• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

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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Sat, 02/23/2013 - 20:56 | 3270606 Whiner
Whiner's picture

We need more of this
Firearms Companies Restricting Sales to Government Agencies in Areas That Restrict Gun Rights
February 22, 2013

Sun, 02/24/2013 - 04:24 | 3271135 Totentänzerlied
Totentänzerlied's picture

If a right is being restricted, it is, ipso facto, no longer a right, merely, rather, a privilege in the process of being curtailed and denied.

Sat, 02/23/2013 - 21:00 | 3270614 klockwerks
klockwerks's picture

May I ask where

Sat, 02/23/2013 - 22:53 | 3270839 CompassionateFascist
CompassionateFascist's picture

more than a dozen companies have now cut off sales to police agencies in Jew York. excellent

Sun, 02/24/2013 - 03:43 | 3271110 tenpanhandle
tenpanhandle's picture

As a safety precaution it makes very good sense.

Sat, 02/23/2013 - 22:21 | 3270758 Marge N Call
Marge N Call's picture

In a weird way though. Wally-world had no buck or slugs, but .45 HP. Local gun guys had plenty of buck (which I relieved them of), plenty of .45, but NO 9mm or .22 left? They said they can't keep the 9mm and .22 on the shelves. Never saw that one before.

Sat, 02/23/2013 - 22:52 | 3270838 Stuck on Zero
Stuck on Zero's picture

Any .416 available?

 

Sun, 02/24/2013 - 11:03 | 3271358 dtwn
dtwn's picture

They also can't keep .223 on the shelves, or 7.62.

Sat, 02/23/2013 - 21:11 | 3270631 Kirk2NCC1701
Kirk2NCC1701's picture

I am going "Long Retired" in 2032.  I "didn't build this".  Have fun, kids.  ;-)

Sat, 02/23/2013 - 21:29 | 3270658 masterinchancery
masterinchancery's picture

And these graphs are still on the optimistic side--they still expect growth in real GDP, which doesn't currently look very plausible.

Sat, 02/23/2013 - 22:49 | 3270828 Bernankenstein
Bernankenstein's picture

I am going long Remington razers, and will shave my beard so that the lynch mob doesn't recognize me.

Sat, 02/23/2013 - 23:37 | 3270921 GMadScientist
GMadScientist's picture

Don't forget to shave your pussy too.

Sat, 02/23/2013 - 23:11 | 3270870 Freddie
Freddie's picture

Long Remington UMC .223, 9 mm and anything else you might be able to find.

Sat, 02/23/2013 - 20:18 | 3270530 Killer the Buzzard
Killer the Buzzard's picture

5 more days for $5 foot-longs at Subway.

Sat, 02/23/2013 - 20:37 | 3270568 NoDebt
NoDebt's picture

They're only 11" long so..... you know.

Sat, 02/23/2013 - 20:46 | 3270587 Long-John-Silver
Long-John-Silver's picture

They are currently converting to the metric system so soon your foot longs will now be 120mm long and the price will be the same. Just think about getting 120mm of Sub Way sandwich instead of that 12" Sub Way sandwich!

Sat, 02/23/2013 - 21:15 | 3270609 akak
akak's picture

Actually, the foot-long Subway sandwich would be 305mm, the current 11 incher, 280mm.

 

Meanwhile, speaking of Subway sandwiches:

Subway

Sat, 02/23/2013 - 21:20 | 3270644 GMadScientist
GMadScientist's picture

So she keeps telling me.

Sat, 02/23/2013 - 23:31 | 3270912 disabledvet
disabledvet's picture

in what language?

Sat, 02/23/2013 - 23:37 | 3270922 GMadScientist
GMadScientist's picture

She speaks in tongues.

Sat, 02/23/2013 - 20:18 | 3270531 vmromk
vmromk's picture

Have no fear of outrageous debt levels, the printer in chief has your back.
Suck my cock BERNANKE.

Sat, 02/23/2013 - 20:21 | 3270538 stacking12321
stacking12321's picture

keep your gay faggotry to yourself, please!

Sat, 02/23/2013 - 20:36 | 3270567 vmromk
vmromk's picture

Please excuse the "faggotry".

How's this.....

I hope Bernanke gets his turn at your sister.

Sat, 02/23/2013 - 22:34 | 3270798 Dr. Sandi
Dr. Sandi's picture

Maybe when he's done with my mother.

Sun, 02/24/2013 - 04:36 | 3271139 stacking12321
stacking12321's picture

i don't have one actually.

i guess yours will have to suffice.

i hope she enjoys being quantitatively EASED!

Sun, 02/24/2013 - 21:24 | 3272722 Dr. Sandi
Dr. Sandi's picture

Allegorically, I believe this would be known as 'Astrogliding.'

