CBO – “Making America More Indebted”

The comments below are an edited and abridged synopsis of an article by Lance Roberts

The CBO’s budget projections confirm what the CRFB has been warning about: The current Administration has taken a path of fiscal irresponsibility that will make an already dismal fiscal situation worse.

CBO – “Making America More Indebted” | BullionBuzzWhile the previous Administration was chastised for running trillion-dollar deficits, the Republicans have now decided that they are acceptable.

Given the flaws in the CBO’s calculations, their current projections of $1 trillion in deficits next year, and exceeding that mark every year after, will likely turn out to be optimistic. Even the CBO’s Alternative Fiscal Scenario of $2 trillion deficits over the next decade could turn out to be worse.

William Gale summed up the problem nicely:

“The conventional comparison is misleading. The projected budget deficits in the coming decade are essentially full-employment deficits. This is significant because, while budget deficits can be helpful in recessions by providing an economic stimulus, there are good reasons we should be retrenching during good economic times, including the one we are in now. In fact, CBO projects that, over the 2018 to 2028 period, actual and potential GDP will be equal.”

“In order to do an apples-to-apples comparison, we should compare our projected Federal budget deficits to full employment deficits. From 1965 to 2017, full employment deficits averaged just 2.3% of GDP, far lower than either our current deficit or the ones projected for the future.”

“The fact that debt and deficits are rising under conditions of full employment suggests a deeper underlying fiscal problem.”

The CBO’s budget projections are a reminder that the fiscal largesse lavished on the US in recent years is not a free lunch. It is only a matter of time until the bill comes due.

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