CBO: We’ll Be Maxed Out in Nine Years
It seems reasonable to believe that the Obama administration and the Congressional Budget Office may have taken advantage of the way the failed attempt by labor unions and leftists to oust Wisconsin governor Scott Walker dominated the political news cycle earlier this week. On Tuesday, the CBO released the 2012 version of its long-term federal budget outlook. Somehow, the pencil pushers and spreadsheet generators got this year’s rendition done 17 days earlier than last year’s. How convenient.
How bad is the outlook? As James Pethokoukis and others noted, it’s so frighteningly bad that the CBO couldn’t project its worst-case scenario on the economic impact of the national debt. According to Page 38 in the full report, ”Debt would reach 250 percent of GDP (gross domestic product) by 2035 under the assumptions leading to these estimates. CBO’s model cannot reliably estimate output after debt reaches that amount, in the agency’s judgment.”
That’s because, as the Wall Street Journal noted and quoted, “so much debt is so far outside ‘historical experience’ and the CBO’s ‘assumptions might no longer be valid.’” Expressed in layman’s terms: Such a stratospheric level of debt breaks the model, because we’d be going where no country has gone before without experiencing financial collapse.
Shorter-term, the CBO report’s “Extended Alternative Fiscal Scenario” projects that the federal government will hit what many economists consider the danger-zone level of debt — namely the point at which debt held by the public (excluding intergovernmental holdings) reaches 90% of GDP — sometime during fiscal 2021, the same year as its 2011 projection. That 90% threshold is what I characterized in a column last year as when the country will become “Maxed Out America,” reaching the point where the federal government will likely either have a hard time issuing additional debt, or will have to start paying higher than risk-free rates to do so, starting a vicious cycle which will be hard to stop once started.
I believe that the CBO is being unjustifiably overoptimistic. Even if Barack Obama is not reelected, its assumptions about how the economy will perform in the near term seem too rosy. If Obama is reelected, you can almost take it to the bank — or to whatever is left of the banking system at that point — that we’ll get maxed out by the time he leaves office.
As to the assumptions, here are a few of the more questionable ones in the near term (obtained from the agency’s Supplemental Data spreadsheet):
- GDP growth, fiscal 2015-2018 — 4.2%, 3.5%, 3.4%, and 3.3%. The best we’ve seen in the past eleven years is 3.5%, one time.
- Real wage growth for workers covered by Social Security, fiscal 2014-2016 — 4.0%, 4.3%, and 3.9%. That’s after inflation.
- At first glance, the CBO’s assumed unemployment rates look too high instead of too low. But I saw no indication that it took into account the millions of Americans who have given up looking for work under Obamanomics. Since the recession officially ended in June 2009, the over-16 civilian workforce has grown by less than 300,000, despite civilian population growth of 7.3 million.
To be clear, I’m not claiming that the assumed items just identified aren’t achievable. The right administration in Washington which on a relative basis leaves the American people alone and lets the country’s businesses do what they do best could enable this to happen. But for the CBO to assume that they will happen paints a scenario which is too bright — or, properly stated, insufficiently gloomy.
Given that all of that omits any consideration of either unfunded liabilities or the steadily swelling tide of Baby Boomer retirees, I’d say it’s time to head for the storm cellars.
Your point is well taken. However, you normally head for a storm cellar to wait while the storm passes. This catastrophe won’t pass in our lifetimes. That as a given, what options seem appropriate? Hunkered down in a storm cellar until I die of old age doesn’t seem very appealing to me. With Obama’s re-election we had better all pull together and start coming up with some realistic answers relative to our survival and do so very quickly.
Perhaps I should have said well-stocked, comfortably upholstered storm cellar.
You’re correct that the fruits of the past few decades of ruinous overspending and overcommitment by Washington will be with us for a long time. But I do think a reasonably prudent person who lives within his means and understands what’s happening to the dollar can prepare to ride out the bad years — there’ll be at least a decade’s worth and possibly two or three — in a semblance of middle-class comfort.
