The CBO is taking a very benign and EXTREMELY optimistic view of future US GDP growth rates, which is not borne out by history or by current global economic conditions or by current global debt levels.
E.G. the recession that has just started in Europe.
E.G. China is reportedly now hitting 0% GDP growth - officially they say it is still about 6%, but the Chinese government have always overstated GDP growth.
You can see why China's GDP growth might be at or near 0%. It is the same as the European and American current growth rates.
India and Brazil are also rapidly slowing down.
Average GDP growth from 1950 to 2000 was 3.3%. These were the boom times.
And from circa 1980 onwards, GDP growth was massively fuelled by an exponential increase in the money supply.
Money supply has stopped growing since the housing bubble burst in 2007 (despite the Federal Reserve's massive attempts at more printing).
Since 2000 GDP growth has averaged just under 2%.
The CBO is assuming an average of 3.5% GDP growth from 2014 and ever after. I.E. substantially higher than any lengthy period over the last 100 years.
Even the CBO recognises that future GDP growth is substantially reduced by higher levels of debt.
And it is also generally recognized that this slow down in growth really starts to kick in when debt gets to be over 100% of GDP.
The CBO future GDP growth forecasts are pure fantasy.
As are their forecasts for future tax revenues which are highly dependent on future GDP growth rates.
The deficits are going to be very substantially higher than the CBO are currently predicting. And so is the National Debt.
The National Debt is now $16.5tn.
GDP is $15.85tn as at end of 2012.
Debt to GDP ratio is now 104% and rapidly rising.
Government spending is planned to rise from $3.6tn in 2012 to $6tn in 2023 (with or without the sequester).
The following scenario is much more likely.
http://ian56.blogspot.co.uk/2013/02/there-is-no-way-out-for-federal-reserve.html
I predict that with current policies (of BOTH parties) the US National Debt will be over $40tn by 2023.
The debt to GDP ratio will be about 250%.
That assumes the US has not already started defaulting on it's debt and the dollar has not already plunged in value.
In which case economic and fiscal conditions in the US will be FAR worse than the predictions above.
Updates 05/03
At some point in time the market WILL realise that America is NEVER going to pay off it's debts.
Interest rates will soar past 5%.
Interest payments on new borrowings will also soar (as above the Federal budget deficit is expected to be above $3tn in 2023 with current policies).
The value of the dollar will plunge and lose it's Global Reserve Currency Status.
The Chinese are already planning for that and to take over.
The Chinese think the American government is already bankrupt. (So do the Russians.)
http://ian56.blogspot.co.uk/2012/02/greek-scenario-and-us.html
The Chinese are expecting a fire sale of US assets in the not too distant future. They have already carried out rough surveys to determine America's net worth - it's natural resources, farmland and water resources.
The collapse in the value of the dollar and the rise in interest rates will cause economic carnage in the United States.
America is running trade deficits of over $500bn a year.
The price of all imports will double in a fairly short space of time, while wages are held down. There will be an even greater over supply of labor.
This realisation by the market that the American government will never repay it's debts is still some time away.
But it WILL happen if there is not a complete reversal of government policy (by BOTH parties).
This outlines what needs to happen to start to turn things around.
http://ian56.blogspot.co.uk/2013/03/the-government-is-being-incredibly.html
Update 03/23
The full implementation of Obamacare is going to have larger detrimental effects on the US economy than I first thought.
Healthcare premiums are set to rise by between 50% and 100% in 2014 and Obamacare will bring with it significantly raised inflation in just about everything else.
Total healthcare spending is set to rise by $300bn+ in 2014. That $300bn won't be available to spend on everything else.
The full implementation of Obamacare will significantly deepen the coming recession.
It is going to cost millions of American jobs over the next 2 or 3 years.
See the latest updates on this :-
http://ian56.blogspot.co.uk/2013/01/the-affordable-care-act-should-be.html
Appendices/Notes
The official CBO headline deficit charts ignore the cost of debt servicing (the cost of interest payments).
According to the CBO's own forecasts elsewhere, interest payments are expected to rise by about $750bn a year to $1tn a year in 2020 (and keep rising).
There is a lot of uncertainty over where interest rates will be in a few years.
(CBO estimates are that new government debt will be issued at 5% interest in 2020.)
The long term historical average for US 10 year government debt is between 5 and 6% (averaged over the last 200 years).
