CBO Forecasts: Then And Now

Tyler Durden's picture

A few hours ago, the CBO published its most recent 10 year revised outlook for US revenue and spending: The Budget and Economic Outlook for fiscal years 2013-2023. Not surprisingly it was, as anything to ever come out of the CBO, overly optimistic. Promptly, the media latched on to the revised deficit expectations according to which the CBO now sees a budget deficit declining from 845 billion to "only" $642 billion in 2013, and dropping to $560 billion the year after. This looks at the short end: the near-term revenue benefits of recent tax increase policy which take from long-term growth (just ask Europe). The fact that the CBO also forecast the deficit proceeding to once again balloon to $895 billion by 2023 at which point the deficit difference between total spending and revenues goes asymptotic once the demographic crunch truly hits, was ignored by all.

We will ignore the underlying drivers to the CBO revision: we let readers peruse these at leisure. Instead, we will simply muse at the ridiculousness of anything called a "forecast" coming out of the CBO, and present how the "independent" economic forecasts from this office change in time.

On the chart below, the dotted lines are the CBO forecasts as a % of GDP from January 2008 for the period 2008-2018. The solid lines are the just released revised forecasts for 2013-2023.

Perhaps the most notable difference is that in 2008, the CBO was predicting that the US budget deficit would turn into a surplus in 2011. Instead ended up being an $1+ trillion deficit for that year alone. Also, in the period between 2008 and 2013, the CBO then forecast a cumulative deficit of just a few hundred billion. Instead, we ended up with deficits of over $5 trillion and, sadly, still rising.

So take anything coming out of the CBO with a very big grain of salt.

But for now, with the market hitting new highs every single day just because, the CBO is surely allowed to come up with any goalseeked numbers: it's not like anyone cares when stocks are soaring in a trance that is now completely disconnected from anything and only reliant on central bank balance sheets. And of course, we can't wait to look back in five years and laugh at this specific revised "forecast."

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Ham-bone's picture

-Treasury today downgraded 2013 deficit to $650B from $850B

-Fed will have far fewer new T's to buy up

-Rates are moving up to near 2%...slowing re-fi's and potentially slowing housing?

-Fed will have less MBS to purchase

-Fed saying they will scale back QE3...pretty obvious they must unless they plan to (openly) buy ulterior assets like ETF's, etc.

-Dollar strengthening on this slowdown of debasement while Japan open destroys the yen and Japanese run for S&P, T safety. JGB's bordering on crisis levels as they approach 1% 10yr.

-US S&P corps about to face strong dollar and global slow sales...how bout those forward earnings?

And apparently none of this is anything but bullish?  If FLOW really matters, then iceberg dead ahead???

LawsofPhysics's picture

"Rates are moving up to near 2%...slowing re-fi's and potentially slowing housing?" - No worries, Bill Gross and all the PDs will be buying that dip. "winning"

Tyler Durden's picture

The funny thing is that the market is taking an outcome that is immensely bullish for bonds and making it somehow bullish for stocks. Read here for more: An Unprecedented $660 Billion In Excess Debt Demand, And What It Means For Bond Yields

LawsofPhysics's picture

I agree, just wonder what yields will need to be in order to get those speculators to run back into that burning building.  If it's greater than 2.25% on the ten year, shit, I may move more cash out of the bank (where it sits doing fucking nothing).  Hell I can get loans for less than 2.25% if I really wanted to expand operations or fix tractors etc.  This should excellerate all the bullshit easy money problems...

Ham-bone's picture

Seems if Japan is in danger of losing control of the JGB's...then they need print ever more yen to avoid that fate... pushing dollar stronger...hurting US companies on both competitiveness and FX...seems terribly bad for S&P but all I hear from bobble heads is up, up, up???  I'm terribly backwards it appears?

LawsofPhysics's picture

A strong dollar was why many of us went to cash ahead of the Yen crush.  Now to re-deploy, but where?  aside from maybe more physical of course.

Ham-bone's picture

Totally concur with the premise that strong dollar should have been equity negative...except the reality as TD notes may be all the "excess" QE looking for a home plus potentially Japanese yen panicing looking for a home...just can't gauge the counterweights of at what point the hopeful forward PE's start to totally, completely disconnect w/ evn the greatest hopers and when it matters.  That's why the FLOW question seems real important...if Fed continues the pace they have been (actually closer to $90B a month) absent adequate T issuance and MBS...then T's yields should be falling rather than rising (particularly if JGB owners r selling to buy T's)...curious.

CrashisOptimistic's picture

You guys know perfectly well HFT decides what equities do, and they have no algorithmic input from interest rates.  They care only what their opponent in the arena does.

As we saw in the last flash crash, when there is significant news, they shut off the computers.  They don't interpret the news.  They shut down.

