land?

NEOSERF's picture

The U-8 and U-16 versions now completely trump the worthless U-3...when you have millions of able bodied out of work, the measure of a country's effectiveness in providing adequate growth is measured by the size of the riots (or lack thereof) of the U-8s.  The most important measure right now for every country is to measure the unemployment rate of 18-35 year old males...this group has always led by example

PulauHantu29's picture

No QE3 = Crash


Simple as that. Brace yourself. Cash and Gold as Kings......

mess nonster's picture

Assssssss-umptions... the foundation of all reality.

Base (ie unchallenged, nay, unconscious) assumptions are the foundation of logic, and are what create our reality ("reality" from real, ie the King's will).

Paradigm shifts occur when base assumptions are challenged.

Our so-called "scientific" or materialist assumption base (we can understand, and thus, control, natural processes and systems)is about to be severely challenged, by massive systemic uncertainty and very real uncontrollable natural events.

Humans who have no control believe in God. "Inshallah", baby.

Looking for good investments? Go long on religion. Soon, everyone will believe.

LehmanRefugee's picture

It's not just the unemployment rate and other macro assumptions that are unbelievable in this report. Three more assumptions on the revenue side are suspect and will approximately double the deficit in the projection period. There is fat chance fo any of the following assumptions that CBO has made actually happen in the real world:

1. CBO assumes that income tax rates will reset to pre-2001 levels for EVERYONE (I.e. 3%-5% higher for everyone)

2. CBO assumes that Congress will let the AMT patch lapse something that hasn't happened .....ever

3. CBO assumes that 2011 payroll tax cut (and other similar temporary measures like bonus depreciation) will lapse. Mr O is trying to get these extended for at least another year.




LMAO's picture

I'm afraid that Bruce has fallen into the unemployment rate trap.

Let there be No doubt about it that at the current pace at which people fall off the Unemployment rate-tracker this rate could easily go to 5%.

I will make the case that by the time everybody has lost his/her job and all prospects of getting a job are exhausted the unemployment rate will in fact drop to 0%

Who is included in the unemployment rate?

Only people who have actually looked for work in the past four weeks, regardless of whether they file for unemployment benefits.


Unemployment will fall to 5% in just a few years and stay at that level forever. We should be so lucky.

"Real unemployment" can rise to 100% (but nobody is tracking that for obvious reasons), while the unemployment rate drops to 0%.

It's just another creative accounting gimmick.

Escapeclaws's picture


HungrySeagull's picture

So the CBO has finally given in to Debauchery and produced a skilltle rainbow report that is supposed to make us all smile and say happy days are here again?


They need to make a proper budget. Then worry about the next budget with what money is coming in now. Each month. Just like the little people do at home in the check book or participating in a underground world of crime to make ends meet.

Earl of Chiswick's picture

You figure that the CBO director is a political hack as in a former Clintonista etc but then you do some reseearch and see this

January 26, 2011, 4:46 pm

C.B.O. Director Appointed for Full Term

The director of the nonpartisan Congressional Budget Office, Douglas W. Elmendorf, has been appointed to a full four-year term by the House speaker, John A. Boehner of Ohio


scratch_and_sniff's picture

Douglas Holtz-Eakin admitted in an interview that the totally impartial CBO use all manner of tricks to jig the projections…for totally impartial motives. Here is a neat little trick he recalls - increase the projection of wage inflation, then from this projection calculate how many people will move up through tax brackets, hence you have a brand new revenue stream which the government can borrow from (genius). Totally impartial. The CBO has turned into a sham, when they are surplus to government requirements they will be finished because they pimped out their credibility years ago. They’re only function now is to justify spending with fucking voodoo bullshit.

Setarcos's picture

Bottom line/fundamental fact is that we live on a finite planet - as "Mediocritas" pointed out earlier on, so the current form of (now global) civilization is absolutely certain to fail.

