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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CompassionateFascist's picture

It's quite simple, operationally: the real economy of work/wealth is being regulated to death. The JewPonzi economy of debt and speculation on debt is allowed to run riot. 

GMadScientist's picture

If you could eliminate just one regulation to help improve the "real economy of work/wealth", what would it be?

Which regulation is really making life miserable for the supposed "job creators" (as if they're created by anything but demand outstripping production anyway)?

akak's picture

Obama(don't)care would be a good one.

Oldwood's picture

The GAO published a report two years ago outlining over 200 billion dollars in redundant and useless government programs. One of Obama's first campaign promises was to eliminate waste. He blasted Bush for all of his wastefull spending but once he was in office he publicly proclaimed all spending was "stimulative" and therefor not wasteful. Go figure.

GMadScientist's picture

I can find $200B of savings in one five-sided building.

Bush spent like a drunken sailor, for the same poorly thought out reasons that you're slamming O'bammy for now...the only major difference being the interceding depression.

Shell Game's picture

Then we agree, government is not the answer.  

GMadScientist's picture

Depends on the question being asked, but I'll agree that this government (of the people, by the lobbyists, and for the corporations) is not the answer.

Shell Game's picture

"I'll agree that this government (of the people, by the lobbyists, and for the corporations) is not the answer.

'this' as opposed to what 'other'?  In a world of dying fiat and war over resources, it is impossible to vote in uncorrupt government.  Almost all of them have voted for the Patriot Act, NDAA, SOPA, fascist bailouts, etc. and are owned by the fiat banksters.  

The answer is free enterprise and minimal government with stict term limits under a system of honest, non-fractionally reserved money.  

GMadScientist's picture

Not sure why you think that the experiment in minimal government and free enterprise will turn out differently this time around.

Vendetta's picture

the banks were 'self-regulating', that turned out well especially after that nasty Glass-Steagall statist crap was taken out (snark) .. of course the statists DID interfere with those banks self destruction which is the unfortunate statist act.

But these details not used as examples by the 'free market' true believers.  Ideology is one thing, reality is almost always something else especially for things as uncontrollable (by its huge number of variables some measurable many not measurable)_

Oldwood's picture

Bankers have broken countless laws and have yet been held to account. No shortage of law or rules. If anything, government encouraged banks to make ridiculas bets because there was, what turns out to be true, implicit backing. We are still paying to this day. This has not been a free market for many decades and its failures surely are not "freedoms" fault. All things equal I would still rather taking my chances "free range" over the coupe anyday.

TNTARG's picture

It's because bankers OWN the gvt. They practically OWN the States (as they control the gvt). They put their men as head of States and into the administrations. Go check Europe, the US.

I'm not standing for Statism, it's not that simple, it can't be reduced to "statism" or "free market". It doesn't work that way, it isn't reality.

See how the Constitution works in the US, in Europe. Tell me if it does work. Justice. Justice! There isn't such thing as "justice" going on either.

Discourse is just discourse. If we don't understand reality, how things work, in whose hands the Power is...

GMadScientist's picture

Real "statists" would have nationalized those assholes before Xmas.

Oldwood's picture

Oh no! They don't want their name over the door. Just like they won't pass a budget, they don't want their identity directly tied to whats going down in any way. They can effectively do everything they want with the "strings" of regulation and bailouts. They got the perfect people in place to do everything that's needed.

nmewn's picture

I bet we could REALLY get the economy growing with a few thousand MORE laws and a few hundred thousand MORE regulators trying to interpret them and the inevitable lawsuits coming from those interpretations.

In the economy of state production, instead of private production, of course.

Shell Game's picture

There is no rational rebuttal to this, but oh, do they try... 

'The next cycle we'll elect leaders who really will reform things, I mean, they said they would!'

GMadScientist's picture

Because there's no room at all between "too many" and "zero"?

Who needed that excluded middle anyway.

akak's picture

And YOU, of course, in your infinite and benevolent wisdom, will be the one to tell us just precisely what is the perfect number, yes?

Or are you going to hand that function over to somebody with coercive power over society, who of course will altruistically only have the general population's best interests at heart?

GMadScientist's picture

Given my druthers, I'd be one of a few hundred for one of several distinct choices.

Your position is basically equivalent to "all sex is rape" and about as logical.


Oldwood's picture

So your belief is that we are suffering under too little regulation, too few laws and too few government employees?

Oldwood's picture

Not sure how you get from over regulation to all sex is rape, but OK. Most free market thinkers would not suggest that there should be no law or legal framework to define a level playing field. That is significantly different from anything close to what we enjoy today. With the expansion of the commerce clause alone, we see an unlimited reach of the federal government to define virtually any and all financial transactions, even to the point to where they can define an action that actually eliminates a financial transaction as under their control. If the constitution is to mean anything, it has to be able to restrain our government's infinite interventions.