They care only about their opponent, and they get new funding every Tuesday.

fonzannoon's picture


From the Link that Tyler added:

" The reason is that inevitably the moment when the central bank wheels hit the road will come, and it will be not so much a question of imminent price reaction, but what the long-bond, which will suddenly find itself without central bank bidders, and thus ostensibly bidless, does. What it will do is collapse, sending long-yields exploding, and making up for years of faulty inflationary signalling. Ironically this may come at a time when the central bank balance sheets are indeed contracting. However, without them present as bidders of last resort, watch out below if one is long the 30 year. "

I thought we were all in agreement that the yield on the long bond will fall from here. The conclusion in quotes seems to indicate otherwise. What am I missing? I thought yields were heading back down...substantially lower....

How do "the central banks wheels hit the road"? It seems like they never will...

Ham-bone's picture

Fonz - that's the quandry here - last week has seen bond yields all over are rising but we expect printing all over to fight the battle...but oil, copper, lumber saying otherwise?

fonzannoon's picture

Hambone until Tyler tells me I am wrong or to just stfu I stand by my point that yields rising have everything to do with the Yen. That pop in the yen sent banks hedging "power reverse dual currency notes"  by selling the long end of the UST curve.


So either the Yen keeps rising uncontrollably, causing more hedging by selling the long end of the curve, or the Yen calms down and we see yields start falling again.

Ham-bone's picture

exactly - are we looking at the death spiral that yields rise so they print more yen and due to the more yen yields rise and therefor they print more yen...etc etc.  And this causes dollar strength and PM's down and should mean S&P down...at some point?  But I really don't fucking know...

fonzannoon's picture

I wonder about the PM's. Initially down, yes. Once the situation gets confirmed as to why yields are rising....look out. Moonshot. Unless at some point soon ABE comes out and tries to jawbone the yen down so they manage this collapse. which I imagine he will.

Don't worry about the S&P....and don't short it. It does not exist.the fireworks will start with the currencies...then fixed income.

Ham-bone's picture

So, does Yen, JGB, or both / neither take flight tonight???

Prepare for an evacuation into dollar denominated everything, blow off top in everything dollar denominated, (crash in PM's, should be JGB 10yr and UST 10y will pass one another around 1.25%???) if Japan really starts to blow out?  Two Titanics passing in the night.

fonzannoon's picture

It's a central planning world. so my guess is they have targets pegged. Maybe 105 on the Yen/USD and the 10yr UST at 2% or below. 

do they lose control of either one? Kyle Bass says yes. but who the hell knows when?

Lendo's picture

Holy shit that chart is awesome.  CBO has 0 credibility and they're laughable at best.


Precious's picture

Disclaimer: All CBO data is collected from the best available AP Conversations, Bloomberg Terminals, IRS Inquiries, CIA Recruiters, and Libyan Diplomatic Missions.

McMolotov's picture

The Complete Bullshit Office — pulling numbers out of its ass since 1975.

pods's picture

I'd bet that they couldn't forecast last year's numbers.


Lendo's picture

That acronym makes much better sense. 

Sutton's picture

"Yesterday I was lying    Today I am telling the truth"   Boxing promoter Bob Arum

pods's picture

And the first offering is just a bit outside!


seek's picture

OT, bitcoin related: Just hitting the news now, but DHS has shut down at least one of the larger US money transmitters (Dwolla) ability to tranfer funds Mt Gox. ( http://i.imgur.com/y40T5Qv.png )

No word from other transmitters, but speculation is that this may be the first of several.

seek's picture

I think you'll find this a much better source of realtime transaction information: http://bitcoincharts.com/markets/

I haven't had time to mess with it due to my real job, but I'm stumped why mtgox and btce aren't arbitraged to hell given the spread. I have to assume there must be some hidden cost to btce that I don't know about due to the not having had time to mess with it.

cougar_w's picture

And the noose tightens.

seek's picture

I think "grip tightens" is more appropriate, and bitcoin is like sand.

Seriously, it's biggest point of weakness is the interface with traditional fiat. A completely internal bitcoin economy is going to be really hard for governments to stop (in practice, and in a legal sense within the US.)

Agent P's picture

Back in the Clinton Era, they were writing white papers about a debt free USA.  Now ain't that some shit?

LawsofPhysics's picture

I remember that, overturning Glass Stegal and 9/11 fixed that shit...

ZackAttack3's picture

According to the treasury website (treasurydirect.org), from May 11, 2012 until May 10, 2013 (365 calendar days) the total debt outstanding to the public increased 1.08 TRILLION Dollars.  So the CBO is a complete lie.  We are still running trillion dollar deficits.  No matter how much month end and year end accounting gimmicks can be had.  Don't be fooled.  Just ridiculous.  Just for dimwits to read.

