Reviving The 'Real World' Scenario That's Disappeared From Government Reports

Tyler Durden's picture

Submitted by F.F.Wiley of Cyniconomics blog,

For 50 years or so the federal government has deliberately and to an increasing extent misstated probable future budget deficits. Democrats and Republicans are guilty. The White House is guilty. And so is Congress. Private firms that deliberately misrepresent their financial statements in this fashion would be guilty of a crime… The magnitude of the misrepresentation is breathtaking.

- Former St. Louis Federal Reserve Bank President William Poole, writing in the Wall Street Journal last April

In the op-ed excerpted above, William Poole harshly criticizes government budget projections, including those published by the Congressional Budget Office.

We’re guessing he was especially miffed with the annual budget outlook released by the CBO on February 5th.

Consider that Poole favored the “alternative scenario” that can sometimes be found deep within CBO reports and spreadsheets. This scenario corrects for at least a few of the absurd assumptions in the primary budget projections (the “baseline scenario”) that receive 99% of the media’s attention. Poole called the alternative scenario “the only truly honest and useful effort in town.”

Alas, the alternative scenario is no more – the CBO removed it from their annual outlook. Taxpayers can no longer find meaningful budget projections anywhere in the CBO’s work.

Let’s see if we can fill in the gap.

We’ll start with the baseline from this month’s report:

real world versus baseline chart 1

The chart shows a shrinking deficit over the next couple of years, but don’t get too excited. Apart from other issues we’ll discuss, this is explained by a long-standing prediction for a robust economic recovery, which hasn’t yet come to pass. It’s not so much a budget outlook as a hopeful forecast.

After the supposed economic boom levels off in 2018/19 (according to the assumptions), the figures no longer hide our deteriorating finances. But the deterioration is likely to be much worse than the chart suggests, as we’ll explain below.  To create a more realistic outlook, we’ll adjust the baseline scenario for four different types of deficiencies in the CBO’s approach:

Step #1: We deal with dishonest lawmakers

One of the challenges in budget forecasting is that tax and spending laws are full of provisions that are all but guaranteed to be reversed before they take effect. These dead-on-arrival provisions only exist to create the appearance of fiscal rectitude. And the deception works because the CBO is required by governing statutes to build the phony provisions into its baseline, which the media then endorses as an authoritative view of public finances.

Fortunately, though, the CBO’s new report provides data we can use to neutralize some of the lawmakers’ tricks, as explained in Table 1 below:

real world versus baseline table 1

Step #2: We get real with the economy

The good news in the CBO’s latest report is that they made a few needed changes to the underlying economic assumptions. The bad news is that they have much more to do – the economic outlook remains unrealistic.

Once again, though, we can use data in the report (Appendix E, in this case) to improve the projections. We explained our adjustments in detail in “Why Mr. Smith Has More Work To Do,” and they’re summarized in Table 2 below.

Note that we’ve accepted the CBO’s strongly optimistic outlook for the next four years, not because we like it but because it’s easier to show inconsistencies and come up with a more realistic scenario in later years (after the assumed recovery reaches historic extremes).

real world versus baseline table 2

Step #3: We put on our actuarial hats

It doesn’t take much business experience to know that budget plans are regularly thrown off track by unexpected events, and the federal budget is no different. In fact, the CBO always acknowledges the risks of such setbacks. Yet, its governing statutes don’t permit accounting for most types of unexpected events in the baseline scenario.

In any case, the CBO doesn’t provide sensitivity analysis estimating their possible effects. Here’s what we had to say about this in an earlier post:

[M]any events are deemed too unpredictable to be estimated – an excuse that defies both collective knowledge and common practice. Actuaries, accountants and financial risk managers are all trained to place numeric estimates on unforeseen risks. Insurance premiums, credit loss provisions and investment decisions are all based on these numeric estimates.

The key is that any positive number is better than nothing. We can see the problem with nothing just by noticing that the debt debate almost never gets around to the risks of recessions, financial crises, wars, natural disasters, and so on. Political leaders and pundits habitually ignore the CBO’s warnings that these events will occur from time to time, relying instead on its incomplete projections.