Just to be perfectly clear, I don’t think we’ll see massive civil unrest, social dislocation, and blood in the streets to an unprecedented (for America) degree. But I do think that those who don’t brace themselves will have it pretty damned thin for a while…and no one will be coming to help.
Unfortunately, you didn’t bring up one horrific point. What if Obamacare DOES survive in the Supreme Court? What would that do to our national debt and to our economy? By the CBO’s own estimates, Obamacare will cost almost $2 trillion, twice what it was budgeted for. And you just know the costs will only skyrocket from there. This is $2 trillion we most certainly do not have and when the costs for this spiral out of control, we will end up spending almost the entire national budget just paying for health care. This is the worst and most expensive entitlement ever forced onto this nation and it will bankrupt us.
I hope the Supreme Court takes this all into consideration when they hand down a final ruling on Obamacare. Who knew that the future of this nation is now in the hands of nine people. Somehow, that doesn’t sound right to me.
“What would (ObamaCare) do to our national debt and to our economy?”
Well, it would wipe out the $40 trillion in “unfunded liabilities” associated with Medicare and it would probably abolish most of the $10 trillion in “unfunded liabilities” for Social Security (recognizing that many estimates put the combined total for the two well over $100 trillion instead of the “official” $50 trillion). I have high confidence that it would drive health care spending down, not because of improvements but because of strict rationing of services. The politically unpopular (smokers, the obese, drinkers of sugary drinks) and those with chronic illnesses will be the first stricken from the “treat me” rolls; next will come the aged and infirm; and, finally, anybody not politically connected to the power structure. If you’re of no service to the State then you’ll get no services from the State.
In theory, it’s a great cost reducer that will drastically improve the economy. In practice, it will be a top-driven State-controlled micro-management tool that will destroy the country. Just call us “Northern Cuba”. It’s not the potential cost, it’s the resulting tyranny that’s the problem.
If you’re of no service to the State then you’ll get no services from the State….so why is that unethical?
Well put, Mr. Blumer. But I wonder if you would believe me how many times I’ve been ridiculed for warning people about the very same.
Even if Romney gets elected (which I believe he will, and by a good margin), the best that I can see us doing is just trying to manage the approaching train wreck.
And even if Obamacare is struck down and fully repealed, it will still need to be replaced with reforms that are market based. And even if Romney manages to put Americans back to work, without meaningful reforms to entitlements, Obama’s regulations and basic government structure, we are just buying a few more years before it hits us.
Sadly, Romney picked the wrong time to want to be president. If he drops the ball on this one or squanders the precious few opportinities we still have… there is not a thing that he will be able to do to save his family name from infamy. Not a thing.
Pass the word, November, 2012.
Romney has a good shot at helping the economy recover.
To begin with just getting re-elected will pry billions of hidden biz/offshore money out of the cellars and from under the palm trees if tax problems are resolved which Romney will surely do given a favorable congress.That alone will be a huge stimulus. Next energy unleashed will help enormously as well. Not to mention all the other things he has at his disposal to rectify. Mostly every EO ozero/Kardashian has issued just for starters.
The ultimate solution is for the Fed to buy all of the debt. It is now the largest holder of US debt taking over China last year. And then writing off the debt as a bad investment. The cool thing about the Fed it can buy all of the debt with a few key strokes on a computer, their cost is exactly zero.
Even in the years of Clinton’s so called surpluses, the US debt rose, mainly because so many items are off the books or counted twice. Congress does things a US corporation would find its executives in jail over.
Maybe the book Debt Virus ( http://www.amazon.com/Debt-Virus-Compelling-Solution-Problems/dp/0944435130/ref=sr_1_1?s=books&ie=UTF8&qid=1339255271&sr=1-1&keywords=debt+virus )has it right, eliminate taxes and just print the money you need to fund government.
