CBO: Federal Debt and the Risk of a Financial Crisis

[boedicca]

Even the CBO Director is now publicly stating that the debt is looking far worse.

The official CBO baseline is cooked up using very constrained, often unrealistic, assumptions under current laws. The CBO has also released an "Alternative Fiscal Scenario" which adjusts projections for things such as an increase in interest rates (the low levels now are unprecedented and unsustainable). The alternative scenario shows Debt to GDP ratios exceeding 175% within 20 years - and this doesn't address unfunded Social Security liabilities which are not included in the official debt levels.

Although deficits during or shortly after a recession generally hasten economic recovery, persistent deficits and continually mounting debt would have several negative economic consequences for the United States. Some of those consequences would arise gradually—but a high level of federal debt, combined with an unfavorable long-term budget outlook, would also increase the probability of a sudden fiscal crisis prompted by investors’ fears that the government would renege on the terms of its existing debt or that it would increase the supply of money to finance its activities or pay creditors and thereby boost inflation. The resulting abrupt rise in interest rates would create serious challenges for the U.S. government. For example, a 4-percentage-point across-the-board increase in interest rates would raise federal interest payments next year by about $100 billion; if those higher rates persisted, net interest costs in 2015 would be nearly double the roughly $460 billion that CBO currently projects for that year. Such an increase in rates could also precipitate a broader financial crisis because it would reduce the market value of outstanding government bonds, inflicting losses on mutual funds, pension funds, insurance companies, banks, and other holders of federal debt.

Director's Blog Blog Archive Federal Debt and the Risk of a Financial Crisis


Conclusion: The CBO Office declares Obamanomics to be an Epic Fail.

 

[Oddball]

 

[boedicca]

That picture is inaccurate. Obamanero would most certainly make Gibbs play the violin for him while he waltzed off to the golf course.

 

[Oddball]

Couldn't find a pic of him putting while Rome burns.

 

[boedicca]

Perhaps Daveman could photochop one for us!

 

[william the wie]

I don't think the D terror at losing the senate as well as the house this fall has been figured into the equations. They've got three months to turn this projection around and like the prospect of hanging this sort of thing does focus the mind.

 

[rdean]

Thus, the total cost will come to about $8.4 trillion for the period from 2001-2018

The CBO has been telling us about the Bush Tax Cut disaster since Republicans raped the middle class.

Extending the President's Tax Cuts and AMT Relief Would Cost $4.4 Trillion Through 2018 — Center on Budget and Policy Priorities

 

[Oddball]

Tax cuts don't "cost" anything, unless the premise is that your money belongs to gubmint to begin with.

The only thing that costs money is spending.

 

[topspin]

can we get a whambulance for the crybabies.

 

[rdean]

Tax cuts don't "cost" anything, unless the premise is that your money belongs to gubmint to begin with.

The only thing that costs money is spending.

Then who is paying for those two wars? Are they also "free"?

 

[Dont Taz Me Bro]

The Democrats in Congress failed to submit a budget for this next fiscal year purposely because they don't want the American people to know right before the elections that next year is going to have debt spending in excess of one trillion dollars just like this year. My Congressman is the chairman of the House Budget Committee and people aren't happy with him here at home.

 

[Toro]

Tax cuts don't "cost" anything, unless the premise is that your money belongs to gubmint to begin with.

The only thing that costs money is spending.

Tax cuts cost the US Treasury. Whom it belongs to is irrelevant when balancing the books of the federal government.

As for the OP, we cannot continue to run the deficits we are running forever. However, I would be able to take conservatives more seriously if they had decried the budget busting Bush tax cuts, which cost the US Treasury about $1.5 trillion, double the stimulus. But of course, to conservatives, all tax cuts are good, no matter what it does to the Federal budget.

 

[Dont Taz Me Bro]

Tax cuts cost the US Treasury. Whom it belongs to is irrelevant when balancing the books of the federal government.

As for the OP, we cannot continue to run the deficits we are running forever. However, I would be able to take conservatives more seriously if they had decried the budget busting Bush tax cuts, which cost the US Treasury about $1.5 trillion, double the stimulus. But of course, to conservatives, all tax cuts are good, no matter what it does to the Federal budget.

Federal revenue increased after the marginal tax rates were cut. That's a fact.

 

[KissMy]

Obama & his family probably has piles of Shillings back home in Kenya. He is crashing the US dollar to make them rich.

It's ok, after he crashes the USA his homeland won't look so bad so maybe he will move there.

 

[Oddball]

Tax cuts don't "cost" anything, unless the premise is that your money belongs to gubmint to begin with.

The only thing that costs money is spending.

Tax cuts cost the US Treasury. Whom it belongs to is irrelevant when balancing the books of the federal government.

As for the OP, we cannot continue to run the deficits we are running forever. However, I would be able to take conservatives more seriously if they had decried the budget busting Bush tax cuts, which cost the US Treasury about $1.5 trillion, double the stimulus. But of course, to conservatives, all tax cuts are good, no matter what it does to the Federal budget.

