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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yogibear's picture

How about we beat that big when the US dollar crashes and Bernanke and the Fed looses control of interest rates?

Bernanke, Evans, Dudley and Yellen, would like to see the expression on your sorry mugs when that moment occurs.

 

css1971's picture

What on earth makes you think it's random?

ok there were some "economists" who took a look at the markets and decided they were a random walk. They were wrong, which shows that you shouldn't assume you know shit outside your domain of expertise and economists don't know what the fuck they are wittering on about ever.

Dow chart

That is not a chart of randomness. That is a chart of exponential growth which has hit a limit.

StarTedStackin''s picture

Why not just print more money?

Long-John-Silver's picture

The physical limits of even digital creation  of (fiat) money has been reached. Light Speed has yet to be exceeded.

Gold Dog's picture

Gravity moves faster than light, Blythe hits the sell button faster than gravity.

Obummer has no gravitas!

 

Dog

erg's picture

The illusion of freedom will continue as long as it's profitable to continue the illusion. At the point where the illusion becomes too expensive to maintain, they will just take down the scenery, they will pull back the curtains, they will move the tables and chairs out of the way, and you will see the brick wall at the back of the theatre.
Frank Zappa

WmMcK's picture

“There is more stupidity than hydrogen in the universe, and it has a longer shelf life.”
? Frank Zappa

Kirk2NCC1701's picture

"This is the Central Scrutinizer... Don't fool yourself... It's going right up your... I knew you'd be surprised!". - Frank Zappa.

diogeneslaertius's picture

so what happens if the entire scope is contained within a digital, holographic, HFT algobot economic deathstar and we just get cooked down over the next 100 years as a species into transhuman biological androids

no collapse

just japan and britain until the dictionary is 5 pages long?

 

 

the threat of collapse is more real than collapse itself from a manipulation/phenomenological standpoint vis-a-vis NWO

scatterbrains's picture

nigga on crack  but don't stop

ISEEIT's picture

So then we have until 2037 then right??

Party on dude!

Peter Pan's picture

Projections through to 2035?

I can only laugh a sad laugh because well beore 2035 humanity either through nuclear mishap, natural disaster, stupidity, mathematical impossibility, natural unsustainability or war, will well and truly be recast into a shape that even I dare not try to guess.

Prepping may help for a few days, weeks or months, but I believe that hell on earth is almost inevitable due to the incredible vacuum of enlightened leadership we continue to suffer from.

Perhaps only cannibals will be able to make sense of the future that awaits us.

GMadScientist's picture

Pssst...don't tell em, but half of Missouri is just getting well-marbled for the rest of us.

 

tenpanhandle's picture

A quick up vote for ya, now I gotta go vomit.

samcontrol's picture

this thread is funny..
we have had all you mentioned ..life continues,
you are right prepping is ok for a few days after that kamikazee.Not interested in roten meat ,i'll stick to ojo de bife and malbec until the world ends.

Decimus Lunius Luvenalis's picture

By that time, we'll be worried about Soylent Green being labeled as rat meat in our processed lasagna. 

Jason T's picture

Armstrong has it at 2015.75 - 2022, the ship hits the sand... gold rallies like a mother fucker.

thewayitis's picture

yessa...And silver right behind it

Number 156's picture

The sequester is meaningless and you shouldn't have bothered to factor it in. Those idiots are fighting over a few billion here or there when there are trillions of dollars in stupid spending. Wake me when they are serious about balancing a budget. 

The whole sequester thing is stupid.

DoChenRollingBearing's picture

+ 156

So little money, and it's the spending, stupid!

shinobi-7's picture

Everyone who has ever been bankrupt knows that when the shit hit the fan things accelerate much faster. In 2035 all these numbers will be irrelevant and certainly not calculated in dollar.

GMadScientist's picture

If they can't even avoid going bankrupt, why the fuck would I care what they "know"?