Just in case you are serious…what your solution would cause is:
1. the value of the US dollar would inflate to cover government expenditures
2. the tissue barriers we now have to limit gov spending increases would disappear.
3. our economic system would be directly opposite the rest of the world’s, so they would quickly follow, and inflation would become explosive overnight for that reason alone, in addition to the many other reasons.
4. the economies of the world would therefore collapse
5. civil unrest would become rampant
6. political leaders would react to save their asses by starting wars.
7. the wars would quickly escalate into nuclear ones.
8. earth would be destroyed.
Other than that, it’s a great idea.
Points 1 – 5 are why Soros picked Obama in the first place. None of what he has done is because of imcompetence or stupidity (although he does have more than a fair share of both). Rather, he was hired to wreck the global economy so the oh-so-smart oligarchs, (Gates, Buffet, Soros, etc) can ride to the rescue with a global currency and of course global control.
Like Ann Barnhardt says, “long guns and ammo”.
Whether ‘ObamaCare’ is a disaster or not, the real disaster is the destruction of the private, free economies ability to generate wealth and jobs.
Restore productivity, we can pay for a lot. Without it, it doesn’t matter how frugal we are. No income, no savings.
Our president doesn’t seem overly concerned about the federal debt situation.
As he explained this week, he is the most fiscally conservative post WWII president. Why, since his predecessor imposed 1 trillion in new annual spending on the country, mostly by siezing on that minor 9/11 incident as an excuse to kill brown people in the Middle East, and of course, by letting Wall Street loan money for houses to people who can’t even buy cars, mr. obama has held the fiscal line like a wolverine protecting it’s young, refusing to even double the automatic 7 to 9% spending increases to maintain hard-scrabble basic gubamint services.
We’re in good hands.
You are quite right, big spender Bush, and his wars, managed to add 4 trillion to our debt in 7 yrs. Obama was quite right when he publically called that miserable record treasonous. By contrast, Obama managed to add 5 trillion in only 3.5 yrs. So basically Obama is over twice as bad as Bush. Of course that means he is a fiscal conservative and the savior of our country, not.
I wish I could be as optimistic as you, Mr. Blumer “we’ll get maxed out by the time he leaves office”. My take is that we’ve been stoking on fumes for a long time. I think we’re heavily into the spiral of complete irrationality intertwined with a collapsing fiscal system. Look around you at the control-freaks’ edicts. A decade or 2 ago, cash for clunker-(cars, education, houses, zombie banks); bodily ownership / government medicine at large; drink / salt / TFat / plastic bag / Edison bulb / poop-capable flush toilet…bans; and 60K pages of other unknowable clamps around our throats would have seemed a tad unlikely. Hapless boobs run the country and are 10 thousand layers thick.
This is an excellent article about our problems:
http://www.newcriterion.com/articles.cfm/Future-tense–X–The-fourth-revolution-7395
An excerpt:
In addition to such debt and credit issues, the finances of federal entitlement programs are similarly approaching a point of crisis and insolvency. The most expensive entitlement programs are for old age pensions (Social Security) and health care (Medicare). Currently the U.S. government spends about $725 billion annually on Social Security and $650 billion on Medicare, or about $1.4 trillion on the two program combined, or more than one-third of total federal expenditures. There are now about 45 million people eligible for Medicare and 44 million for Social Security. These numbers are about to explode due to the impending retirement of the “baby boom” generation, or those born between the years 1946 and 1963. There are currently between 75 and 80 million baby boomers, the leading edge of which reached age 65 in 2011. By the year 2025, there will be close to 80 million Americans, and perhaps several million more, who will be eligible to receive benefits under Social Security and Medicare.
There are now about 125 million people working on a full-time basis in the United States, a number that is expected to grow far more slowly each year than the number of new retirees. In a dozen years or so, we may have as many as 80 million people collecting old age benefits against a working population of 130 or 135 million…
While I agree in essence, I do have one small nit to pick. Social Security and Medicare are, strictly speaking, not entitlements as they have been (supposedly) paid for by workers through payroll deductions.