It is not possible to determine an actual "start date", but let's say that where we are now began some 5-6 centuries ago, as European states began colonial expansion ... such as Spain and Portugal expanding into the, then, "new Americas", so as to exploit resources wanted by growing empires.

Jump 2-3 centuries and factor in the Industrial Revolution that marks when the British Empire "went global", to fuel the exponential growth of resource exploitation and the parellel exponential growths of population, banking/finance/etc..

Jump to the last hundred years, during which the Washington Empire subsumed all previous empires and came to comprize the epitome of resource depletion, consumption and banksters expectations that there can be no limit to (digital) money supply.

Jump to the last thirty years, during which the Chinese, Indians and many others have raced to the bottom of attempting to exponentially exploit this finite planet.

All other considerations are really just pissing in the wind.

Sure it is fascinating to observe the daily ups and downs of stocks, gold, etc..  But you have to be very sick to take delight in, or fail to see anything wrong with these resource wars in Iraq, Afghanistan and now Libya.

We all live on a finite planet and our current form of civilization is totally untenable.

I will leave it at that, though I have a lot of depth for what I am writing.

daxtonbrown's picture

"We all live on a finite planet and our current form of civilization is totally untenable."


That is baloney. First, while physical resources are limited (mass energy) by the First Law, we are just a pimple on a mighty big earth. Next, negative entropy (information energy) is not finite and is governed only by energy flows and avail;abilty of a heat sink (the universe). Last I checked the sun was still shining and the universe still cold.  We have thorium out the wazoo much less fusible hydrogen. That finite economics stuff is a crock.

mess nonster's picture

Ah, yes, but we are just like that guy who said, water, water everywhere, and not a drop to drink.

Tesla "invented" a free-energy machine. All conspiracies of technnology suppression aside, why hasn't someone replicated these machines? Seems a booming black market for free energy machines would be already happenning. I mean, if copyright laws are ignored by 90% of the human population when it comes to DVD's, surely we don't care if GE owns patents to some century-old invention.

It isn't possible, that's why we don't have it.

Cold/micro Fusion...never happen.

Solar, wind, biomass... too difuse. Aggregate energy levels are off the charts, but it is too expensive to compress/concentrate.

We need concetrated energy- make that CHEAP concentrated energy.

A exact substitute for oil is needed. maybe we should boil down bankers and use their oil.

Mediocritas's picture


Bingo ness monster. Energy quality is the key factor. There's no such thing as a directly solar-powered supersonic aircraft and there never will be because solar energy doesn't possess the attributes of liquid fuels.

So if we want solar powered high speed air travel, it has to be indirect. Solar -> bio-engineered algae -> liquid fuels, with all the losses each conversion entails as any person with a basic knowledge of thermodynamics understands.

Again with an analogy, net derivatives aren't a problem for many financial institution, the problem is sequencing of settlement. On the way to getting to a manageable net outcome, an agent might have to pass through a completely unmanageable negative position. Without a temporary liquidity injection, the agent is bankrupted even if ultimate sequencing might return it to a safe net position in a few years time. Central banks can deal with it by injecting funds and turning agents into zombies until final sequencing works in the zombie's favor and allows liquidity to be withdrawn.

For people to look at energy and conclude that the potential of human intelligence guarantees a net positive outcome is to completely miss the elephant in the room for those of us alive today. We have an energy liquidity problem right here, right now and there's no such thing as a central bank that can print Joules. I personally know dozens of scientists who are working on this, I've toured their facilities, seen their projects, looked at their results, listened to their ideas and they make one thing perfectly clear: we'll pull it off, but we're still decades away.

We needed to be implementing market-ready technology, in volume, 30 years ago to make a smooth transition. It's too late now. The future will be rough with the high chance of another world war before 2030. We'll make it, but it will be messy. Economic projections that predict smooth flying through the cumulonimbus clouds up ahead are worth nothing.

Bruce Krasting's picture

If you read me, you might get the sense that I'm a bit eccentric. You would be right.