 

GMadScientist's picture

I think I'd be more interested in the experience of someone who avoided bankruptcy.

Crash Overide's picture

What's everyone so worried about, things are looking UP/

Jafo's picture

Interesting that the banksters allowed this item to emerge just now.  The banksters want austerity and deflation to guarantee that their interest payments will continue and that they will have real purchasing power.

Religion and the State have worked to make usary illegal because of the harm that it does to society.  The banksters have figured a way around this by selling collective groups of people (governments) into usary which avoids the social and legal limitations against usary.  (The interest rates on credit cards are usurous and I wonder how the politicians can be allowing this except that I know they are either ignorant or in the pockets of the banksters.)  It also has the additional benefit of minimising the paper work - one contract for the government instead of an individual contract with every citizen of that nation.  Got to admit, it is a neat scheme. 

The weak point in their scheme is that the people can disolve the government and constitute a new government which is neither authorised to, or obliged to, honour the banksters contract with the previous government.  Won't be popular with either the people holding the sinecure of elected office or the banksters.

hooligan2009's picture

odious debt is smelling sweeter day by day compared ot the shit coming out of the 435 + 100 + 1...pwned by the 5

http://www.zerohedge.com/article/odious-debt-definition

GMadScientist's picture

I can make a model that predicts a straight vertical line; that doesn't make it so.

exgop's picture

I can draw a square circle

GMadScientist's picture

I can visualize hyperspheres.

Pascal1967's picture

blah, blah, blah . . . same old, same old. 1. does it matter? 2. if it DOES, then quit spitting out bullshit, scare-tactic scenarios and start recommending SOLUTIONS. thanks for wasting several minutes of my life I can never get back.

Whiner's picture

You think anybody will be around in 2036 to make further projections? To give further warnings? Why does it always come like a thief in the night. Same old captive regulators, same old ratings agencies, same remaining old financial institutions and CEO bonuses-bigger, more concentrated than ever, same old academics on the dole, same old voter re-electing same old pols- more debt-deficits ramping faster, less GDP etc. No. We are done next year, 2014. Hunker down.

DoChenRollingBearing's picture

Hey, that's my guess too.  Why worry about 2036 when you can worry about 2014?

Gold and guns...

Gold Dog's picture

In the year 2525- If man is still alive......

the night watchman's picture

Once again we have writers who are allowing  themselves to be distracted by the irrelevant "debt to GDP" ratio.  Debt to Federal REVENUE is the measure that matters and it is MUCH worse than debt  to GDP!  Eventually (3-4 years maybe) this ship will sink.  It is a mathematical certainty.

GMadScientist's picture

Do you really think revenue and GDP aren't related?!

the night watchman's picture

Sure, but government cant use GDP to repay debt... it can only repay from its revenue.  Debt to GDP might mean something but it is not a valid measure of repayment ability. Pretty simple stuff. 

hooligan2009's picture

agreed...but it provides some utility by providing an external yardstick..but you are right...GDP is an abstract concept, especially when government spending amounts to 25% of it..and has evolved an insidiuos link to the rest of the economy that can't even be voted on...think black ops budgets jointly owend by CIA, DoD, Lockheed or NASA, IBM, Boeing and Honeywell...or freddie, fannie and the banks...or obama care and the medical.insurance industry, or JPM and EBT cards. my guesstimate is that 60% of the US economy is linked to government contracts lasting years or decades.

i follow your logic entirely...profits of the top 5,000 companies and 1,000,000 small, entrepreneurial business currently being picked over for tax, rather than reducing the burden by using a simple tax code (same tax code for all type of taxpayer, whether that is corporate, small biz or individual and whether it is income or capital gains) ...profits are the only cake worth measuring. you simply can't spend more than that every year without an investment that generates more profits (free cash flow) being left behind.