In the same post, we explained our approach to adjusting budget projections for unforeseen events. One of our recommendations, which accounts for the effects of automatic stabilizers and doesn’t violate the CBO’s statutes, was implemented by the CBO for the first time in this month’s report. The other adjustments are summarized in Table 3 below:

real world versus baseline table 3

Step #4: We recognize that debt owed to trust funds is, indeed, debt

The question of whether to look at gross debt (including obligations to trust funds such as the Social Security and Medicare hospital insurance funds) or net debt (excluding those obligations and other intra-governmental holdings) is a tired subject. It’s probably fair to say that net debt advocates don’t care much about debt to begin with, while those who point to gross debt do care. We offered our two cents here. Among other points, we described the paradox that fiscally profligate governments can lower net debt (but not gross debt) by merely expanding certain types of entitlement programs, even if the expansions are fiscally unsustainable. In fact, America’s current financial position shows that this is exactly what we’ve done. For this reason and others, trust fund debt should be added back to the net figures highlighted by the CBO.

Putting it all together

Note that the figures in the tables above exclude debt service costs. After breaking the baseline into components and making our adjustments, we then create new projections that include recalculation of debt service.

The Steps 1 and 3 adjustments are combined into a projection that we call “Congress does what it usually does,” while the Step 2 adjustment is blended into our “and the economy does what it usually does” projection. The Step 4 adjustment is shown in the “and trust fund debt counts” projection in the final chart.

Here are our results, for deficits first and then debt:

real world versus baseline chart 2

real world versus baseline chart 3

While the charts speak for themselves, we’ll turn again to Poole’s op-ed to sum up America’s finances:

U.S. fiscal policy is in a chaotic state. Policy decisions are wrapped around the convoluted budget accounting that Congress and the White House use to obfuscate, dissemble and hide what is really being done. That is a tragedy, and our democracy is worse for it.


(Click here for an appendix to this post containing the year-by-year added deficits for each of our adjustments, in dollars.)

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Motorhead's picture

Real world, what's that?

DoChenRollingBearing's picture

+ 1  Nice link, James_Cole.  First thing I have ever read by uber-lefty Bill Moyers that I actually liked (and mostly agree with).  Moyers might be right about DC being like Rome.

Bill Moyers is still a statist wanker though, don't get me wrong or anything...

ZerOhead's picture

You haven't been reading or better yet watching much of him then. Here's no Ron Paul to be sure but he still speaks truth to power and for that he gets 2 big furry thumbs up...

James_Cole's picture

Bill Moyers is still a statist wanker though, don't get me wrong or anything...

I get that a lot of people do not like Moyers for some reason, but seems one of the more sincere guys around to me. And actually shares a lot of the views of many people on here to a large extent.

Here he is intereviewing an uber liberal icon, but I don't see where they go wrong, seems pretty common sense:

Ident 7777 economy's picture

How is that old son-of-a-preacher (Bill) doing with his drinking problem?


Bill Moyers faces drunken driving charge
Burlington Free Press ^ | 08/03/2002 | AP 

Bill Moyers faces drunken driving charge

The Associated Press

ARLINGTON -- Journalist Bill Moyers has been charged with driving under the influence of alcohol.

"I intend to contest the charge," Moyers said in a statement Thursday.

Moyers, 68, who served as special assistant to President Johnson and publisher of the Long Island newspaper Newsday before turning to public television in the 1970s, was stopped July 27 on Vermont 7A in Bennington County.

Moyers said he had just left a friend's birthday party around 10 p.m. when he was stopped. He admitted to the arresting officer he had drunk a glass of champagne and "a small amount of wine" at the party, Moyers wrote.

Moyers swerved repeatedly across the centerline of the road and had trouble negotiating a curve, according to Trooper Travis Kline of the Vermont State Police.


A roadside breath test showed Moyers' blood-alcohol content to be 0.10 percent.

Buckaroo Banzai's picture

Interesting read. Nothing that ZHers don't already know, though. I find these "insider confessions" to be rather disingenuous. "I fed at the trough at the taxpayers expense for 28 years (28 FUCKING YEARS) until I realized something was wrong". Really? Go fuck yourself, genius.

