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.


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falak pema's picture

Since you talk of twenty years and Africa, why don't you believe in potential of Desertec type projects? We need to think along new lines like Columbus in 1492.

mess nonster's picture

Desertec is a great idea


But it will never happen.

From their website:

Energy is available in abundance and we have the technology to use it

Yes, but...no.

The missing ingredient: money. The cycle is too short for anyone to invest in a long-term massive infrastucture project, bots are operating on cycles of nanoseconds, humans on cycles of days, not weeks.  Chalk it up to Mayan calendar time compression, but whatever reason, the money will never materialize. Gov'ts can't do it either, they're too busy sticking their figers in the dike.

Setarcos's picture

Neat and pithy exposition, especially your analogy.

Sambo's picture

CBO projections do not take into account external exigencies like war and their effects on economic parameters.

louisash's picture

Baby boomers are retiring, so of course tax revenue will go up and social security & medicare costs will go down, just as they've predicted.

/sarcasm off.

papaswamp's picture

Check out Table III-C .

Debt Subject to limit ...$14.601 Tril

Statutory Debt limit...$14.694 Tril



Total debt $14.649 Tril.

Everybodys All American's picture

But Timmy said the S&P used in "my view poor judgement". The next president needs to just shut the doors on the CBO's office. A complete waste of time.

TJW's picture

The CBO has been making these forecasts for years. Does anyone know if they've EVER forecast a recession?

CompassionateFascist's picture

Letz zee...back in '01 CBO forcast c. $2 trillion federal surplus by 2011. Right now, in round #'s, there's $15 trillion treasury debt plus another not-so-hidden $6 trillion at the mortgage agencies. CBO off the mark by -$23 trillion. This is yettanother gub'mint office that needs to be euthanized. 

bid the soldiers shoot's picture

That CBO forecast in '01 must have been in January before Bush was inaugurated.

I am Jobe's picture

I can't read it if this is less than 5000 pages period.

Thanks Bruce.

Lets support the vacation

Expensive massages, top shelf vodka and five-star hotels: First Lady accused of spending $10m in public money on her vacations


Earl of Chiswick's picture

and on the topic of non sequiturs the UN was never involved in Sex Trafficking or were they


UN Screening Bosnian Sex Trafficking Drama ‘The Whistleblower’


km4's picture

What a joke of a report so I'll just focus on unemployment

By 2025 (est.) robots will have taken over half of all jobs in the U.S. esp manufacturing, automotive, food services http://goo.gl/n9Jd2

hivekiller's picture

Unemployment will drop because they plan on incarcerating or murdering all the surplus population. That's also how they will 'fix' social security and medicare. Soylent Green.

LawsofPhysics's picture

Yep, unintentionally of course.  Massive human deflation is the only way to reset the exponential equation required to maintain the ponzi.  It simply has to be done.

YC2's picture

This modeling is all just steady reversion to politically palatable parameters.  While it is doomed to be wrong and looks moronic, I dont think there is a better way, nor that many worse ways to do it.  Maybe we should stop predicting complex systems out any more than 18 months as a general rule.  Start teaching that in stats 101 and fin modeling 101. 

zorba THE GREEK's picture

The CBO unemployment # of 5% can be achieved, but only if Americans were

to replace all the illegal aliens in their jobs. That would mean Americans

would be employed cutting lawns, picking crops, washing dishes, clearing 

tables, unskilled construction work, maid service, and numerous miscellaneous

small business low paying positions. The manufacturing and skilled service jobs

have all been shipped overseas. Also several people will need to be employed

in rounding up the millions of illegals and to guard the vast borders.

LMAO's picture

Zorba, the real answer to the 5% unemployment rate is in fact genius in it's simplicity.

It's is factually based on . . . . more unemployment.


See my comment to Bruce further down.

mess nonster's picture

Yes, it is genius... ouroboros everywhere!

disabledvet's picture

The fear you feel is the fear of deflation. We have not had one in many generations but they used to common. It's why we went on a gold standard in the first place. There is of no such thing as a common deflation and this one will be no different. Bankruptcies of perfectly healthy companies are common in deflations--no one has any money and assets must reprice accordingly. There are no "correlations" in the traditional sense of the term either which is why treasuries can soar while gold and oil can plunge. Generally it leads to trade wars or even the real thing. The fact that we are in various conflicts currently should be lost on no one. In short this collapse is a "choice" for lack of a better word.