Sat, 02/23/2013 - 21:20 | 3270645 GMadScientist
GMadScientist's picture

We're not all as flexible as you obviously are.

Sat, 02/23/2013 - 21:28 | 3270653 akak
akak's picture

 

keep your gay faggotry to yourself, please!

Very well, we will reserve all faggotry of the non-gay kind strictly for you to indulge in at your whim.

Sat, 02/23/2013 - 21:38 | 3270676 nmewn
nmewn's picture

I got lost in all-a-dat. Was someone saying Benny prefers gang raping girls or boys? ;-)

Sun, 02/24/2013 - 03:35 | 3271106 Miffed Microbio...
Miffed Microbiologist's picture

Me too. Are we still on sandwich lengths or have we moved to penis lengths? Everything's a blur. Good time to have a drink I guess.

Miffed:-)

Sun, 02/24/2013 - 04:41 | 3271142 stacking12321
stacking12321's picture

that's as of yet undetermined.

however, the above poster that i had responded to (vmromk), was offering bernanke his phallus.

i guess he thought if bernanke couldn't inflate its miniscule size, no one could.

 

Sat, 02/23/2013 - 20:19 | 3270532 bjfish
bjfish's picture

Oh shit, we're fvcked.

 

ZH is like 1001 ways that we're fvcked

Sun, 02/24/2013 - 12:23 | 3271520 samcontrol
samcontrol's picture

1001 ways you could get fucked

fixed it for you

Sat, 02/23/2013 - 20:20 | 3270533 ShortTheUS
ShortTheUS's picture

#REF!!

Sat, 02/23/2013 - 20:22 | 3270541 A Nanny Moose
A Nanny Moose's picture

I c wut ya did thar!

Sat, 02/23/2013 - 20:19 | 3270534 nmewn
nmewn's picture

Schwiiiiing!!!

Sat, 02/23/2013 - 20:20 | 3270535 A Nanny Moose
A Nanny Moose's picture

fskcing exponents!

Sat, 02/23/2013 - 20:40 | 3270576 Wile-E-Coyote
Wile-E-Coyote's picture

Is this a dyslexia fest.

Sat, 02/23/2013 - 21:15 | 3270636 azusgm
azusgm's picture

Who's lysdexic?

Sat, 02/23/2013 - 21:17 | 3270637 akak
akak's picture

That would be the agnostic insomniac who lay awake all night wondering if there really was a Dog.

Sat, 02/23/2013 - 22:37 | 3270805 Wakanda
Wakanda's picture

eM!

Sat, 02/23/2013 - 20:21 | 3270540 hooligan2009
hooligan2009's picture

i might apply for a job with these jokers! NOTTTTTTTTT heh

http://www.zerohedge.com/forum/2013-01-22/elephant-gets-bigger-circus-in...

i just don't got the tools these guy have. Mind you..doctors (PhD's) prove that debt enlargment does work!

Sat, 02/23/2013 - 20:27 | 3270546 GOSPLAN HERO
GOSPLAN HERO's picture

Phuck central planning - it does not work.

Sat, 02/23/2013 - 21:57 | 3270698 Kirk2NCC1701
Kirk2NCC1701's picture

Oh? It works quite well -- for the central planners. Millennia of feudal history backs it up. What have you got? A few years of 'democracy'?
/sarc. Sorry for the contrarianism.

Sun, 02/24/2013 - 12:25 | 3271527 samcontrol
samcontrol's picture

and what does work, communism, prepping, ripping peoples hearts out, dictators .....?

o i forgot empires work for a while, you know the one you live in..

Sat, 02/23/2013 - 20:28 | 3270549 Oldwood
Oldwood's picture

But we are good for now, right?

Sat, 02/23/2013 - 20:29 | 3270554 PUD
PUD's picture

i've seen enough to know that "guessing" beyond a few days time is foolish at best. 30 years of "randomness" guarantees that neither of those graphs will be even in the ball park. If I had to bet, I'd bet they both read zero long before a sliver of those projections bear out and what's left of humanity has gone fully feral 

Sat, 02/23/2013 - 21:22 | 3270646 Jay Gould Esq.
Jay Gould Esq.'s picture

Indeed, the U.S. 10-year struck a record yield of 15.8% in September, 1981 -- an economically turbulent time to be sure; yet, the condition of federal indebtedness then was far more temperate, by comparison, than in the present era. I submit that, if anything, the yield projection for the 10-year in the year 2037, may be far too conservative a figure.

Sat, 02/23/2013 - 22:58 | 3270847 CompassionateFascist
CompassionateFascist's picture

The "yield" on a 10-year on 2037 is going to be precisely zero (0). The Jewnited States and the Fed will be long, long gone by then. 

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