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CBO REPORT - OMG!
The Congressional Budget Office (CBO) is out with its annual report. It’s a blockbuster. This 165 page monster is filled with dozens of charts, graphs and detailed projections. It will be talked about for weeks. The report provides a dismal outlook for the economy. There is one data point I'd like to focus on.
Here is the CBO forecast for real GDP for 2012 and 2013:
The 1.1% Real GDP number for 2013 surprised me. The CBO’s expectations are way under those of both the “Blue Chip” economists and the Federal Reserve:
What does it mean if the economy is going to slow, as CBO now thinks? Some consequences:
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The CBO now forecasts Social Security to run into trouble in just a few years. This is a very substantial change in the outlook for SS. Changed fortunes make it certain that America’s favorite entitlement program will be on the table for a significant re-vamp.
The CBO has answered two critical question:
1) In what year does SS first goes into deficit (including interest)?
2) What is the size of the SS Trust Fund when #1 has been achieved?
Key data is here:
Using this information, we can estimate the Trust Funds (TF) balances over time, and compare them to what SS forecast in its report to Congress ten-months ago:
SSTF's "Intermediate" (Base) case:
The bottom line is that the SSTF is going to top out three years ahead of “schedule” and be $800B shy of what it was “supposed” to be.
I think the CBO report has created a big headache for a good number of folks in D.C. Most of them are running for office this year. They certainly won't be able to wave the CBO report as a measure of how well they are doing.
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Way to go, Bruce. Another great critique of .gov figures.
Wow. Just dealing with the CBO Economic Projections, which corroborate ECRI, think what this means to the physicals markets: tankville. Bye, bye industrials; bye, by PMs.
PMs will hold their own against the dollar. If things start tanking more the pressure to ramp QEs will be greater and greater.
Why is the CBO so optimistic?
They are obviously assuming QE3 and QE4 in 2012 to get Obama reelected.
Tangential - I can't agree with calling a 165 page report by any organ of the Federal Government a "monster". One hundred sixty five pages is a slender pamphlet, a parsimonious précis. "Monster" starts at around 3000 pages.
So defining Monsters by the number of pages, eh?
here's another way:
Six words.
"I am telling you the "truth" !!!
Believe them?
Good post Bruce. Thanks for sharing.
Well, go read it for a few hours. I got dizzy.
Entitlements and SSTF exist in all developed economies. To cover both pensions AND health care basically. In Europe its tradition, in France its religion. The french population has no problem with the concept of ONE generation at work paying for the pensions of their fathers' in retirement; and so on.
The system which started post 1945 was based on "prudential" accumulation of pension funds in savings banks type systems paying 2%, not in investment in risk assets like corporate stocks. In France this system is largely prevalent, whereas in UK and Germany the pension funds, all albeit private supervised and not government regulated, have invested more in the stock market since Reaganomics days; whence the concern in these two countries of pension meltdown if stock markets crash big time.
This is one concern, the other is the demographic pyramid in DCs where more and more baby boomers now retire for a smaller number of active workers; situation now complicated with 10% of the work force on structural dole. An ominous permanent fixture for the years to come...
So the SS programs are becoming unsustainable in Eurozone, not because people balk at paying for their father's pensions, but because the economic and demographic reality is hitting the wall. One other troublesome feature is the open collusion between big pharma and the medical profession pushing excessive consumption of useless if not harmful drugs. This has to stop, as its a bubble in itself. Government statism and private corporate monopoly collusion is the worst of both worlds. And it will stop as nobody can afford to pay for it!
What's the solution? Longer periods of work, as life expectation increases, and lower payouts and/or higher contributions. Nobody is talking about scrapping the whole thing, but of making it more slim; adapting it to the new reality of a ageing, economically thinner social environment. This looks like where Eurozone is heading, assuming it can weather the current storm and not tail spin into mega deflation, economic/financial continental crisis beyond repair. It seems there is a cultural divide between Euro value systems and US value systems, if I read the sentiment here on ZH, which I guess is representative of the general population.
We are all in for ten-fifteen tough years, in first world, as all these issues come to boil. Unless you think that alpha dyseconomics and uber-alles international labour arbitrage model will solve the problem by print to infinity and wealth creation in developing world on hopium generation, bubblenomics personified that neglects basic economic principles like debt mountain accumulation and first world social tensions; now making the 30s grapes of wrath scenario feel like an October fest in comparison in some parts of the world. Is it dystopian time's arrow for all of us?