gdp is abstract..if the tax take is 2.1 trillion...that is more likely to be the base value from which taxes can be taken and the "value" base of the economy..i still adjust for risk and follow the "risk expects a return" mantra..otherwise, why bother taking the risk..so if the tax base is stable..it has low risk..say it is stbale to within 10% per annum...then I multiply the tax take by 100/10 to get a value for the economy..that makes the economy worth 21 trillion...whacking on loads of leverage to "borrow" future profits/free cash flow and spending it today is a sure sign that the econoym is being bled.

hooligan2009's picture

gdp and revenue are both based on cash transactions you mean? and its nominal gdp? wonder why they estimate 2010, 2011 (and 2012?) receipts..and aren't the OMB the guys who predict u/e at 5% in a year with 6% nominal gdp growth and a fiscal surplus in three years?

JR's picture

GDP is a contrived lie.

“Today, Washington and other government successfully gobbles up 38% of GDP (and spends over 60% of GDP).” --Karen Kwiatkowski on September 16, 2010

And under pure sociaism, Mises said, economic calculation would be impossible.

And, I might add, redundant because it is no longer independent of government.

proLiberty's picture

The left (er, "progressives") love to scold the rest of us about "sustainability", yet none of their schemes like solar power and electric cars never are econonically sustainale.  And neither is socialism, the belief that we will all be better off if government coerces all of us to live at the expense of everyone else. 

Printing money to pay the federal government's spending on social programs is not sustainable and is a slow motion train wreck.

 

GMadScientist's picture

The right love to scold the rest of us about "what's good for business", yet none of their financial innovations ever are materially sustainable. And neither is capitalism, the belief that we will all be better off if corporations get to profit from the labor and natural resources of everyone else.

 

akak's picture

Tell you what, I'll let you and the Regressives, er, "Progressives" continue to beat the dead horse/strawman of capitalism (whatever that truly is) while I go on defending the sustainability and morality of free enterprise.

GMadScientist's picture

"free enterprise"...with no regulation or enforcement authority for contracts (because that would require a government, martial law, or both).

Best of luck growing a worthwhile economy under those conditions.

akak's picture

Your mistake, like that of all statists, is glibly, ignorantly and mistakenly equating regulation with coercion.

For example, the queue at your local bank or grocery store is almost always well-regulated, yet with no coercion in sight.  Our national food distribution network is highly "regulated" in its functioning, yet with minimal if any coercion being part of the process.  Angies List is a neat deterrent to shoddy or fraudulent business practices on the local level, consitituting "regulation" that is totally non-coercive.  Nobody mandates that lightbulbs be made with one basic base diameter, yet the market somehow "regulates" that such is the case.  And I could go on.  But such facts mean nothing in the face of statist dogma, so I will desist.

GMadScientist's picture

You've never seen someone with a full cart in the 10 items or less line..or seen them sent to one of the other lines for doing so?

Our food industry is "self-regulated" by the very industrialists who profit greatly from doing such a poor job at same.

Funny that you subsitute a self-appointed and toothless authority like  "Angie's List" to show how we don't need authorities and it doesn't do much for the people who got ripped off, only perhaps the next guy who might happen to hear about a shady company, who's name has most likely changed since then. It does practically nothing to stop shoddy business practices at even local scale, much less any relevant scale.

How does the market determine the correct size to use? Was it a "standards body"...or merely the result of a monopoly market position?

Seems your "facts" don't really make muster, but they sure are chock-full of fantastical handwaving and sophistry.

akak's picture

Yes, if only our society encompassed even more (statist) coercion than it currently indulges in, all would certainly be well.

Your utopian (and Orwellian) ideals are the stuff of kindergarten fantasies, and freedom lovers' nightmares (and increasingly, their daily lives).

GMadScientist's picture

You beat that strawman! Show him you mean business, pun intended, but we're talking about no-regulation vs some regulation not none vs even more (funny that you twinkies all retreat into exactly the same hyperbolic corner once your "facts" run dry...or prove to be anything but).

Yes, even a kindergartner could see through the bullshit you post up as flack.