Nonsense.

The only way that tax cuts "cost" anything is the presumption that all of your money belongs to the U.S. Treasury in the first place.

Moreover, if you spend nothing you'll never run a deficit...Ergo, it's profligate spending that is to blame for the deficits.

 

[boedicca]

Niall Ferguson on the Debt Bomb:

What are the implications for the US today? The most obvious point is that imperial falls are associated with fiscal crises: sharp imbalances between revenues and expenditures, and the mounting cost of servicing a mountain of public debt.

Think of Spain in the 17th century: already by 1543 nearly two-thirds of ordinary revenue was going on interest on the juros, the loans by which the Habsburg monarchy financed itself.

Or think of France in the 18th century: between 1751 and 1788, the eve of Revolution, interest and amortisation payments rose from just over a quarter of tax revenue to 62 per cent.

Finally, consider Britain in the 20th century. Its real problems came after 1945, when a substantial proportion of its now immense debt burden was in foreign hands. Of the pound stg. 21 billion national debt at the end of the war, about pound stg. 3.4bn was owed to foreign creditors, equivalent to about a third of gross domestic product.

Alarm bells should therefore be ringing very loudly indeed in Washington, as the US contemplates a deficit for 2010 of more than $US1.47 trillion ($1.64 trillion), about 10 per cent of GDP, for the second year running. Since 2001, in the space of just 10 years, the federal debt in public hands has doubled as a share of GDP from 32 per cent to a projected 66 per cent next year. According to the Congressional Budget Office's latest projections, the debt could rise above 90 per cent of GDP by 2020 and reach 146 per cent by 2030 and 344 per cent by 2050.

These sums may sound fantastic. But what is even more terrifying is to consider what ongoing deficit finance could mean for the burden of interest payments as a share of federal revenues.

The CBO projects net interest payments rising from 9 per cent of revenue to 20 per cent in 2020, 36 per cent in 2030, 58 per cent in 2040 and 85 per cent in 2050. As Larry Kotlikoff recently pointed out in the Financial Times, by any meaningful measure, the fiscal position of the US is at present worse than that of Greece...


RealClearWorld - Sun Could Set Suddenly on Superpower as Debt Bites



When even the CBO is highlighting this issue, it's time to STOP THE SPENDING.

 

[Toro]

Tax cuts cost the US Treasury. Whom it belongs to is irrelevant when balancing the books of the federal government.

As for the OP, we cannot continue to run the deficits we are running forever. However, I would be able to take conservatives more seriously if they had decried the budget busting Bush tax cuts, which cost the US Treasury about $1.5 trillion, double the stimulus. But of course, to conservatives, all tax cuts are good, no matter what it does to the Federal budget.

Federal revenue increased after the marginal tax rates were cut. That's a fact.

And revenue would have been higher and the deficit lower had the tax cuts not occurred.

 

[boedicca]

No, they would have been less as economic growth would not have been as high.

 

[Toro]

No, they would have been less as economic growth would not have been as high.

Economic growth may have been slightly lower, but revenues would still have been far higher.

http://www.usmessageboard.com/economy/51527-tax-cuts-dont-pay-for-themselves-gop-economists.html
Hey Mitch McConnell, Bush Economists Said Tax Cuts Did Grow the Deficit - Business - The Atlantic

The idea that broad income tax cuts pay for themselves is discredited.

Even Arthur Laffer doesn't know if Bush's tax cuts paid for themselves, which is kind of like Jesus saying he doesn't know if God exists.

http://www.usmessageboard.com/econo...know-if-bush-tax-cuts-pay-for-themselves.html

 

[Toro]

Tax cuts don't "cost" anything, unless the premise is that your money belongs to gubmint to begin with.

The only thing that costs money is spending.

Tax cuts cost the US Treasury. Whom it belongs to is irrelevant when balancing the books of the federal government.

As for the OP, we cannot continue to run the deficits we are running forever. However, I would be able to take conservatives more seriously if they had decried the budget busting Bush tax cuts, which cost the US Treasury about $1.5 trillion, double the stimulus. But of course, to conservatives, all tax cuts are good, no matter what it does to the Federal budget.

Nonsense.

The only way that tax cuts "cost" anything is the presumption that all of your money belongs to the U.S. Treasury in the first place.

Moreover, if you spend nothing you'll never run a deficit...Ergo, it's profligate spending that is to blame for the deficits.

Yeah, yeah, yeah, I agree with you. Its not the government's money. But that's a philosophical argument, not an accounting one.

In accounting, when an entity - any entity, including the federal government - decreases revenue, then it faces increased funding requirements. That's a real-world accounting issue, not a philosophical one. If your primary concern is the federal deficit, then you should oppose any action which increases funding requirements.

The country would be on sounder fiscal footing had the Bush tax cuts not occurred. That's not debatable. At least not debatable by anyone not blinded by ideology.