The debt situation — it’s worse than you think. And that’s according to the White House’s favorite analysis firm. James Pethokoukis has the story:
One of the outside economic-analysis firms that the White House likes to quote is Macroeconomic Advisers. Here’s what the firm said yesterday about where the U.S. economy is heading (bold is mine):
Assuming current fiscal policies remain in force, our economic model suggests that interest rates will rise considerably over the next decade, with the yield on the 10-year Treasury note reaching nearly 9% by 2021.
– Private interest rates will rise as federal borrowing competes for saving that might otherwise finance private investment.
– In addition, yields could rise if there is growing risk associated with current fiscal policy. If such risk is systemic, it raises yields generally. If it reflects a growing probability of sovereign default, it raises Treasury yields relative to private yields.
– Rising rates would be a precursor to something worse: a full-fledged fiscal crisis with further sharp increases in yields, declines in stock prices, and a plummeting dollar.
This is bad. Really bad. The official budget forecasts ones typically hears about in the media are from the Congressional Budget Office. And those forecasts assume Uncle Same can borrow at low interest rates, like, forever. The super-cautious CBO baseline predicts the U.S. government will add an additional $6.8 trillion in debt over the next decade, bringing cumulative debt held by the public to $18.2 trillion. Debt as a share of the economy would be 76.7 percent. The forecast also assumes short-term interest rates average 3.3 percent, long-term 4.8 percent.
But MA thinks long rates will hit 9 percent. This would cause U.S. indebtedness to explode.
Click on the link for some scary-ass charts that’ll ruin your whole weekend.