--Freedom--'s picture

Ok, inflation and deflation. Can someone explain to me in the minimum number of words the best arguments that we are headed towards inflation and the best argument that we are headed toward deflation? And, specifically, what policy choices, either fiscal or monetary, and what other factors, will lead to these outcomes?
Been reading everything I can on this for a few months, and there seems to be two camps here, but for the life of me I can't quite get the arguments.
Thanks in advance if anyone can provide some guidance.

mess nonster's picture

Inflation: Root cause: too much debt.

              Gov'ts, banks making/printing too much money.

              Speculators rush into commodities to escape debt-based equity contagion.

              Gov'ts print more money to inflate way out of debt problems.

              Systemic incipient deflation of financial bubbles averted by ubiquitous bailouts everywhere (more money printed).

              As M3 inflates, and commodity prices go up, M1 shrinks (biflation) and gov't revenues collapse, as real (productive) economy begins rto collapse under monetized debt load. Gov't prints more money. Somewhere between 40 and 60% shortfall debt to revenue is hyperinflation tipping point, where gov't has no real revenue, but must print to get spending money. US now above 40% debt to revenue shortfall.  Wars and/or war debts often cause revenue/debt imbalances, but this one will be caused by HDTV.

Weimar Germany...Versailles reparations

Confederacy....war costs

Zimbabwe...systematic destruction of white-owned productive economy by Mugabe thugs

Serbia/Yugoslavia... war costs

Argentina...IMF bloodsuckers

USA...Transformation of economy from production of goods and services to information managment and wefare recipients.


Deflation: Root cause, too much debt.

               Excessive monitized debt plus lack of gov't oversight of markets creates bubbles.

               Bubbles pop.

               Peak Oil, bitchez! (Aother way of saying bubbles WILL pop)

               Current inflationary trends are an attempt to avoid deflationary crash of overextended equity markets and the    institutions built around those markets, by monetizing even more debt, thus exacerbating and magnifyig the inevitable crash.

               Paper wealth and leveraged positions wiped out after bubble pops.

               With nothing to pay off debts, defaults occur, which leads to domino effect, wiping out all monetized debt.

               With no more debt comes no more money (debt is money), thus deflation.

               Buy physical gold and silver. When gold is back down to 35 and silver 2, it will still buy just as much as when its 2000 and 40.


Midas's picture

Bill Bonner said it best, "Inflation in the things you need, deflation in the things you want."

mikla's picture

Ok, inflation and deflation. Can someone explain to me in the minimum number of words the best arguments that we are headed towards inflation and the best argument that we are headed toward deflation?

The argument for "deflation" is that the consumer is debt-strapped (cannot take on more debt), employment is down, wages are down, and there is no conceivable way to forsee consumers buying expensive cars and houses.  Structurally, this cannot possibly change for at least a decade (barring the "Great-Reset").  The demand for everything goes down, and there is no way to "inject" cash into this "real" economy.  High defaults (houses, cars, business loans) imply high counter-party risk, and increasing demand for cash (since asset values are down, but all debt must be serviced with real cash-flow).  Hence:  Deflation.  The main "counter-points" to this argument are fiscal (government spending greater than receipts) and monetary (printing money).

The argument for "inflation" is that the Treserve (Fed and US Treasury) are printing money, *massively*.  They are monetizing the US Treasury auctions.  The debt cannot be serviced, but we will worry about that tomorrow.  Inflation is exploding all over the world as these de-valued dollars buy oil and other imported goods, and those imported goods are increasingly expensive to the consumer in the US (because the dollars are being devalued).  The complicated "levering-up" from the Treserve printing encourages further commodities speculation, also manifesting in inflation.  The ultimate concern is that a loss of confidence in the monetary unit will lead to hyperinflation (e.g., other countries demand non-dollars for their oil cargos or for other goods).  The main "counter-point" to this argument is that the *real* consumer (e.g., "Main Street") does not directly benefit from this printing, so inflation (in theory) cannot get too crazy (since the consumer doesn't have any money, and this printing doesn't give the consumer money to spend, so the consumer cannot drive prices upwards).

Don't forget the terms, though:  Inflation and deflation reflect the expansion/contraction of the money-and-credit supply, as it relates to all assets/goods, when everything is marked-to-market.  Since we have no market (everything is rigged, price-fixed, or the most massive accounting fraud you could ever imagine), and we can't possibly service these debts under any scenario, it doesn't matter.  Bruce is right, but not enough of a Bear:  The game is up, and you are watching it now (we won't make it to the 2012 elections).

