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Author Topic: CBO releases updated 2015 - 2025 outlook report  (Read 1010 times)
Clarko95
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« on: February 01, 2015, 02:29:29 pm »
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https://www.cbo.gov/sites/default/files/cbofiles/attachments/49892-Outlook2015.pdf

^^ Direct link to pdf report

In summary:
The CBO predicts that the economy will continue to perform decently well from now until 2017, posting about 3% growth for both 2015 and 2016, and a slightly lower growth rate in 2017. The gap in economic output that remains because of the Great Recession of 2007 - 2009 will be closed at the end of 2017. They believe that the slack in employment will also disappear by this time, as the improving economy over the 2015 - 2017 period will draw back discouraged workers.  The CBO ends specific estimates after 2017, but predicts the average GDP growth from 2018 - 2025 will average about 2.2%, slower than average but the result of a slower rate of growth in the labor force. Inflation will remain at ~2% until 2025, and interest rates on Treasury bonds will be 3.4% and 4.6% based on the type of bond.

These projects are slightly better than what was predicted in August of 2014.

Because of this, they predict that deficits will remain steady through 2018, after which they will begin to rise sharply in nominal terms through 2025 (but rise at a slower pace as a percetange of GDP), primarily based on projected costs of:

1.) Social Security
2.) government medical programs (including Medicare, Medicaid, and Obamacare provisions)
3.) rising interest rates on federal debt as interest rates normalize with the economy

These increases will come at the expense of non-defense discretionary spending (which will fall to the lowest levels since the 1940s and 1998 - 2001 as a percentage of GDP).

Federal spending as a percentage of GDP will rise from about 20% in 2015 to 22% in 2025, with tax revenues lagging behind somewhat.

Here are the budget projections:

2013 (actual)
Spend: $3.454 trillion, Tax: $2.774 trillion, Deficit: $680 billion

2014 (actual)
Spend: $3.504 trillion, Tax: $3.021 trillion, Deficit: $483 billion

2015
Spend: $3.656 trillion, Tax: $3.189 trillion, Deficit: $468 billion

2016
Spend: $3.926 trillion, Tax: $3.460 trillion, Deficit: $467 billion

2017
Spend: $4.076 trillion, Tax: $3.588 trillion, Deficit: $489 billion

2018
Spend: $4.255 trillion, Tax: $3.715 trillion, Deficit: $540 billion

2019
Spend: $$4.517 trillion, Tax: $3.865 trillion, Deficit: $652 billion

2020
Spend: $$4.765 trillion, Tax: 4.025 trillion, Deficit: $739 billion

...
2025:
Spend: $$6.117 trillion, Tax: $5.029 trillion, Deficit: $1.088 trillion

Debt Held by the Public
2014: $12.779 trillion (74.1% of GDP)
2015: $13.359 trillion
2016: $13.905 trillion
2017: $14.466 trillion
2018: $15.068 trillion
2019: $15.782 trillion
2020: $16.580 trillion (74.3%)
...
2025: $21.605 trillion (78.7%)

Debt interest payments were $229 billion in 2014, will rise to $480 billion in 2019, and $827 billion in 2025.

Between 2015 and 2025, the increase in total outlays is estimated to be $2.5 trillion, 32% of which will be from healthcare programs, 28% from Social Security, 24% from net interest, and 16% from all other programs.


----------------------------------

And that's all I'm going to summarize for now. The Obamacare stuff starts on page 121. Changes in economic projections begin on page 137, and explains how the economy could change their projections above. Trust funds (Social Security, etc.) are on page 151. Specific economic projections begin on page 159. Records of budget history on page 164.

Have fun with the rest, kids!
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Monarch
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« Reply #1 on: February 01, 2015, 10:21:48 pm »
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Debt as GDP stabilizing around 74% means we don't really have to do anything about the budget until next decade.

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Clarko95
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« Reply #2 on: February 02, 2015, 11:27:23 am »
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Debt as GDP stabilizing around 74% means we don't really have to do anything about the budget until next decade.
Idk man, $500 billion in interest payments is a lot of money that could be spent on other, more important things. And all of these projections are based off continueous economic growth, which isn't how reality works.
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Lowly Griff
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« Reply #3 on: February 02, 2015, 11:45:54 am »
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Are the figures for subsequent years shown in 2015 constant dollars or nominal dollars?
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Monarch
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« Reply #4 on: February 02, 2015, 11:55:47 am »
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Debt as GDP stabilizing around 74% means we don't really have to do anything about the budget until next decade.
Idk man, $500 billion in interest payments is a lot of money that could be spent on other, more important things. And all of these projections are based off continueous economic growth, which isn't how reality works.