Those monies, however, have been used by the gov’t (both parties) to artificially lower the deficit since both showed surpluses up until now.
Don’t know much about Medicare, but SS IS an entitlement, and always has been, since you never pay for your own – the monies the fed extract from your income get paid out to some retired graybeard, not socked away until you retire yourself. Ida May Fuller, the first recipient of ongoing SS benefits, paid a grand total of $24.75 “into the system” for a mere three years, and was paid a princely $22,888.92 during her golden years. If that ain’t an entitlement, you may as well vote for Nader.
… and just who was that guy asking for the $400 billion in additional stimulus ?
Well, they keep telling us that The Singularity is coming, but I don’t think this is what they had in mind.
Because we’re maxed out now, it stands to reason that we will remain maxed out in nine years.
Comatose, but maxed out.
WHAT IF WASHINGTON WANTED TO EAT ALL OF THE RICH HERE IN AMERICA?
http://www.youtube.com/watch?v=661pi6K-8WQ
According to the US Treasury web site, “Treasury Debt to the penny” this is what was borrowed in the past 6 years to cover deficit spending:
Year Ending_____________ $ Annual deficit
December 31, 2007_________ 548.9 Billion
December 31, 2008_______ 1,470.6 Trillion
December 31, 2009________ 1,611.5 Trillion
December 31, 2010________ 1,713.8 Trillion
December 30, 2011________ 1,197.7 Trillion
Jan to May, 2012 ______ _____547.7 Billion
Deficit total: 2007 to present____$7.090 ‘Trillion
That’s a lot of cash. Where did it go?
Winston, that is a good question.
Where did all the money go? Pensions, propping up the value of the stock market, paying for the Social Security deficit. In short keeping millions of people on the economic margins of society and the economy living at a standard of living that is politically acceptable.
When the bubble pops eventually (really?), an awful lot of people that live paycheck to paycheck, or SS payment to SS payment, or survive on the Entitlements subsidized by that deficity spending (and that includes the military and military pensioners, regardless of how much they might have done to actually earn this), there will be an economic and political calamity. Most of us will probably live to see it.
The spending and the debt are a feature, not a bug, of the political Left. The weezing collapse of the welfare state will usher in a new tyranny of Leftist fascist – statism. And people will vote for it. Don’t forget that the many of the tyrannies of the Greek city states were actually brought on by popular acclaim.
Look at our present leadership, Speaker Bonehead and Minority Leader McMumbles. Do any of these inspire confidence, even with a President Romney? They certainly don’t inspire me. They’re the typical CYA establishment Republicans and the funding of bad ideas never stops. It doesn’t matter if its funding for wars, cell phones, IMF, PBS, Nat’l Endowment for the Arts, or healthcare. There is no prioritization of needs and absolutely no rush to cut anything. So we all go down the tubes together. I don’t see them getting up off the debt roller coaster in time. And don’t buy the 8 years thing. Listen to Paul Ryan, we got 2 years max. Then the collapse comes. Get ready.
http://www.theblaze.com/stories/koran-burning-pastor-hangs-obama-in-effigy-in-churchs-front-yard/
Koran-Burning Pastor Hangs Obama in Effigy in Church’s Front Yard
Oh, look. The attention-seeking dumbass is seeking attention.
Okay, I will criticize that. We’re supposed to pray for those in authority, not hang effigies of them.
and if one were to listen to Glen Beck, his projections of unfunded liabilities is much higher, and so the damage would be much greater.
We need to reverse the legislation passed by our wonderful leaders for let’s say…… the last ten years. Additionally we need to pass a law that makes it illegal for them to pass laws. They legislate to pander not to improve or streamline. Stop passing laws catering to special intrest you D.C. Arsebags. We can’t stand anymore!!!!!!!