Other scenarios are more likely. I have put some of them in here.
http://ian56.blogspot.co.uk/2013/02/there-is-no-way-out-for-federal-reserve.html
Some people (and in at least parts of the CBO site) are quoting US National Debt levels of $11.5tn.
This is just financial trickery.
The National Debt is now $16.5tn.
GDP is $15.85tn as at end of 2012.
Debt to GDP ratio is now 104%.
Canada uses a similar piece of accounting trickery to the US to reduce their officially reported national debt. No other countries do and most statisticians and real economists ignore the sleight of hand by the US government to reduce the reported National Debt to $11.5tn.
(Why all the arguments over the debt ceiling if the National Debt is only $11.5tn?
It's just another piece of disinformation by the US government.)
CBO headline predictions
N.B. Note that these headline charts EXCLUDE the cost of interest payments on the rapidly rising National Debt.
The CBO itself predicts that debt servicing will increase by about $750bn a year to $1tn by 2020 and continue to rapidly increase thereafter.
(After 2020 the demographic time bomb of more retirees per worker really kicks in.)
These charts are therefore pure fantasy.
http://www.cbo.gov/sites/default/files/cbofiles/attachments/06-05-Long-Term_Budget_Outlook_2.pdf
CBO information on future government spending plans
Why the sequester is a giant con trick
Spending is planned to rise from $3.6tn in 2012 to $6tn in 2023, with or without the sequester.
http://ian56.blogspot.co.uk/2013/02/why-sequester-is-giant-con-trick.html
Update 05/19
The CBO have revised their projections with some frankly ludicrous assumptions in order to predict that the deficit is going to come down.
The CBO assessment of the deficit profile relies on every trick in the book. The assumption is that all of the variables that weigh on the deficit will be improving over the next few years. Tax collections will remain at historically high levels. Government spending will decline as the economy improves. Fannie Mae and Freddie Mac will be kicking $95Bn into the coffers. Social Security will cost less than previously thought, the same favorable result is assumed for both Medicare and Medicaid. And of course, there will be no wars or military incursions that have to be paid for. But, by far, the biggest driver of the reduced deficits will come from the robust economic recovery that they predict to occur (which are totally without foundation and frankly ludicrous).
This is the CBO forecast for top line GDP growth:
This is the CBO forecast for top line GDP growth:
Healthcare spending is set to rise by about $300bn in 2014.
Partly as a result of more people having access to free healthcare, but mostly due to the steep rise in Healthcare premiums of between 30% and 100% in 2014 (it varies a lot by State).
This additional $300bn will be almost exclusively paid for by the middle class, who will not be able to spend it on everything else.
The consumer is already tapped out as demonstrated by the decline in personal credit.
The only personal debts that are rising are Student Loans and subsidized auto loans.
Other debt, e.g. credit card debt, is going down.
The economic indicators have nosedived off a cliff since early April.
Recent data issued last week indicates that recession is not that far away - both the NY and Philly Fed data had negative prints indicating recession plus there was the major 16.5% decline in new housing starts.
Barron's economic indicators (blue line)
http://www.demeadville.com/baro.html
The job numbers are also being dramatically overstated.
The aggregate job numbers for 2013 show the Establishment (business) survey reporting a total of 480,000 more jobs than the Household survey so far this year.
http://ian56.blogspot.co.uk/2013/05/aggregated-nfp-employment-numbers-for.html
The jobs numbers reported for May are likely to be very poor (as per the NY and Philly Fed data) leading to downward revisions to GDP in 2013 and beyond.
Goldman Sachs was expecting GDP growth of 2% in Q2, when Q1 GDP was issued on 26th April, before the latest dire economic data was issued.
Goldman Sachs also dramatically over-estimated Q1 GDP at 3.2% - it came in at 2.5%.
Analysts are currently expecting company earnings growth to be +22% (annualised) for Q2, when earnings growth for the last 12 months has been +0.4% and the latest economic data indicates recession soon.
The recent rise in the value of the US Dollar will also not help foreign earnings reported in dollars or exports, if it is maintained.
Expect a large number of downgrades to analysts forecasts before Q2 earnings start being reported in July.
This will also lead to downward revisions to GDP growth forecasts for 2013.
Eventually the CBO will revise their GDP forecasts again.
They will need very substantial downward revision.
America will be very lucky to see 2% growth a year for the next 10 years (the average rate it has been since 2001).
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