Herd Redirection Committee's picture

Exactly.  Let me guess, government assets somehow increased by 200 billion more than expected? 

"Oh yeah, when we paid those corporate subsidies on oil, corn, etc and gave that $100 billion to the Pentagon and CIA, those weren't expenses.  No, no, those are assets."

And poof, magically the amount of expenses for the year decreases $200 billion, and the deficit is 'only' 650 billion, but the debt is still the same, and the bank account is still just as empty, either way you 'account' for it.

Jason T's picture

They don't even forecast a recession for the next 10 years!  

hooligan2009's picture

hey tyler..can you please stick a publication date on those "similar articles you might enjoy" articles panel?


EmmittFitzhume's picture

I'm going out on a limb and say this forecast will be wrong too.  

Element's picture






CrashisOptimistic's picture

The story is bullshit.

The deficit will be lower this year.  It will be lower because:

1) A large 150Bish tax increase on the rich.  They accelerated income into December to dodge some of that, so this projection is already bullshit.  That acceleration won't continue through Q1 or Q2.

2) The Sequester is 85B.

3) The Fannie stuff is orchestrated to try to affect the negotiations in Sept.  It won't be there next year.  It's what, 70B?

4) Growth is DOWN, not up, from previous years.  Q4 was 0.4% and that was Q1 of the FY.  That didn't jack revenues.

5) The SS tax restoration on 1 Jan probably also added revenue, depending on how they are doing their counting.

So yeah, 700 B this year vs last year's 1.05T, because of Sequester and the Tax On The Rich increase and bogus Fannie numbers and probably SS tax jack.  NOT BECAUSE OF IMPROVED ECONOMY.


The bullshit narrative is "we don't need austerity.  The deficit is getting better without it!" is absurd.  It was the austerity measures that generated the improvement.

Ham-bone's picture

Shhhh...quiet.  I want to hear the rest of the story and your blowing the ending saying there are no god damn unicorns or easter bunnies...I prefer the way they tell it.  Magical.

Element's picture

All that happened though is they tried to kick the can ... and missed. I wouldn't look on 'missing' as 'austerity', how could you, given they're lining up to take another run at it? Will they not make up for it as soon as they can? (... sorry 'bout that)

Hohum's picture

If you look at the Financial Management Service (fms.treas.gov) report for April, nominal federal tax revenue for April is up about 25% YOY.  These figures aren't seasonally adjusted, and it makes me ask: how did this happen?

Sure, there are tax increases but something's missing here.  Perhaps another ZH article.

W T F II's picture

When HAVE they been accurate....?? I'm WAITING....??.....

W T F II's picture

Since QE can't get anything going, not having a big fiscal deficit puts us right into abject Depression...!!

JohnBooke's picture

I'll bet one very important driver is the reduction in Medicare payments to providers. The cut in payments to doctors, hospitals and other medical providers is in the law and has been for a long time. The problem is that congress (Dems and Republicans in bipartisan fashion) blocks implementation of the law. Doctors have a powerful influence on our lawmakers.

CheapBastard's picture

Those are stiff headwinds for specialty clothing retailers eyeing sales growth. Factset expects first quarter same store sales for Aeropostale to be off 13%, for Abercrombie & Fitch, a 7.4% decline in same store sales is anticipated, and American Eagle Outfitters is expected to see a 6% decline in same store sales.





Some great (scary) charts in this article.

bubblemania's picture

I had lunch with my UBS money manager today - he said I'm crazy for reading ZH and the FED wont let this market collapse, no matter what. If the market implodes when they start tapering at the end of June, they will re-start the presses at maximum velocity. Either we will have:

1. An improved eceonomy that reached escape velocity

2. Over 3.5% inflation

3. or both

There are no other outcomes that will end QE and get the FED to leave the Market for the next three and a half years.  

Tyler Durden's picture

You may have missed it, but we have been saying from the very beginning, that in order to stave off a deflationary collapse, the Fed and all global central banks, will put Weimar Germany to shame, even if that means ultimately destroying all faith in fiat currencies (but not before the upper class has converted all paper wealth into offshore vaulted bullion).

We have also been saying for the past two years, that until the $3.9 trillion shadow banking deleveraging hold is filled from the market peak, that the Fed will not stop.

So, in effect, your UBS money manager agrees with what we have said all along.

The only difference is that we know the economy will never reach escape velocity as we have also made it clear that corporate spending is now purely focused on shareholder friendly activity instead of the much needed capex spending and asset replenishment, and we also know that as in every runaway inflation situation, input costs ultimately surpass earnings gains, meaning even if stocks hit infinity, inflation hits infinity +1. Always.