Guest Post: Presenting the CBO's 'Long-Term Outlook' Infographic

Tyler Durden's picture

Submitted by Simon Black of Sovereign Man blog,

When you hear two politicians in the US going toe to toe arguing about public finances (i.e. money that isn’t theirs), they’ll often cite numbers published by the Congressional Budget Office (CBO).

In political circles, the CBO is considered an honest broker… an objective referee that simply presents the facts without taking a position on the numbers.

As such, it’s usually interesting when the CBO publishes something new about the macro situation of the world’s largest economy.

Today they’ve released an infographic showing America’s debt to GDP ratio over the last 100-years, through World War I, the Great Depression, World War II, the Nixon Gold shock, and the Global Financial Crisis. (click to enlarge)

43289 land LTBOinfographic 1 Presenting the CBOs Long Term Outlook infographic

[As a note, this graphic only shows 'federal debt held by the public' expressed as a percentage of GDP. Total federal debt, including debt owed to the Federal Reserve and intragovernmental agencies like Social Security, is much higher.]

It’s really amazing to put in context how much debt levels have risen since (a) the creation of the Federal Reserve in 1913, and (b) Richard Nixon ending dollar/gold convertibility in 1973.

I suspect that our savvy readers will not find this coincidental.

For what it’s worth, both of the CBO’s scenarios for future debt growth seem absurd;

  • in the ‘baseline’ case, they assume that the economy grows, spending falls, debt falls, and the unicorns come out to play in the sunshine.
  • in the ‘alternative fiscal scenario,’ the office assumes that current spending policies remain in place and debt skyrockets to Japan’s level.

Both of these scenarios are underpinned by an even larger assumption– that the status quo is maintained, i.e. the United States remains the world’s most powerful economic force, can print currency at will without consequence, and can inspire foreigners to buy Treasuries.

This assumption is a major stretch, to say the least.

The realistic scenario to consider is that foreigners lose confidence in the US dollar, the dollar is displaced by gold, the renminbi, SDRs, or some other reserve alternative, and the flood of dollars back to US borders creates conditions for substantial price inflation and/or a total restructuring of US debt.

This isn’t far-fetched at all.  Reserve currencies have shifted regularly throughout history,  from 15th century Florence to the Spanish Empire to the Ottoman Empire, and this generally leads to painful consequences for whichever country is on its way out.

Naturally, you’ll never see this sort of projection coming from a government office… it’ll just be some version of the status quo in perpetuity.

Rather than relying on some bureaucrat, though, history is really the best indicator for what will happen in the future. It may not repeat, but it’ll certainly rhyme. And history shows that the long-term likelihood is financial repression, severe inflation, and/or default.

The nice thing is that anyone can heed this lesson and take basic steps to reduce any nasty consequences… steps like:

  • buying precious metals and storing them abroad
  • opening a foreign bank account to safeguard against capital controls
  • purchasing foreign property and agricultural land
  • diversifying income, business, and investment opportunities overseas
  • obtaining a second citizenship

The options are almost limitless. The time left to take action is not.

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Killtruck's picture

When I see the CBO's outlook, I must admit that I think it's rather realistic as long as you raise every estimate by five orders of magnitude.

El Viejo's picture

Retirees living off Govt Debt!!!

CrashisOptimistic's picture

Item number 1.  They already do.  Soc Sec is the bulk of and often ONLY income for post 65.

Item number 2. STOP QUOTING DEBT AS % OF GDP.  This is left wing leaning.  GDP is always presumed to grow faster than population so by defining this % of GDP as the norm, you can grow spending faster than population.  THIS IS WRONG.  Government serves people, not GDP.  The correct norm is debt as a % of population, i.e. per capita debt.

Item number 3.  After the GOP caves and guts its own spending sequester PLUS also guts the principle of additional spending cuts that must be $ for $ with any new debt ceiling increase, WHAT ARE THE CREDIT RATING AGENCIES GOING TO DO?  When we maintain 1.5T of deficit projected for 2013 and beyond, when 2013 Sept 30 debt is 17.8 Trillion dollars, what are the credit rating agencies going to do?

Hohum's picture

C is O,

Moreover, govt debt/GDP ignores all other debt.  Sure, public debt is an important issue but the issue of whether debt can grow faster than GDP in perpetuity is a bigger one.

smb12321's picture

Wonderful.   I am convinced we will NEVER arrive at the time when politicians and voters say, "OK, all is going well.  Let's cut."  No, just as the massive increase in spending in 09 became the new normal, so permanent trillion dollar deficits are the new normal.

At some point we will be forced by markets to drastically slash spending and of course the problem is that the State is becoming the dominant player in the economy, supporting increasing numbers of folks.  It's the old "you're mean if you cut / doomed if you don't" scenario we've had for two decades.  Emotional blackmail continues to exert a strong influece. 

LongSoupLine's picture

Keys to survival:






Dancing with the Stars

mayhem_korner's picture



(not necessarily in that order)

Tinky's picture

I'd like to point out that, coincidentally, "a act hindsight strewn" is an anagram of "Dancing with the Stars".

LawsofPhysics's picture

Might as well put "WWIII" on the right hand side of that graph right now.

NotApplicable's picture

I swear, every single forecast omits this one crucial variable. It's almost as if they want an out, later on.