Dick Buttkiss's picture

"We can evade reality, but we can't evade the consequences of evading reality." — Ayn Rand

Buckaroo Banzai's picture

True. But we can call the consequences RAYCISS!!!

Dick Buttkiss's picture


What am I missing here, BB?

We could call it all "predestination" and therefore dismiss any responsibility for our actions.

Jesus (irony intended).

Buckaroo Banzai's picture

I guess I forgot the /sarc tag?

Dick Buttkiss's picture

My bad, then, though I'm at a loss for your up-votes.

Perhaps my sarc-o-meter is on the fritz.

HyBrasilian's picture

Step #1: We deal with dishonest lawmakers



Step #1: We deal with 'moneychangers'

I am Jobe's picture

Deal with or Hang em and then deal with? 

HyBrasilian's picture

I'm NOT an ovenwarmer... 'DEAL WITH' them?... Meh?... I'm 100% confident that their actions will >2 them being dealt with [by their own, regrettably, unavoidable choice]...

drendebe10's picture

Round every single corrupt bastard up, sand paper their skin off, then bury em in salt. Start with the arrogant narcissistic pathological lying illegal lien kenyan muslim sociopath and its wookie then move on to the rest.

drendebe10's picture

Round every single corrupt bastard up, sand paper their skin off, then bury em in salt. Start with the arrogant narcissistic pathological lying illegal lien kenyan muslim sociopath and its wookie then move on to the rest.

BennyBoy's picture

The first chart shown is dishonest.

According to the US treasury, US debt has increased every year since 1957:


Maybe the UST data is wrong?

James_Cole's picture

The UST #s are right. The budgets don't include unofficial costs combined with the fact that any excess $ get tossed right back into the ponzi. So, real #s much worse + excess money put into debt (SS etc.) = deficit. 

NoWayJose's picture

Without gold backed money, it is just the inevitable outcome. Even today, Obama is trying to end 'austerity' by spending more now, and using spending cuts 10 years out to balance it out. Of course, the ramp up in spending is designed mainly to re-direct more money to Democrat supporters in the 2014 elections.

buzzsaw99's picture

oh right, like the bankers don't misrepresent their financial statements each and every quarter. it's called business as usual.

ebworthen's picture

"As the Tapewrom Turns"

It's a generational soap opera about how banks/corporations/insurers collude with bribed politicians from both sides to parasitize the populace.

Radical Marijuana's picture

Good summarizing sentence, ebworthen!

There is barely any practical way to "revive enough of a real world scenario" because there has never been any time in the past when the ecological and environmental realities were included into the economic measurements and forecasts. E.g., air was always a "free resource," and water mostly was too, until recently. Therefore, human accounting got away with deliberately ignoring the bigger picture that human beings actually were living inside.

The social aspects of the financial frauds, due to privatizing the public "money" supply, to be made out of nothing, as debts, was bad enough for driving runaway social polarization, with those people making the most money from frauds being able to reinvest some of that to buy up more control over the political processes, and the school systems and mass media, in vicious spiral of runaway fraudulent accounting. However, all of those triumphant social frauds are relatively trivial in the overall context of the destruction of the natural world.

We are thus inside of that DOUBLE WHAMMY, not only is the social accounting generating more and more bogus reports about what is really going on, the bigger picture regarding the environmental ecology has always been deliberately ignored by the human accounting in our civilization, and as the human accounting gets ever more fraudulent, due to the runaway triumph of those frauds reinforcing themselves, within that social system, at the same time the INSANE FRAUDULENCE OF HUMAN ACCOUNTING VIS-À-VIS THE NATURAL WORLD IS WAY WORSE!

"As the Tapeworm Turns" within the human world, whereby the human symbolic accounting becomes more fraudulent, that Tapeworm is Turning within the larger natural world even worse, in the sense that controlling human civilizations by frauds perpetrated by some human beings on other human beings also made it more possible for human beings to collectively lie to themselves more, as well as made it more impossible for human civilization to stop lying to itself. Not only does the runaway triumph of fraudulent financial accounting parasitize the populace, it also facilitates the human civilization as a whole to parasitize the planet. As long as the human accounting systems are the runaway triumphs of frauds, not only does that drive runaway social polarization, but that also makes it practically impossible to ameliorate the runaway destruction of the natural world.

