Courtesy of previous Zero Hedge disclosures, namely that the CBO has been in the past both perpetually and grossly overoptimstic (their 2001 forecast of 2011 public debt was negative $2.4 trillion; instead the real number was positive $10.4 trillion, a delta of only $12.8 trillion) as well as explicitly biased by political and financial interests as exposed by whistleblowers, are two things most of our readers are well aware of. What they however may not know, is that when it comes to the most recent forecast of US public debt as released hours ago, the CBO has officially run out of charting space. As can be seen on the graphc below, sometime in 2042 the CBO will need a bigger chart to represent US public debt as per the Extended Alternative Fiscal Scenario, which the CBO itself admits " is more representative of the fiscal policies that are now (or have recently been) in effect than is the extended baseline scenario." And it is to this off-the-chart line that Keynesian lunatics want to add MORE debt? Actually why not, it is not as if the US will ever repay any of these exponentially-rising obligations.
Here is how the CBO presents the only somewhat realistic outlook:
The Extended Alternative Fiscal Scenario
The budget outlook is much bleaker under the extended alternative fiscal scenario because of the changes in law that are assumed to take place. The changes under this scenario would result in much lower revenues and higher outlays than would occur under the extended baseline scenario.
- Almost all expiring tax provisions are assumed to be extended through 2022. Specifically, for this scenario, CBO assumed that the cuts in individual income taxes enacted since 2001 and most recently extended in 2010, which are now scheduled to expire at the end of calendar year 2012, would be extended; relief from the AMT for many taxpayers, which expired at the end of 2011, would be extended; the 2012 parameters of the estate tax (adjusted for inflation) would continue to apply, preventing increases in rates and in the share of assets that is taxable; and all other expiring tax provisions (with the exception of the current reduction in the payroll tax rate for Social Security) would be extended.
- After 2022, revenues under this scenario are assumed to remain at their 2022 level of 18.5 percent of GDP, just above the average of the past 40 years.
- This scenario also incorporates assumptions that through 2022, lawmakers will act to prevent Medicare’s payment rates for physicians from declining; that after 2022, lawmakers will not allow various restraints on the growth of Medicare costs and health insurance subsidies to exert their full effect; that the automatic reductions in spending required by the Budget Control Act will not occur (although the original caps on discretionary appropriations in that law are assumed to remain in place); and that, as a percentage of GDP, federal spending for activities other than Social Security, the major health care programs, and interest payments will return to its average level during the past two decades (rather than fall significantly below that level, as it does under the extended baseline scenario).
Under those policies, federal debt would grow rapidly from its already high level, exceeding 90 percent of GDP in 2022. After that, the growing imbalance between revenues and spending, combined with spiraling interest payments, would swiftly push debt to higher and higher levels. Debt as a share of GDP would exceed its historical peak of 109 percent by 2026, and it would approach 200 percent in 2037.
Many budget analysts believe that the extended alternative fiscal scenario is more representative of the fiscal policies that are now (or have recently been) in effect than is the extended baseline scenario. The explosive path of federal debt under the alternative scenario underscores the need for large and timely policy changes to put the federal government on a sustainable fiscal course.
Luckily, even the CBO is now hedging its bets:
Catastrophic Events or Major Wars
Natural and manmade disasters occur fairly often, and even though they may have significant short-term effects on the national economy or long-term effects on certain regions or economic sectors, they rarely have a lasting impact on the national economy. However, an increased frequency of disasters or the occurrence of a catastrophic event could affect budgetary outcomes by reducing economic growth over a number of years or requiring massive additional federal spending, or both. For example, the country could experience more-frequent severe floods, hurricanes, tornadoes, and fires—as some models of climate change predict—or a single massive earthquake, a nuclear meltdown that rendered a large area of the country uninhabitable, or an asteroid strike. Other possibilities include an epidemic (whether on the scale of the 1918 pandemic flu, which killed roughly one out of every 150 people in the United States, or on the scale of the current AIDS epidemic in parts of Africa), a series of major terrorist attacks, a large war, or a number of smaller but sustained wars. Because estimates of future risk are generally based on experience and catastrophic events are extremely rare, estimating the probability of their future occurrence is very difficult.
Let's see here: "It was all World War III's fault".... wink wink.