I spent the better part of two years (and a fair bit of money) trying to recreate portions of Tesla's ideas.

Tesla thought it possible to transmit energy through the ground. (low cycle, high energy waves)

At one point I had a 30 foot section of 3 inch thick plastic tubing filled with a very high density of salts. On one side was a high voltage transformer/capacitor. The other side had devices that measured energy decay.

I left it alone overnight. Of course there is energy loss, and that means heat. The brine heated up and went critical. A large pipe bomb, actually.  It blew out the widows in the barn. It looked like a stick of dynamite had gone off. The neighbors complained, so I quit.

One thing, toward the end, the salts actually became a liquid (heat). As that happened the conductivity improved. Just before N-time the salt was nearly as effective a conductor as copper.

I'm with you. Tesla was onto something.....


HoardeBilly's picture

Quote from Time Bandits:

"Do be careful! Don't lose any of that stuff. That's concentrated evil. One drop of that could turn you all into hermit crabs."

I bet banker-oil smells really bad.


LawsofPhysics's picture

Oh no another technocrat/hopium junkie who has probably never taken a real physics class or brought technology from the bench (as an actual engineer or scientist) to the market place.

It is a bit more complicated dude. There are other laws, the second law of thermodynamics is a bitch and these laws apply to the whole universe, not just the planet.  Our sun and ALL stars run out of fuel eventually.

But I digress, let us try and be positive.  Even if we could get off this planet, and relocate out of the solar system, it would take a tremendous amount of energy to do so.  Ergo it is very important that we use our current resources very wisely.

Ask yourself, are we doing that now?

Just to add food for though (presuming you actyually know how to think critically - which is what tech development is really about), people of the earth currently burn over 30% of ALL fossil fuel consumption simply to EAT.  NOT SUSTAINABLE

So in the end, why I'd like to think that the day of flying cars will come someday and we may jet around the universe at some point.

None of that will come to pass without massive human defaltion first and the removal of all the ignorant mother fuckers currently running the ponzi. You sir, are the crock or perhaps more correctly, the TROLL.  Pretty weak effort by the way.

oldman's picture

And you are going to vote for a precedent                    om

dalkrin's picture

If the CBO is any indication of the caliber of accounting in the highest echelons.. Oh wait, this is a joke, right?  Haha, bad dream.  Timmy is just a Keebler elf who likes to play sudoku and write elementary-level petitions to the school Treasury.  Paying taxes is something that only non-Elf types are burdened with. 

Summon Bernie Madoff out of the big house, his services are needed urgently at the White House.  (Hat tip to Peter Schiff.)

BigDuke6's picture

Bruce , i was a bit skeptical at your prediction of big swings in gold , especially of $100 in a day but mate... take a bow.



falak pema's picture

Wow, hats off to BK for his 2011 crystal ball gazing. TY BD6 for this recap!

TheSwissie's picture

wow, I'm pretty impressed by your crystal ball abilities for 2011....can you have a look for the next 3 months and let us know, so we all can get prepared for whats coming next? lol


Bruce Krasting's picture

My number one prediction was that we would see extreme levels of volatility across all markets. I got that right.

I'm as certain as I can be that this will continue. We are in for a wild ride.

Where does this violent action take us?

I think the problems in the EU do not go away. I think they will get worse.

I think the US has a problem with the Continuing Resolution on 9/30 and a bigger problem with the November 30 date for for 1.4T of "negotiated" cuts.

The entire globe is slowing down.

There is no adequate store of wealth. Risky bonds are a trap. High grade bonds pay nothing. Gold sounds nice but we know there is risk to this too. A 10% move in two days (up or down) does not constitute a "store of wealth". It is a bet, just like stocks are.

I'm having a very difficult time committing to anything. I'm sitting on the sidelines. I'm convinced that some "cheap" stuff is going to fall out of these markets.

For what it is worth, I see gold higher by year-end. Possibly as high as 2,500.