GMadScientist's picture

Ignoring the possiblity of consent and cooperation between society and government is the same false dilemma. I offer the posts above as proof that many "free marketeers" have no such rational approach to the problem of governance and instead rely on mythical constructs to spontaneously provide the level playing field (which they can't bring themselves to admit is not an inherent part of their economic utopia).

You might want to re-read the Constitution and realize that's the control they were after all along (well, the Hamilton camp anyway). Thankfully, it also contains all the tools necessary to make restraint of government possible, but we're too busy snapping our heads back and forth watching the staged ping-pong match to attack the core problem of our government going to the highest bidder due to our insane campaign finance laws.

Fix that (no small feat, I'll grant you) and you'll see more than a single party masquerading as two (and a half). Unless and until we do, expect more of the same.

Oldwood's picture

Consent and cooperation is only possible in a balance of power scenario. When one party holds all of the power there is only coersion. And it is posssible that your perception of the meaning of the constitution could be wrong. Admittedly it open to interpretation, but I think the general understanding is that the document was to restrain the governments power over the people, not to make its declarations of such.

The money you are so concerned about controlling in elections does not buy off the politician. It is to buy off the media. The  media is the one who sets the agenda, the game, the super bowl of politics..

TNTARG's picture

And the media belongs to...

Let's surf... The New York Times, i.e.-

Let's take a look to the current board members, directors...

And so on.


TNTARG's picture

Minus? Do the job, search. Find the sources (and goals) of the information you get. And the one you don't get.

GMadScientist's picture

I'm specifically addressing the enumeration of powers that gives congress control of our money. And don't forget that most of the bill of rights was added later, not part of the original plan (thank you Virginia contingent). 

The media is a means to an end...why blame the megaphone for the utterances emanating from it? If the media defines the agenda, what are all those lobbyists for?

If you don't think those congress critters know exactly where their bread is buttered, you're intentionaly fooling yourself.

Shell Game's picture

....and that change is offered at the polls!  LMFAO {gut hurts!}   *sigh*

TNTARG's picture

I believe you have it all wrong.

In the US, in Europe, it's all in private (corporate) hands. Even States. Indeed, who owns the Fed? Who owns the ECB? What States have to buy the currency they need plus interests? Who runs the financial casino? Who pays for it? Who is getting poorer? (Individuals, common citizens, STATES). Who is getting richer? Corporations, banksters. WHO RUNS THE SHOW? A BUNCH OF PRIVATE BUSINESSMEN as these:


And you are calling european states, the US, "socialists" states?

How in the hell can this kind of thing be "socialism"?

Oldwood's picture

So do you think socialism is where the "people" own everything? Like where, USSR, China? Socialism is an excuse to take property from those who have created the wealth and give it to the chosen few elites that only have their good of their people at heart. Socialism is about theft, redistribution, which is exactly what these people are using governmental powers to do. Once they have pillaged all they can get from the people they will create a new revolt to another system that they can manipulate to their advantage. Its always about the money.

TNTARG's picture

to take property from those who have created the wealth and give it to the chosen few elites that only have their good of their people at heart is what is going on and has been, what is happening to you, Europe right now and it isn't Socialism, sir.

Concise Oxford Dictionary defines ideology as "a system of ideas and ideals forming the basis of an economic or political theory". And "the set of beliefs characteristic of a social group or individual".

To simplify, Socialism is about sharing. Marx stated Socialism was the transition towards Communism; anyway it's an economic system of social organization that advocates the the vesting of the ownership and the control of the means of production as well of distribution of capital, land, resources, in the community as a whole.


Do you see such a thing in the US? In Europe? The mean of production in the hands of the community? The capital under control of the community? The land? Resources? Absolutely not, sir.

The guys who are plundering the US and Europe are private businessmen, sir. As they managed to control the States, they practically OWN them. Look at Europe: they've organized a system in which STATES HAVE TO BUY THE CURRENCY THEY NEED and PAY INTERESTS TO THEM, PRIVATE BANKERS, IN ORDER TO GET THE CURRENCY. As it happens in the US with the Fed. So it's some kind of paroxysm of Capitalism rather than Socialism.

I see a lot of confusion around. I repeat: In the US, in Europe, gvts are in the hands of a bunch of guys who run the show the show in behalf of their own interests AGAINST public interests or common good. Mostly bankers. That isn't Socialism. USSR was a totalitarism: it wasn't "the people" who owned the production (as intended in a Socialist economy) but the gvt., a strong, violent, totalitarian gvt. China isn't a socialist State. In fact:

"BEIJING — Facing a sharp economic slowdown at home, Chinese companies are plowing money into U.S. assets at a record pace, making huge bids for American energy, aviation, entertainment and other businesses."

