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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hooligan2009's picture

all profit to be paid in gold...otherwise its just another zimbabwe

andrewp111's picture

Ultra Short ETFs are short term trading instruments. Long term holdings of these things are guaranteed to lose money, no matter what the direction of the underlying asset. The leverage that puts the "ultra" in the short costs money. There is no free lunch.

ramacers's picture

brush up on your mad max movies.

Atomizer's picture

Just another round of debt projections to set 3% GDP goals. Failure will become fear.

Ministry - Faith Collapsing

Shell Game's picture

When?  No, really. When?  I've heard legend of this you speak of....

israhole's picture

Fuzzy isn't the word I'd use.

Turin Turambar's picture

What's really sad is that those charts look a little too optimistic to me.  10-yr yields at 5% in 2017?  LOL, I don't think it'll take near that long.  2015 at the latest maybe?  Then again, it's just a guess, and my guess on my part, but my guess is as good as theirs.  I'm surprised that things have held up this long and will be absolutely shocked if we make it to 2014 without some sort of crisis - a real one, not an Oblamo manufactured one.


samsara's picture

Martin Armstrong pegs 2015.75 as a major turn of some kind.  I'd say Devaluation or Soveriegn Default.


Oh, and 2014 is a 25 year turning of war.  1914, 1939, 1964, 1989.

CompassionateFascist's picture

I notice he's in jail. Unlike Greenspan, Bernanke and Co. He must have failed to rip-off enough people. 

tip e. canoe's picture

was in prison.

p.s. Gmad, i'd rather be a useless loon than a useful idiot.   how bout u?

GMadScientist's picture

I'd rather be neither.

You appear to be both.

tip e. canoe's picture

haha funny.

insults are the refuge of the ignorant my friend.

GMadScientist's picture

That explains why you lead your response with them.


GMadScientist's picture

He decided to commit illegal fraud instead of sticking to the state-sanctioned kind.

andrewp111's picture

I think more likely rates will be flat to 2020 and then shoot upwards at an even faster rate of rise.

Truther's picture

Fuck you Bernancke...

nathan1234's picture

The dollar collapses , Ben gets a heart attack and passes on for fear of being strung up and pissed on.

He approaches heaven and thinks St. Peter will permit him access.

On the way, Satan appears before him .

" Let me through " Ben pleads with Satan.

Satan screams with laughter and says " You have always been mine. You have been destined for and are only qualified  to be in Hell.

I trained you. I gave you protection on earth, while you carried out the work ,through my proteges like Timmy, Hank, Alan, George and Barry.

In hell your printing capacity for notes is needed to keep the hellfires going.

And anyway Money as you call it has no value in Heaven."

hooligan2009's picture

ponders whether there is any perspective to be gained from looking back over the tax take to gdp over the decades..

i billion was a huge number in 1913 and perhaps in 1943...not so much in the big number is a 30 years it will be a quadrillion..or where tha japanese are now...

price of gold was stuck at 19-21 bucks from 1800-1930...

is there even enough gold for everyone to get some now that the world population has grown from 1 billion to 6 billion in the same period.

does that mean individuals on average can only aspire to around 5/10,000th of an ounce each now (how much gold is there 11 cubic yards/100,000 tons?)


Cardinal Fang's picture

Well now, that expains the motivation of the NWO. The real chart is Population v Gold Supply. That is what has those fuckers all nervous. Fractional reserve banking is only a temporary fix until they can kill off enough people to bring the population back in line with gold supply BEFORE the system collapses.

Knowing that now, I will feel so much better eating Pemmican in my bunker.

Atomizer's picture

Dear Taxpayer funded Media,

I want you to continue your objective. The more your lie, the less you become a credible news source. Please continue your corporate charter.


Read this. Ask yourself the obvious question.

Why Terrorism Does Not Work

TNTARG's picture

" the September 11, 2001, attacks on the United States, and
Palestinian terrorism in the first intifada" ?????????????


Joseph Jones's picture

Personally I'm convinced Bush and his cronies and Mossad perpetrated 9-11.  In fact I think OBL is/was a USA operative. Israel and usa are the world's biggest terrorists.

But, let's suppose OBL was not a USA operative (i.e. a CIA employee).  Instead of reading the ramblings of a Jew re. terrorism,  I suggest rather reading OBL's 1996 stated intentions against the usa in his declaration of war.  In it, he clearly states that a 9-11 type attack wouuld absolutely positively with no doubt entangle the usa in a war in the "graveyard of empires," aka Afghanistan.  Earth to ideeots: we've been in that sheet hole for about eleven years.  Those two wars (even daddy bush was not stupid enough to stay there) cost us only about $2T and counting, and have created endless numbers of enemies from now to as far as you can see over the horizon.  

Al Qaeda success rate: 100%

If you can't see that this whole program is going exactly like they planned, get new glasses.  If you like Mexico, you'll love the usa in about 15 years.   

ableman28's picture

The "people who matter", the ones whose task it is to maintain the system, still have options.  Its true the Fed can't remain the primary buyer of long treasury paper forever.  And, if market rates go up while they sit on their mountain of already purchased long paper they would face the choice of holding to maturity.......which would be a problem for them.........or taking a major loss to liquidate.  That latter prospect would have the interesting effect of destroying some of the funny money the Fed has created to support US government debt.