Sequitur's picture

Those predictions, hit it out of the park.

alien-IQ's picture

This looks more like a CBO wish list than a report based on any facts.

tom's picture

Here's another key part of the report, especially bullet #3 (Congress always overrides that law)


In particular, the baseline projections in this report include the following policies specified in current law:

  • Certain provisions of the 2010 tax act, including extensions of lower rates and expanded credits and deductions originally enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001, the Jobs and Growth Tax Relief Reconciliation Act of 2003, and the American Recovery and Reinvestment Act (ARRA), expire at the end of 2012;
  • The two-year extension of provisions designed to limit the reach of the alternative minimum tax, extensions of emergency unemployment compensation, and the one-year reduction in the payroll tax all expire at the end of 2011;
  • Sharp reductions in Medicare';s payment rates for physicians' services take effect at the end of 2011;
  • Funding for discretionary spending declines over time in real terms, in accordance with the caps established under the Budget Control Act; and
  • Additional deficit reduction totaling $1.2 trillion over the 2012–2021 period will be implemented as required under the Budget Control Act.

If some of the changes specified in current law did not occur and current policies were continued instead, much larger deficits and much greater debt could result.

Bruce Krasting's picture

Thank you for this. All important points. This report is based on "fluff".


adr's picture

I think I'll act like the government just to help lick the can a bit. I'll use my 790 credit score to have all my credit limits increased and go on a massive spending spree. I'll save one card to max out with cash so I can make the minimum payments for a couple months to make it look like I'm good for the money.

Then I'll stop paying and call up Bernank and say, "Man crap I spent to much, but I'm good for the debt, hell I've got a 790 credit score I'm AAA baby, help a brother out and bridge me a loan at 0% to pay that crap off. Whike your at it can I just create a fake me to hold the debt while the real me can still keep the stuff. Man I'm doing the bank a favor cause they can just write the losses of and I'm saving them money on taxes. It's a win win for evryone baby. Look what my purchases did for GDP!"

Yep I think that sums up our current economic situation perfectly.

mess nonster's picture

I know it's a typo, but I like "lick the can". After all, there ARE calories in the glue that holds the label on. Billy goats like it. Besides, what about the dried food residue on the inside of the can? That can be licked out in times of need. A lot to be said for licking the can, which is probably all we'll have left after we have kicked the can for so long.

HoardeBilly's picture

Glue tastes like Rainbows.  :)  BillyGoats love roughage.  Cans take a bit longer to eat, but the labels are a snap!

Mediocritas's picture

We are in a ‘short’ resource world

Exactly. A lot of people think that the crisis we're in now is just due to mismanagement of numbers in the ether and can be solved with the appropriate amount of diddling. It can't.

The problem is, we launched into exponential growth (on all fronts) with a financial system that co-evolved to service that growth and facilitate further growth (expansion of both base money and credit had to match expansion in population and of capital creation). The real world has now changed and growth is inflecting. It's still positive but slowing.

Said another way, the real world is going sigmoidal but our economic models are still exponential. Central banks are clinging to exponential models because that's all they know and the longer they do, the greater the spread between reality and "financiality", and the greater that spread, the greater the pain when it finally collapses. The guys at the top want that collapse to entail the real world zooming back up to meet their financial models. That won't happen, it can't happen. Best case, there is a compromise of the two, realistic case, reality wins and the collapse in spread occurs as financial models come crashing down. The inertia of the real world trumps the vapour of financial models every time.

The discussions that need to be happening now in universities, at the top levels of banks, in governments, are how an economic model should look that embraces maturity rather than growth, then figure out how to make the transition as cleanly as possible. I don't think it has to be difficult, but these guys aren't even on that wavelength yet.

To use an analogy, it's just like a human growing up. Look at an infant growth chart and plot a child's growth. It's exponential but eventually goes signmoidal as the body transitions from growing to maturing. If that transition fails to occur and growth continues indefinitely, the result is death. The transitory years are awkward (teenaged), but once it's done, decades of maturity await. That's where the world is right now.