That sounds like Capitalism to me, sir. China is a Capitalist State.

Many people here seem to think the problem is the State, I believe the problem is who runs the State. Who is in charge. Who has the Power. If a bunch of corporative businessmen actually OWN the government, they are gonna do (as in fact happens) their own business which isn't the society business, the common interest (common interest which includes, in my view, freedom, which it's been reduced a lot for the citizens in the US and European countries). The guys who actually run States are spying on you (and on a large portion of the World through your States), are sending your boys to fight their wars and die for the profit of a few, are deceiving you with false flag operations - at the point of 9/11 -, are formatting your brains so to drive your actions, and now are flying over your heads with drones. Four main corporations own most of the brands you buy into their corporate supermarkets.

Your politicians work for their corporations:

Hillary for Walmart, Monti (Italy) for Goldman Sachs as many others in european gvts, Paulson, Corzine, your guys, they weren't working for the US sake. Did Bush? Did Clinton? Since WHEN your gvt is working for private corporate interests? Long. They've fucked up most of the World in behalf of corporate interests, they've killed, bombed, destroyed, telling you it was for your safety, but no. Of course you don't believe they invaded Afghanistan and Irak to free people and prevent terrorists attacks on America, do you? You have read about 9/11, you have seen the Twin Towers' controlled demolition, do you?

Indeed, society is breaking down in the US, in Europe...

or right here, on ZH:

Most people would choose a mix economy in which both private property and common interests can work. To make it work, basically, the pursuing of individual, private interests must have a boundary: the common good. Many constitutions were written according to that idea.

But in Europe, in the US, private interests have taken it all.

No sharing at all, sir. Just an extraordinary concentration of the means of production, land, resources, even currencies, in a few hands. The exact opposit of Socialism.

Against the common interest, the common good. Against you, me all. They've done a hell of a job on you, people.



Oldwood's picture

anyway it's an economic system of social organization that advocates the the vesting of the ownership and the control of the means of production as well of distribution of capital, land, resources, in the community as a whole.

Ownership by the "state". And the State is owned or controlled by who? The point is that centralized power placed in the hands of the State is ultimately corrupt. Decentralization of power and choice is the only answer. Not Anarchy but decentralization. And MArx was right. Socialism is simply the mid point transition that empowers the state to hold full tyranny of dictatorship. If you believe in Full Communism, where the dictators somehow misteriously melt away after three generations, then you sir, are truely frightening.

TNTARG's picture

"Centralized power" is what we have right now. Power centralized in a few private hands.

And just to be precise, you misunderstood my point: I'm saying you shouldn't call this "Socialism". It's wrong. Doesn't mean I'm Socialist, Communist. Never said that, read again.

P.S.: I'm a woman. That arm in the picture is my arm.


Arkadaba's picture

No that isn't in the issue and you know it.

The issue is the system :

In a real world community, we would make better choices electorally if we had choices. But we have no choices

Ricky Bobby's picture

Hey fuckmad people abide by contracts because of moral and ethical bonds that are tied together by shared culture. Fucking bureaucrat statist don't enforce a thing. 

ebworthen's picture

"This time is different."

High rates and higher debt?  How could this possibly happen?

Black Tulips will always be as valuable as the average house.

You can retire on South Seas shares.

Herbalife is not a Ponzi.

All hail Caesar!

Atomizer's picture

Get smart. The new regulator lurks.


Or shall I say, new geolocation database NSA targets. We love you NSA bitichez, start doing your job. If you don’t, we will .


GMadScientist's picture

Will they be incredibly useless wrist slappers like the pink bitches responsible for punishing UBS, Barclays, and RBS for LIBOR fixing?


DoChenRollingBearing's picture

Atomizer & GMad, yes & yes.

The little bitch organzation looks so European...

ebworthen's picture

In other words, another hollow shell organization whose primary goal is to promote investor confidence while doing absolutely nothing to protect investor assets.


Freewheelin Franklin's picture

But, but, but, we got teh reserve currenceeeezzz

buzzsaw99's picture

Hogwash, both are wrong. The 10y will be ~ 1% within ten years imo.

reader2010's picture

We were told long ago it's the world of TINA ("There Is No Alternative.") Those who dare to question the dogma have been and will be mercilessly terminated.

Lucius Cornelius Sulla's picture

TINA is the new "Goldilocks" or "Eyballs" valuation methodology.  Just a stupid rationalization for the sheep.  Meanwhile the corporate insiders are selling like its 2007.

hooligan2009's picture

tina + nimby (not in my back yard) = a country with no houses!!! wigwam bam!

Lost Wages's picture

Buy and hold ultra-short 10-year treasury ETF for next 20 years.