America's Tragic Future In One Parabolic Chart

Tyler Durden's picture

When it comes to forecasting the long-term trajectory of the US economy, things usually get very fuzzy some time after 2020 because, as even the most hardened optimists, the "impartial" Congressional Budget Office have recently admitted, America has at best 3-4 years before everything falls apart due to the unsustainable demographic crunch that will wallop the US entitlement state as demographics suddenly becomes a four letter word. Beyond that, not even the CBO dares to plot a straight line as to what happens should America not get its fiscal house in order.

Which is why were were very surprised to see none other than Morgan Stanley's David Greenlaw and Deutsche Bank's David Hooper release a paper (whose views do "not necessarily reflect those of the institutions with which they are affiliated") titled "Crunch Time: Fiscal Crises and the Role of Monetary Policy" which is a must read for everyone interested in what very likely will happen to the US as ever more power is handed over by the country's now terminally malfunctioning fiscal and legislative apparatus to the monetary policy vehicle controlled by the US financial oligarchy.

Since we know that most readers are pressed for time, we will cut to the chase: the following chart shows what according to the authors' own simulation of the US economy, and not that of the CBO, rates on the 10 Year will look like through 2037. The second chart shows what US debt-to-GDP will be for the next two and a half decades.

The charts need no commentary. Parabola #1 showing the yield on the 10 Year under the authors' simulation:

And Parabola #2 showing total US debt/GDP:

For those who request at least a little commentary, here it is:

[W]e have assumed the U.S. current account deficit holds at 2.5% of GDP-- a level that matches the best result seen in the past decade and is slightly narrower than the 2.7% of GDP recorded in 2012. If, instead, we assume that the current account deficit reverted to the 3.7% of GDP average seen over the prior five years, then the projected debt burden would reach 180% of GDP in 2037.

 

We can also examine a scenario in which policy actions and economic outcomes produce a less favorable path for the primary budget deficit (using our baseline current account deficit assumption of 2.5% of GDP). For example, suppose that the looming budget sequester scheduled to occur on March 1 is cancelled and that the steady-state unemployment rate is assumed to be 6% (as opposed to the 5.25% as assumed by CBO). In this case (which we refer to as Simulation II), the budget deficit would be quite a bit higher than in the initial scenario. The debt/GDP ratio would rise much more rapidly, hitting 304% of GDP by 2037 (Figure 3.13) and bond yields would skyrocket, eventually getting above 25% (see Figure 3.14).

 

We should emphasize that we are not presenting these alternative simulations as more realistic forecasts of what the U.S. experience will actually be. In a country like the United States, the debt premium presumably would arise from inflation fears rather than concerns about outright default. And if we are talking about a higher inflation rate, forecasts of nominal GDP should be adjusted as well. Instead, we view these simulations as illustrating the extent to which the path implied by baseline CBO projections could quickly become much more difficult to manage than some policy-makers may be assuming-- something dramatic will need to change well before U.S. interest rates reach double-digit rates

 

Our main conclusion is that higher debt levels can have a significant impact on the interest rate path and that feedback effects of higher rates on the level of indebtedness can lead to a more dramatic deterioration in long-run debt sustainability in the United States than is captured in official baseline estimates. Figure

Putting some numbers to the forecast by Greenlaw and Hooper, and assuming a 1.5% CAGR for GDP, which in the new structurally slower normal is quite generous, we get $23 trillion in US GDP by 2037, $70 trillion in debt, and a blended cash interest expense that is over 75% of total GDP.

We also get the Fed monetizing all of it.

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AssFire's picture

I am going long Remington typewriters.

diogeneslaertius's picture

Pb, Ag, Au, typewriters, heirloom seeds, machine tools, land, chickens, and RAGE.

diogeneslaertius's picture

also friendship, art, community, mutual respect, and ultimately freedom - ultimately a codifying cultural component vector emerging from this superabundant dataset the way consciousness emerges as a "strange loop"

 

this process already begun and evident like an infection

ignore those who cannot see the bacteria and therefore argue it doest not exist - continue making ideological microscopes and 3D printing them into the flow of digital information.

 

Fredo Corleone's picture

"[W]e get $23 trillion in US GDP by 2037, $70 trillion in debt, and..."