Bring the Gold's picture

Great post Mediocritas. I'm amazed you didn't get flamed more for suggesting that infinite growth isn't possible on a planet with finite resources. You are spot on, stable state economy is what is needed, a switch to renewables and sane resource management. I think we will get there, but there will be quite the "Ouchie epoch" before humans transcend the old patterns. Thinking ahead in a pragmatic "enlightened self-interest" kind of way isn't something our current elites worldwide are known for.

Mediocritas's picture

The "ouchie epoch" is going to be our greatest test. If we can get through it without throwing too many nukes at each other, we'll be fine (although there might be a few less of us around).

tip e. canoe's picture

in a pragmatic "enlightened self-interest" kind of way

that's an amazing way to put it, gives space for both sides of the fence without excluding the other.   forwarded this subthread to friends, as it clearly explains the big picture more clearly than anything i could ever do.   cheers to both of you.

mind_imminst's picture

Resources are as infinite as the universe and the human imagination.

However, this does not mean that living organisms cannot grow too fast and outstrip their local environment and/or use up key resources. I agree with you that in the present, it looks as if we have expanded a bit too fast. Resources are getting tight (but not critical) and keynesian economic models are not reflecting reality (or like you stated "maturity"). If we don't kill ourselves with new technology, I have no doubt that we will continue to grow, expand our horizons, and plumb the depths of the physical and virtual universe. 

mess nonster's picture

The clif-notes version of Mediocritas' elegant and spot-on post-

Peak Oil bitchez!

Escapeclaws's picture

Here's the reason we need exponential growth:

lim n->infinity of p(1+r/n)^nt =p*e^rt

Notice the exponential?

This is how you pay off debt.

Here's another solution, perhaps THE solution that everybody ignores because it's too radical (ie, true):  Determine what part of the debt is illegitimate or "odious". Refuse to pay that part of the debt.



piceridu's picture

Here's one even an economist can understand:    P/P+I

LawsofPhysics's picture

Careful Escaeclaws, you are expecting that people actually understand MATH.  Sorry, not a likely scenerio for most in today's world.

gmj's picture

I'm with you.  We've got unicorns in the economist's models, but we've got balrogs in the resource base.  Our soaring global population means that we will hit the cliff's edge at full speed.  What's really scary is that we are running out of so many things at the same time.   This really limits the options for mitigation.  I predict that the carnage will begin long before the resource depletion gets critical, as nations scramble for the last reserves.  Read Klare, 'Rising Powers, Shrinking Planet'.

I think we will hear a lot about Africa in the next 20 years.  The US will have to defend itself against "terrrorists" in Africa.  I have often wondered why terrorists seem to appear wherever there is oil or pipelines.  I have concluded that oil fumes cause ordinary people to turn into terrorists.  Brilliant, no?

My guess:  Rising global demand for a shrinking resource base will drive the price of raw materials skyward.  The entire US economy is based on cheap, unlimited fossil fuels.  US per capita consumption will have to decline.  I have no idea what we are going to do about transportation.  I suspect the private auto will be gone in 25 years.  US wages have run into the brick wall of global competition, and will decline.  US unemployment cannot be reduced as long as we grow the population by 2% a year with immigration.  In short, I believe the CBO is wrong in every possible regard.  But I'm an engineer, not an economist, so feel free to disregard my rants.

Pay Day Today's picture

I think we will hear a lot about Africa in the next 20 years.

Reckon you need to halve your timeframes. Libya is Africa, and that is only the start. In the next 10 years everyone is going to be going to Africa on bended knee.

And yes I still think that there will be (a few) private motor vehicles driving around in 25 years. But most ordinary folk will have given them up in half that time. The US hit peak road miles travelled per capita sometime ago if I recall.

mess nonster's picture

Africa... because colonialiZm is the cheapest way to get raw materials. bended knee? If Libya is a trend, I think quite the opposite.