Setting the cut off at 105K or 115K is a problem that is out of date by 15 years and not helping.
Outstanding post, falak pema.
'uber-alles international labour arbitrage model'- a well turned phrase, let's hope it catches on.
What's the solution? Longer periods of work...that certainly would help the older individual but without any economic growth it won't help the employment stats for the young.
Hey Tyler, give this guy contributor status.
I'm really enjoying your posts, lately, particularly this and the one you did about French politics
"In Europe it's tradition, in France it's religion." LOL, yes.
sombody needs to recalibrate the feathered headset and rubber chicken
Talk about painting yourself into a corner! No way out.
Vote Newt! He'll make us a moon colony! Then libertarians can move there and declare independence. The Moon is a Harsh Mistress. R Heinlein.
There's your way out.
Check out the 2007 GAO Financial Report. It estimates the US reaching 100% GDP by 2035. We've accelerated that estimate by nearly 30 years since that report. The GAO and CBO estimates are all false. The timelines are much faster than what they keep predicting, even with this rather bleak assesment by the CBO. They typically don't factor in any possible new recession over the next 5+ years either.
For a laugh, check out Henry Paulson's 2007 report: http://www.gao.gov/financial/fy2007/07frusg.pdf
You're not supposed to remember "history" nor concern yourself with "accountability". (thanks, by the way.)
Me thinks Henry did not do to good in maths at skool...............
Exponential functions are a bitch, aren't they?
I loved the SOTU address with the "We're saving on wars to pay down the debt and nation build here" (paraphrase). Some water carriers for the HNIC cheered. I bet one guy $100 that we'd see 16 tril before we see under 15 tril, and sadly, he didn't accept the wager.
For a laugh, check out Henry Paulson's 2007 report: http://www.gao.gov/financial/fy2007/07frusg.pdf
Or a cry.
OMG....those idiots really thought we would only be 60% to GDP on total debt by 2080 !!!?????
We'll have a Greek style collapse by 2020 at the latest.
Crank up the printing presses bitchez!
Well, at least California is solvent,.. what's that?... oh,.. never mind...
http://losangeles.cbslocal.com/2012/01/31/controller-calif-operating-on-borrowed-money-may-run-out-of-cash-by-march/ Holy Shit, you mean they aren't?They will stop responding to crimes a la Oakland, but double up on meter maids. They will lay off the math, science teachers and keep all the bureaucrats. Release more felons and raise property taxes to boot.
QE for social security - just print more money - duh!!!
Bruce, did this years SS increase for the fund to run short by a few years and by more than previously projected?
The increase was 3.6% for 2012. This adds about $2 billion per month to the total SS payout. This increase will be in place until someone dies. So all payments, including those who have not yet signed up for benefits has been increased.
The average life of the SS population is about 10 years. So the inflation adjustment in 2012 adds about 1/4 Trillion to toal payouts. Yes, this hastens the death of SS.
Can anyone fathom just where we would be had SS been privatized as George Bush wanted? SS Invested in stocks by Goldman and the like? No money for the Treasury to 'borrow'? What a mess.
SS in in trouble because of the unemployment situation...it is the same problem creating much of the federal and state shortfalls.
For the last 50 years the story has been SS is in trouble, maybe it will be true this time if employment doesn't improve very very soon. If the CBO IS right, and they usually are, we facing real and serious inflation.
SS is a mess because it is unconstitutional and immoral. What ever happened to individual responsibility? Shut the whole damned welfare system down and stop stealing my property.
Real employment is not going to change significantly, except to worsen over time. Too much automation. The great narrative, left and right, is that these jobs are being outsourced, but far more are lost to automation. Most manufacturing jobs today are repair and maintenance of automated systems, and increasingly computer systems are handling most of the modeling and design heavy lifting as well. Retail jobs are disappearing to online proxies, meaning fewer store fronts, less real estate needed, less construction. How many accountancy jobs have been lost to TurboTax? Lawyer jobs to Lexus Nexis? Management jobs to improved telecommunications? Even houses are increasingly modular pre-fabs, with most of the construction process controlled by automation. In general, you're talking about 10 to 1 losses - one job gained for every ten lost, and even those jobs are transient as the technologies change.