And, specifically, what policy choices, either fiscal or monetary, and what other factors, will lead to these outcomes?

It is complicated, but you're getting *both* inflation and deflation.  Food and energy show inflation from devalued dollars, and assets like houses, cars, stocks, and bonds are dropping in value.  At present, the US *is* Japan (although I doubt the US can perform a controlled "demolition" of its stock market to 25% its previous value from two decades prior).

In short:  Fiscal responsibility (decreased government spending) will lead to deflation.  Banking accounting standards will lead to deflation (currently there is no accounting, and no reserve requirements; but banks are still over-leveraged and cannot print dollars like they used to).  QE3+ (more printing, higher deficits) will lead to inflation.  Since the numbers are so big, (we are long past the Rubicon), please feel free to prefix those terms with "hyper-".

StychoKiller's picture

So, to summarize:  The bad from column A AND the bad from column B! :>(

woolly mammoth's picture

I'm glad your back posting again Mikla.

MichaelG's picture

Just a shame you began that with a blockquote 'cos they do indeed 'block' the green arrows. (Otherwise you would have received around... lemme see... carry the unicorn... Yes: around 12 trn upvotes according to the CBO's big computer.)

gmj's picture

"carry the unicorn"

That's a gem.

mikla's picture

"carry the unicorn"


--Freedom--'s picture

Wow! That was exactly what I was hoping for, except better and clearer. Thanks a lot. I knew a little bit of tnat, but had not seen the whole situation summarized so well.
I really do love how,many informed people there are on this site.

CompassionateFascist's picture

Arguments? Just look around. Deflation in heavy producer goods - Housing and all related - + Inflation in day-to-day consumables. Biflation. Ponzi collapse = economic holocaust. Oh, sorry Jews...didn't mean to use your copyrighted word.

sun tzu's picture

Don't forget stagflation.

Eireann go Brach's picture

If Timmay overseen and signed off on these figures, then they must be correct Bruce!

OldPhart's picture

Those numbers are golden!

They were cross referenced through Turbo-Tax.

IQ 145's picture

I think you did a real public service there. That sure looks like flim-flam, alright.

taraxias's picture

We're way beyond becoming a banana republic at this point.....

rocker's picture

I only question why the politicos did not do the 4 trillion dollar deal. It was on the table.

It seems that McConnel said he will do whatever it takes to destroy Obama.

Including taking the stock market, USA, and Obama all down on one swoop.

Seems the Neocons love destroying the markets and most of the sheeple to buy the remains on the cheap.


BandGap's picture

No shit, if this isn't the wizard behind the curtain throwing up make believe pie in the sky bullshit I don't know what is.

I don't know what is worse, the slow choke hold on my retirement savings or the fact that these people think we're just plain stupid.

navy62802's picture

When the USA does shit, we do it big.

Cistercian's picture

The gangsters of the prohibition era were considered the elite criminals of their time, seemingly they had it all. Compared to the current Super-Villains, they were posers. Without a doubt, America has the the most successful criminal organizations in the history of the world. The question is: Just how, exactly, do we rid ourselves of these bastards?

AlaricBalth's picture

The heart knows the answer to that which a man cannot speak.

rocker's picture

You get a up arrow on that.  How do we rid ourselves of this problem. 

Your question: How do we rid ourselves of these bastards.  By putting the real criminals in Jail with Bernie Madoff.

How is Lord Blankfein, Neel Kashkari and  Hank Paulson not in Jail. We might add some other names. But these guys engineered a Great Fraud.

If they go to Jail with Bernie, a strong message is sent. Also, claw backs of assets should also occur, just like they did with Bernie.

Was there Fraud? You Bet? Did anybody sell products under false pretense and even profit from it?  You Bet.  This is Fraud.

With the Greatest Financial Colapse in the world. Nobody went to Jail.  Hello. This is a problem. Where is the DOJ and the SEC . 

Presently the DOJ and SEC do not exist. They are nobody doing Nothing about this super Fraud. Just like Bernie stole the money.

Those who took down our markets from the Financial Crisis did the same to many 401K accounts and retirement savings accounts.

Nobody went to Jail. Please. This has never happened before.  NOBODY.  Where is the rage for justice? 

Escapeclaws's picture

(You for got Bob Rubin and Phil Gramm.)

Escapeclaws's picture

Hope you're not the one who decides who goes to jail.

wawazat's picture

Ministry of Truth, bitchez!