...Dow 60,000.

I think I need to buy a gun's picture

dow 60k

we don't need jobs we can all just day trade

Xibalba's picture

Just in time for Hillary to come save the day!  

 

 

 

/sarc

gofigure's picture

Onward, through the fog...

samsara's picture

You tell them Oat Willie

SafelyGraze's picture

"Crunch Time: Fiscal Crises and the Role of Monetary Policy"

co-authored by fred (iceland instability) mishkin?

who the hell paid for this report!

they'd better have paid more than a measly $124k.

JPM Hater001's picture

You're kidding yourself if you think the turn doesnt start for 20 years.  You spent the social security trust fund you schmucks.  This ends badly much sooner.

GetZeeGold's picture

 

 

Hot potato.

 

Live grenade.

 

dwdollar's picture

Jokerz who didn't see 2008 coming telling everyone that the next 20 years will be A-OK... that basically sums up all these "projections".

Freegold's picture

The debt it self is not what will break the back of America. It will be all those dollar exported for decades. When less and less dollars are absorbed by the rest of the world the deathspiral begin. Actually it has already begun.

DeadFred's picture

You are a hopeless optimist if you think we still have three years left. Why does the author think this would take the form of a smooth parabola? This scenario has all the makings of a catastrophic break.

WTFRLY's picture

The catchphrase you are looking for is the Obama slogan... "FORWARD!!"

wee-weed up's picture

Xibalba

Acknowledging your /sarc comment and agreeing...

But still having to ask rhetorically...

How is Hitlery going to save the day with this shit...

(In her best bitchy screechy voice) "What difference does it make?"

It will be interesting to see how the MSM tries to bury that incriminating comment (and we make sure they don't) if she runs in 2016.

Jugdish's picture

Just in time for the Hispanic Bush to save us.

LetThemEatRand's picture

"Hispanic Bush" is better than wise Latina.

GetZeeGold's picture

 

 

Blame it on Bush all you want.....we all know it was Thomas Jefferson that that started the downturn.

 

Lenin showed the way....but we stupid Americans just couldn't see the light.

Terminus C's picture

Actually it was George Washington.  He should have just declared himself King and ended all the confusion among the plebs.

unrulian's picture

no i'm sure it will be a tight race between one of the bush twins, chelsea and the obama girls

Anusocracy's picture

Heading for the Debt Singularity.

Chupacabra-322's picture

These criminals own the “government”. The “government” does not tell them what to do, they tell the “government” what to do. They are the reason there is war everywhere, why the “government” ruling over us attacks nations all over the planet committing murder and terrorism against them and treason against us every day. I can’t imagine what sort of force will have to come to the fore to stop these criminals, but they must be stopped.

The “government” is a criminal organization. They rule with fire power. They are a gang that numbers in many thousands. Their goons are everywhere. America in under an occupation of criminals and will continue to be until they are at last forcibly removed from our land.
Their economic Ponzi scheme is about to collapse and the main mechanism of their control will be gone. Their central bank, the Fed Reserve, (see fifth Plank Communist Manifesto) has run its course. A 100 year conspiracy is coming to fruition and the deed is done.
Just one big problem for them, 200,000,000 guns in the hands of free Americans who hate their guts, and are hell bent of restoring this Republic to Constitutional legitimacy. Whatever cruelty, whatever ruthlessness the criminal “government” uses we must exercise even more so. Don’t forget, they want our property, wealth and us dead. No quarter for traitors! No quarter for the enemy!

disabledvet's picture

"why does the Government attack us? What did we do?" a powerful point indeed. "make mere mockery and the rage will indeed...
well...the entire planet get's that truth.

CH1's picture

free Americans who hate their guts, and are hell bent of restoring this Republic to Constitutional legitimacy.

I agree with some of what you wrote, but violence (which you imply), destroys the user. Sure, it is necessary at times, but talk about being consciously cruel is a major error.And, it's bad strategy.

Also: I don't want to be part of a republic. I don't mind if you and others want to live that way, but I will not join you. and if you try to force me to join, you are a tyrant, just like the current regime.

So, have your republic if you wish, but leave the rest of us free to live as we wish. And please don't play the violence game.

LetThemEatRand's picture

Only a true Constitutional Republic will give you the freedom to live outside of said Republic in peace.