But, the Fed still has the option of moving toward the very shortest end of the yield curve and dumping tons in there and holding to maturity.  The effect would be to create a startlingly steep yield curve but for those charged with maintaining the status quo it would give the US government some additional breathing room in terms of suppressing interest rates while the debt problem is addressed.

The real problem is that the Fed can wait forever hoping its partner in crime, the US government, will get its fiscal house in order and in a more harmonious relationship to monetary policy.  Problem is that will never happen.  And eventually when all the fixes have been tried the system will break down.  But do give the engineers of our modern monetary policy some credit.  They can be very creative in figuring out how to kick the can down the road for much longer periods of time than anyone would think possible.


hairball48's picture

I'm glad I'm 65 and not 25. That report was too optimistic.

I keep saying it but nobody I know listens. We have consumed, spent, used up REAL wealth over the last 40 years. It's gone. We borrowed REAL wealth from the future and we pissed it away on all manner of stuff. People my age will have to work longer which clogs up the employment line. Young people are FUCKED...and they aren't gonna like it when they figure out what's happened, and what's gonna happen in their future.

Oldwood's picture

Young people are screwed in so many ways. Not only do they have debt that they can never pay off and likely interest payments that will consume most of their earnings, but they have a social entitlement system in place that will have a suction rivalling the nearest black hole. On top of that they have been indoctrinated by an eduucation system that has convinced the majority of them that they are entitled to a good job and worldly benefits without really having to work too hard. And worst of all they have a hundred million or so of us mean old farts that just won't  die and keep dragging out of bed to suck up the few jobs left.

Wakanda's picture

Yo TDs - America's future is not measured in bond yields or debt.  That metric is gangrenous and approaching death.

America's future is in the hearts of its residents and is measured in love, courage and ingenuity.

The Second American Revolution, decentralization like it has never been done before.

americanspirit's picture

My friend who owns a gold/silver gun shop explained something to me last week that I want to pass along for what its worth. there has been lots of speculation here on ZH and elsewhere about why the Feds are stocking up on so much ammo. My friend says its simple - the Feds place a $25 million order for ammo at every ammo mfr, which naturally puts them in the front of the line for delivery. Then when that order is delivered they immediately put in another order, which puts them back at the front of the line. That way they can limit the availability of key supplies of ammo without having to pass any messy public legislation - they just buy it up and store it. No sinister conspiracy about arming every G-5 postal worker with 2000 rounds of high velocity ammo - its just about limiting availability in the most subtle way using their unlimited supply of money. Makes sense to me.

CompassionateFascist's picture

Yeah, well...given the # of guns and amount of ammunition already in the hands of the People, esp on the Right, I'd say the ZOG got into this game a tad late. In fact private sales of ammo continue to exceed the gubmint purchases by a large multiple. 

the grateful unemployed's picture

does anybody do their own reloads anymore?

Bingfa's picture

YEP...It's going to be quite a summer

GMadScientist's picture

Yes, a sea of nimrods with AR-15s they don't know how to place for that ammo, now that I think about it.


CompassionateFascist's picture

The people I see at the range, zeroing-in their AR's and M1a's at 100 yards, definitely know how to shoot. GMadScientist, on the other hand, is going to be Long Pig for a pack of feral urbanites. 

BigDuke6's picture

3 million preppers in the USA and most now on zh it seems.

What's the make up of your bunker?

1 MBA to organise committees
2 ex army for protection
1 trauma surgeon for accidents
1 hydroponics expert for herbs
1 mechanic
5 breeding females with big breasts to feed the babbies....

I can see why folks get into it

GMadScientist's picture

I can take out your noobs with a 22LR and some stingers long before they even get their magazine properly inserted.

TNTARG's picture

I'm wondering... Are you gonna shoot drones down?

I don't know, it just seems naïf... You may gonna have to find some other way but ammo.

Europeans are building this too. It shows what "progress" means to these guys.

CompassionateFascist's picture

When Civil War II reaches the point of entire states fragmenting or seceeding, National Guard units will go with them. Marines are already close to mutiny: cf. the Inaugural Parade removal of firing mechanisms from their rifles. Marine/Nat Guard air units will have no trouble shooting down Federal drones. ZOG is way, way less powerful than many of us seem to think. In fact it's downright brittle. 

Bingfa's picture

Yes sir....Guerrilla warfare will be very hard to contain, if not impossible.

GMadScientist's picture

Not at those muzzle velocities...and I'll be the first to admit that these preppers have no clue what they're in for if they think pop guns are going to provide defense.


andrewp111's picture

Yeah, but the Gov't is only buying very specific types of rounds that fit their service pistols.  Every other type of ammo should be unfettered by Gov't buying. I prefer the dual explanation - they are buying ammo for training, but they are also preparing for something at the same time by buying 10x the ammo they need for training.

bullxead's picture

but what if EU will be first?

or oil price will be 10$/barrel?

the grateful unemployed's picture

so i should continue to but LONG TERM TIPS which is just what the WSJ says i should not do?

A. Buttle's picture

Both graphs show their divergence at about 2018 . I am too busy to read their full reports, so maybe the authors explain this, but I wonder what magical happening occurs then. Will unicorns suddenly stop shitting rainbow skittles? Will sanity suddenly make an appearance from out of nowhere? Is a planned stochastic event being cleverly and subtly forecast by the eminently altruistic folks at MS and DB? Really, these graphs raise more questions than they answer.