Unfortunately, there's no real provisions within any of the platforms I've seen for recognizing this fact, even though it's a crucial part of the economic calculus. The jobs that survive are those that cannot be easily automated today, and as computers become more sophisticated, even those jobs are in jeopardy. I'm in the field. Fifteen years ago (1997) you could do quite well with about two years of computer skills. Today, you need six to eight or more because for anything achievable with less than that has already been automated. We're drowning in a sea of software as it is. What that leaves are senior developers doing more and more complex work for less and less money, engineers building robotics systems that build robotic systems, and the occasional mechanic for when those systems break down.
One of two scenarios will happen. Scenario one - Resource scarcity begins to impinge upon the automated systems and a growing proportion of the system collapses, reopening niches that automation closed. In this case, social security may implode because it's revenue sources have been crimped for so long, but may recover. Scenario two - automation continues unchecked and society is forced to come to a reckoning that wage earning is no longer a sustainable mechanism for powering the economy, in which case the economy gets transformed into more of a reputation economy, which is great for the programmer, the artist, the teacher, even the bus driver, but is lousy for the banker, insurer or speculator. Neither scenario looks good for social security.
Can anyone fathom just where we would be had SS been declared unconstitutional? I looked and couldn't find it. Medicare either. Or the Departments of Education, Energy and several others.
All the solutions to the SS mess are just socialistic formulations. The best we could have hoped for was a solution like that in Chile now.
Glad I'm old enough to be a parasite, I've paid into the system long enough. Keep working, all you younger Americans! Pay my way while I sit on the beach in Ft. Lauderdale, hoping not to die for a long time.
"Yes, this hastens the death of SS."
By implication then the only way to fix SS is to hasten the death of the beneficiaries?
Obama care anyone?
Rather than arranging the early demise of current beneficiaries, you can achieve the same effect by raising the minimum age at which SS benefits can be collected.
Some people feel this is a more humane solution.
An economic collapse will do the job too. The elderly will be the first to die off from exposure and starvation. Anyone living off of SS currently would stop receiving the checks, and those same people simply do not strike me as the prepper types. They will not be prepared.
Correct, but that's when they turn to their adult children and grandchildren.
I'd kick another's (grand)parent to the curb, but not mine.
Just imagine what the report will say next year. I say SS is already in the red with the labor participation rate so low. Every year will see boomers retire from millions of $50k+ jobs to either have them vaporize from the job pool, or be replaced with $30k- income level wage slaves. Payments into SS are going to crater. A recipient will need 15 workers just to pay for his or her benefits. Not going to happen.
Notice the nice pop this year...
http://ftalphaville.ft.com/blog/2011/12/09/785401/the-60s-cool-decade-lo...
Being a member of Generation X and basically locked out of climbing the corporate ladder due to the narcissistic Boomers. I welcome this change. These dinosaurs can retire and leave positions open for the rest of us. If they don't retire, the next round of layoffs will give them involuntary retirement.
I guess that means you were born between 1960-1980 and may be 32-52 years old? I hate to burst your bubble but Boomers all throughout our lives have had to deal with too many of us working towards the same thing. We suffered the older generation managers and executives not retiring and maintaining shitty policies.
A better mantra might be to engage your generation to speakout about the corruption by the Banksters that hurts all generations! Welcome to the Fight Club
Absent facts, call names. Vampy might be Moonbatty.
Wake up dude, the loss of the social contract hurts you also. As the society crumbles, things will not get easier for anyone.
The social contract worked better when it was intra-family, or at least limited to a local community or a church congregation. Once the central government started taking it over it started to decay. Big Government = Big Failure, but at least it makes the bastards in charge feel good about themselves. Anyone remember Phil Ochs and his song with the line "Bless Me, I'm a Liberal"?
Where can one get a copy of this "social contract"?
Where can one get a copy of this "social contract"?
Hey, Kennelly! While yer in that closet . . .
It's kept in the same vault as the gold bars used as backing for social security.
Congregational Budget Office (CBO)
Ha ha ha; good one Bruce.
Don't worry, Obama/Buffett will fix this in the next 4 years.
You may genuflect at the icon of Saint Barry and then kiss the ring of Archbishop Warren.
Or is it the other way around?
be prepared for the onslaught of hopium propaganda.........
Keynsian Bull!!!!
The report is actually pretty good, right?
bullish!!!!