A Nanny Moose's picture

This is a contradiction. It is not possible to live under, yet simutaneously outside of, any form of governance. All governments are a monopoly on violence. Prevaling wisdom is that might makes right, which results in escalation of violence. As such, in order to live outside of government, one must continually attempt to evade the reach of government, living by default, under its boot.

We supposedly started with a Constitutional Republic. We ended up where we are.

 

jerry_theking_lawler's picture

wrong. the constitution states that individuals have 'God given' rights....rights that can no be taken away. these are basic rights that trump 'might makes right'. the ensueing government that is formed by indivuduals under the constitution must not only believe but enforce these basic rights.

CH1's picture

Only a true Constitutional Republic will give you the freedom to live outside of said Republic in peace.

So, in your enlightenment, you will enslave me to your republic?

Anusocracy's picture

Most people can understand the concept of freedom of religion. It is the only sane way, considering the many different religious beliefs and how strongly those beliefs are held.

What is difficult for them is to apply that concept of choice to the many differing political beliefs, also strongly held beliefs.

People would rather kill than let others be free.

indygo55's picture
"The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants."
-- Thomas Jefferson
lynnybee's picture

'I can’t imagine what sort of force will have to come to the fore to stop these criminals,'   i can.  i can imagine what kind of force .... 1.  stop paying income taxes en mass  2. stop buying stuff at stores  3.  do not put money in banks & do not take out loans.    yes, there will be tons of suffering, it will be worth it, tho.   the past 100 years was abnormal.   it will take many many years to right the wrong.    (those s.o.b. central bankers !  it's grift, it's theft, it's scamming & looting & stealing the real assets for the worthless banknotes !  why don't the sheeple understand this yet!?)   

Oldwood's picture

If Americans showed any tendency to take a little discomfort or inconvenience to correct our ills, I have failed to see it. Looks to me they are forming KoolAid lines of delusion instead. Forward!

CH1's picture

1.  stop paying (all) taxes en mass

Right, if that was done, the state would curl up and vanish in short order. Nothing else required.

Oldwood's picture

You think they wouldn't come "collecting"? They already proven they can print what they need. The taxes are more of a control and enforcement action anyway. I do agree with the spirirt though. I think most of us fear that we might find ourselves pretty lonely once we finally did stand up and say NO MORE!  Crickets maybe?

CH1's picture

You think they wouldn't come "collecting"?

Sure, but they haven't the manpower. Just play out the scenario a bit.

Totentänzerlied's picture

If only a minority of people take part in a tax-revolt, well, they get crushed by the state.

Play out this scenario:

"The IRS is looking to hire adults between the ages of 18 and 30 to help combat tax evasion and fraud blah blah blah ..."

Applicants would line up for miles.

In a bad job market, no one can afford not to take the offer to become a government snitch, lackey, toadey, functionary, etc.

In a good job market, there is no need for the government to have these positions.

Lose-lose situation.

And 50% of the population already pays no net federal taxes. You think they'd support a middle-class, let alone wealthy, tax-revolt? Not for one second, they know who butters their bread.

And as to not having the manpower, they would simply pass a law charging local and state police agencies with supporting all IRS enforcement activity.

CH1's picture

"The IRS is looking to hire adults between the ages of 18 and 30 to help combat tax evasion and fraud blah blah blah ..."

That would probably not lead to much more of a skim. They suck very badly.

And of course, I have mentioned nothing of cleverness and going Galt. This is fertile ground for thought experiments.

A Nanny Moose's picture

Ha. Good point, however, it presumes there are more productive individuals, than there are looters

jerry_theking_lawler's picture

hell, don't even break the law.....stop paying taxes every pay period.....

if everyone would pay according to law (april 15) then that would starve the beast. simply following the law.

 

*this has been my mantra for some time. however, since 'income taxes' are such a small portion of the 'take' it probably would not matter. but it would at leasat be worth a try and a worthy cause.

brettd's picture

Yep.  Don't have to kill people.  

When asked "who are the top three people on your hit list?" the "preppers" will return to you a blank stare.  Most of their big talk is empty---a good excuse to go shopping for guns....

Remember:  Capone was sunk not with a gun but wirh an accountant.