"Nobody could have predicted..." [insert causus belli du jour here]

mayhem_korner's picture

revenues minus non-interest spending


Umm...that's about as useful as household income minus non-wife spending

BlandJoe24's picture

Tyler and Bruce have hinted that the SNB may unpeg EURCHF or repeg at 1.10  - and  possibly do it soon or even very soon (this weekend?).  What do you guys see as happening to EURUSD and USDCHF is this happens?

JailBank's picture

The only way storing PMs overseas work is if you plan to never bring them back. Do you really think that the US will allow a person to walk back in to the country with a gold bar from Switzerland if there was a currency collapse? The US will confisacte all PMs they can get.

Tinky's picture

"The US will confisacte all PMs they can get."

Gee, then I guess it's a good idea to store them here.

trebuchet's picture

Article advice: 

"buying precious metals and storing them abroad; opening a foreign bank account to safeguard against capital controls; purchasing foreign property and agricultural lan; diversifying income, business, and investment opportunities overseas; obtaining a second citizenship"

Great advice!  And if any one needs help with this i can arange it:

Beautiful property in historical area - grossly undervalued! The mediterranean at your feet to the south, cheap living. you choice of language: greek spanish or italian. 

Currency risk? no problem, they all share the same one! So if you decide you dont like one place, you can move along the coast!

And if you are worried and for extra safety, store the cash in switzerland, right now they have a special deal on: guaranteed no decrease in the Euro worth of your financial assets, if you choose to diversify into swissies!!!

Lots of agricultural land, buy your own vineyeard, wine producer, cheese making i hear is the latest urban to rural "i got sick of the city so went back to the land" trend --- hell if you want in some of those lplaces, the EU pays you if you dont farm, or for whatever you do farm, so unless you are totally foolish with your hobby you could at least cover the expenses of running it. What Retirement in the US covers your hobby expenses??

And the active  investment opportunities around? LOTS and LOTS, Any business takes your fancy, I can arrange to have 0 to 20 people present you their versions they would be willing to sell at knock down prices!!! 

Second citizenship - for spain italy or Greece, no problem, we'll make sure your entry is illegal (sorry i mean) LEGAL!!!

Some new politicians around, VERY friendly Guys!! Just take them to dinner, arrange and pay for their wife or sisters, sister inlaws to have cosmetic surgery in the US and they'll return your generosity, no problem.... 

So, Whjen do you wan to move to Sunny Spain, Greece or Southern Italy?  Just drop me a line and I'll hep you diversify from any positions in the US you would want to diversify from... 





CrashisOptimistic's picture

Confiscation is absurd and non enforceable.

Taxation of all PM transactions at 60% is the far superior choice.  No more price quotes as the exchanges leave an unprofitable business.  Privately, you'll never know if your counter party is IRS.

The governments (plural) will smash any threat from PMs that easily.

pvzh's picture

In reality it translates to a "private tax", i.e., bribe, and market continue to function. Been there. During hyperinflation in former Soviet Union and former Soviet Block, it was illeagal to use and/or to price goods/serveces in USD (it depends on country and period of time). But guess what? EVERYBODY did just that, knowing that sometimes you got caught and need to "pay up".

This time Gold/Silver will play role of USD despite all kind of draconial official policies to curb "speculation" / "control inflation".

trebuchet's picture

Confiscation is HIGHLY enforcable and has been since the beginning of the state!!

That is The basis of the STATE!!! 

Your RIGHT to your property is first and foremost only in EXISTENCE because of the state and with it comes their privelege to  REMOVE that RIGHT under certain defined terms. 

The ONLY difference across states in this respect is the DEGREE to which they recognise your rights and the power of confiscation. 

Machiavelli nailed it when he said something along the lines of " if you kill a person's parents they will get over it, if you remove a person's property they will never forgive you for it "    - he drew 3 conclusions from that a state (or prince) wanting to RULE

a  RESPECT a person's rights, their family and property

b. if  a punishment is warranted, do it in a way that the citizen/subject can get over it: punish the person, the family and then the property

c. if it results in confiscation of property: beware, the grudge is never forgotten..... 

Dr. Engali's picture

What kills me is when I talk to people and they take the CBO seriously.

farmerjohn2112's picture

Now, that's some fine-ass chart porn. Pass the baby oil.

sudzee's picture

Was this the Friday humor post?

skepticCarl's picture

That CBO chart is the good news.  What's the bad news?

Buzzworthy's picture

Simon makes it sound as if obtaining second citizenship is simple.  It is not.  Not only does it take years to get through the tred tape, it is very expensive.  Also, try moving when you don't already have a job and/or a work visa.  Good luck obtaining those in an era of rising unemployment everywhere.

Roandavid's picture

It doesn't have to take years, it does take cash.

BotMightFly's picture

  Another factor missing from this CBO 2012 chart is the assumption that energy (coal & oil) price and availability remain as they are now.  Currency shocks, trade shifts, war,  political instability, shortages, military budgets form the conspicuously missing in the simplistic crystal ball PR CBO chartware.  Also, where did these projections come from?  Where are the facts and assumptions in support of the argument? Why is there but one future here? This looks more like a chart with an agenda, not yours.