THEORETICALLY, we could have an accounting system which made more scientific sense, which would enable us to integrate human systems within the larger realities of industrial and environmental systems. However, IN PRACTICE, the triumph of runaway legalized lies, backed by legalized violence, controlling the human systems, makes it politically impossible to stop the industrial and environmental systems being on the same path, of being controlled by force backed frauds, which automatically result in more insane behaviors, which are increasingly insane, by definition, since they always get further and further away from reality.

Their bullshit not only gets further and further away from the economic realities within the human world, they also get further and further away from the ecological, environmental realities. To the degree to which bogus bookkeeping becomes a Tapeworm Turning within society, so too does human civilization become a Tapeworm Turning within the world as a whole. While economic reports have become more and more fudged, the real relationships of the human economic realities compared to their environmental realities have become much more fudged.

While there were slightly more honest reports about human economic realities in the past, than there are now, there was never a time when human accounting within Neolithic styles of civilization was consistent with environmental realities, after intuitive unity with nature was deliberately suppressed by the social success of privatizing God. While the evil deliberate ignorance towards human realities has automatically been driven to become worse by the runway triumph of force backed fraudulent financial accounting within the human world, that simultaneously has enabled an already psychotically insane relationship between Neolithic Civilization and the natural environment to become way, way worse!

While progress in science and technology has made it become more THEORETICALLY possible that we could have human accounting systems which could be made consistent with natural laws, the deeper problem that human laws were based on the ability to back up lies with violence has actually driven human accounting to become even more corrupt and crazy. When one puts the effects upon society of that system to parasitize the populace into the overall context of how that even more will parasitze the planet, the overall situation becomes almost inconceivably corrupt and crazy.

The runaway privatization of the planet is killing it, while the heart of that process since the industrial revolution was the privatization of the public "money" supply, whose inherent absurdities were the reasons why public financial reports became more and more biased and unbalanced in order to conceal and work around those absurdities at the heart of all public financial reports. However, the bigger picture surrounding that is the success of some human beings enabled to get away with defrauding other human beings collectively results in all human beings defrauding themselves.

ebworthen's picture


"...the success of some human beings enabled to get away with defrauding other human beings collectively results in all human beings defrauding themselves."

Yes, a modern tragedy, and it rolls on unfettered by morality or ethics.

Ban KKiller's picture

It always starts with cooking the books. There, problem solved...long enough for me to take the money and run. 

Why yes, two plus two is five! Winston Smith accounting firm now on Wall Street.

Luckhasit's picture

A song is made about this, kinda old.

It's called Puff The Magic Dragon. 

Buckaroo Banzai's picture

Gee, I thought that song was about smoking weed. The Chiba. The dank.

trillion_dollar_deficit's picture

All one has to do is look at the nominal GDP growth estimates used in the latest CBO 10-year projection to see what kind of fantasy land these people are living in.

2014 4.7

2015 5.2

2016 5.3

2017 4.7

2018-24 4.2

Amazingly, all while QE and ZIRP end!!! 

But hey, at least years 2015-17 are now sub-6.0 (unlike the CBO report from last year).

disabledvet's picture

"black budgets."

this is a problem when dealing with a "war on terror."
financing can come in "other forms."
(currently Fannie and Fred are providing tens of billions in revenue actually.)

the CIA does exist as totally independent Agency as well.
For all we know they could have their own space program too.

Do the money center banks and Wall Street "determine" all the budgetary priorities in DC? Normally I would say "yes" but i'm not sure i can answer that because of the whole "war on terror" thing and "money printing."

a "war effort" in and of itself can provide for an independent source of revenue. (World War II basically "paid for itself" in the sense that it didn't require direct financing by Wall Street to exist.

Nor does it appear that this one does either (where is all the inflation?)...but talk about strict adherence to budgetary protocols "and a lot of luck."

the premise of this article is more than sound...somehow "they're" getting away with it.

earleflorida's picture

in the beginning? from wwii onward the black-budget has become a favorite (swimming pool of certain well connected MIC's) slush fund! today it is unquestioned because of everything being classified,... so raping the public is just an extramarital affair, and no big deal in neo-con ussa.

'Manhattan (MP) Project (hanford,wa.1943-45)'  dupont corp/ becktel,..etel

gen. stimson was pissed at the truman committee for almost blowing the lid on it's ultra security. only three people knew of it and harry wrote an open letter through the mail discussing it with a past board member (a wartime appropriations committee investigations panel judge),. there was one other time that truman and his committee almost blew the entire operation. fate?

the MP cost ~$1.45 trillion dollars or 'The Total Cost of the Manhattan (MP) Project'  (cost overruns etc.,...)

and that was in 1943-44 when they (def. dept.... Ps at the same time the pentagon was being built) started asking for serious money.

MillionDollarBoner_'s picture

Richard Nixon...classic, WB !:O)

machineh's picture

Just to add to Mr. Wiley's excellent outing, both the CBO deficit projections and his realistic adjustments are based on cash accounting.

Every one of the S&P 500 companies use accrual accounting. They're required to by GAAP, because they have long-lived assets and liabilities, as does Usgov.

But government makes it own accounting rules. As you might have guessed, accrual-basis deficits (published every December in the Financial Report of the United States) are worse than the cash deficits.

Even the Financial Report of the U.S. treats Soc Sec and Medicare as off balance sheet, since the Supreme Court has ruled that these programs aren't contractual. They can be cut back or terminated at any time, at the whim of politicians.

How's that for 'security'?

earleflorida's picture

unless obi1 pulls an FDR of reorganizing the judicial courts by 'stacking the courts' with 15 justices? stacking and packing the courts? now where have we seen that in american politics in the last 200 plus years??? could he try in his third term?!?

"Judicial Procedures Reform Bill of 1937"

shovelhead's picture

The part that kills me is that some guy with a family is making a choice between a badly needed trip to the dentist and putting food on the table, yet his taxes pay 5000 govt. economists 6 figure salarys to come up with utter bullshit.

It's a bet if he really understood this, he would also need some anger management classes as well.


Sick's picture

This reminds me of the early 2000's, when I worked for a 170 year old company.  The company started during the industrial revolution.  The company had a small niche product but was not making enough money.  The CFO commented in a meeting to the CEO "what do you want the numbers to say"  I about lost one said a word. Long story short, we folded in 2004 only 18 months after the CEO's son (an Ivy league grad & ex banker) had taken over.  Took us from little debt, decent revenues and profit to totally bankrupt.

ISEEIT's picture

I just knew those fuckers were lying!!!

Wait until the 'news' get's a hold of this shit.......

Is Dan Blather still alive?

MedicalQuack's picture

Good article and the "real world" is getting lost all over the place.  The CBO report that came out on Obamacare that says it will entice more not to work?  Did anyone replicate it?  Or do we just take their words that the CBO reports are accurate?  I chat with the National Institute of Statistical Science from time to time..they are like a check and balance and crap they get stuff that CMS puts out and won't give them the data samples to replicate..duh?  They get frustrated as that's what they are there to do...Quantitated Justifications for things that are just not true...

Like Larry Ellison said, be careful of intelligent pieces of software that's smarter than you...humans are still writing those models and yeah no accuracy questioned at all and you get sucked in.  The folks that know how to write BS studies and include a formula for show with some algebra in the image and duping everyone like crazy, government included.


Johnny Cocknballs's picture

only Nazis balance budgets.



AdvancingTime's picture

The entitlement societies that have developed over the last several decades were created on the back of the industrial revolution, technological advantages, capital accumulated from the colonial era, and the domination of global finances. Current entitlement societies were built on the assumption that those advantages would continue in both Europe and US.

All this greater prosperity and entitlements was to be sustained through debt financed consumption growth. In that eerie fantasy world, debt fueled consumption was always the catalyst to bring about ever more growth. Now reality has raised its ugly head and it is becoming apparent that this is unsustainable. The bottom line is that you cannot spend your way out of debt, the fat lady is about to sing!

LukeWorm's picture

Misrepresentation, misstated budget deficit?  Normally it's called non-GAAP, meaning "no accounting principles". Everyone does that.