We are getting something for that $500 billion: $16 trillion in debt holdings.

It's like complaining about having you pay your mortgage. We have a house. That's worth the debt payment.
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Clarko95
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« Reply #5 on: February 02, 2015, 12:17:08 pm »
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Debt as GDP stabilizing around 74% means we don't really have to do anything about the budget until next decade.
Idk man, $500 billion in interest payments is a lot of money that could be spent on other, more important things. And all of these projections are based off continueous economic growth, which isn't how reality works.

We are getting something for that $500 billion: $16 trillion in debt holdings.

It's like complaining about having you pay your mortgage. We have a house. That's worth the debt payment.

Household analogies are stupid and simplistic. If we go with that analogy, what happens if the mortgage payments keep rising when we have other bills to pay? What if we have to take a paycut (a recession will require more deficit spending)?

I don't get why people are so dismissive of budget deficits.  I'm not one of those people who thinks we'll become Greece and it's going to cause the apocalypse, but controlling deficits and debts and preparing for future downturns is not an unreasonable thing.
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Monarch
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« Reply #6 on: February 02, 2015, 12:30:38 pm »
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Debt as GDP stabilizing around 74% means we don't really have to do anything about the budget until next decade.
Idk man, $500 billion in interest payments is a lot of money that could be spent on other, more important things. And all of these projections are based off continueous economic growth, which isn't how reality works.

We are getting something for that $500 billion: $16 trillion in debt holdings.

It's like complaining about having you pay your mortgage. We have a house. That's worth the debt payment.

Household analogies are stupid and simplistic. If we go with that analogy, what happens if the mortgage payments keep rising when we have other bills to pay? What if we have to take a paycut (a recession will require more deficit spending)?

I don't get why people are so dismissive of budget deficits.  I'm not one of those people who thinks we'll become Greece and it's going to cause the apocalypse, but controlling deficits and debts and preparing for future downturns is not an unreasonable thing.

It doesn't really matter if our mortgage payment is rising by $250 billion if our income (tax revenue) is rising by $800 billion.  We don't really have any bubbles forming in any markets. The recession you are worried about before 2020 would only be a self-fulfilling prophesy recession caused by an austerity program to control the debt.

I believe in controlling debt as a % of GDP. If we're stable in that area, we are fine. 74.1% in 2014 to 74.3% in 2019 of GDP is stable. We have to make adjustment's next decade.

The interest payment doesn't really matter. In context, $500 billion isn't a lot of money.

Finally, debt only becomes a problem if we can't find a borrower. Russia actually had a budget surplus in FY2014 but it's credit rating keeps getting downgraded because it's not a stable economic power and its currency blows. The USA with all its debt has far better borrowing leverage than other nations. We could take on three times as much debt as we do now and only be on the edge of a crisis.
« Last Edit: February 02, 2015, 12:32:33 pm by Monarch »Logged



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« Reply #7 on: February 02, 2015, 12:43:44 pm »
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Debt as GDP stabilizing around 74% means we don't really have to do anything about the budget until next decade.
Idk man, $500 billion in interest payments is a lot of money that could be spent on other, more important things. And all of these projections are based off continueous economic growth, which isn't how reality works.

We are getting something for that $500 billion: $16 trillion in debt holdings.

It's like complaining about having you pay your mortgage. We have a house. That's worth the debt payment.

A house is an investment.  This is more like paying off last years vacation.
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Clarko95
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« Reply #8 on: February 02, 2015, 12:48:20 pm »
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Debt as GDP stabilizing around 74% means we don't really have to do anything about the budget until next decade.
Idk man, $500 billion in interest payments is a lot of money that could be spent on other, more important things. And all of these projections are based off continueous economic growth, which isn't how reality works.

We are getting something for that $500 billion: $16 trillion in debt holdings.

It's like complaining about having you pay your mortgage. We have a house. That's worth the debt payment.

Household analogies are stupid and simplistic. If we go with that analogy, what happens if the mortgage payments keep rising when we have other bills to pay? What if we have to take a paycut (a recession will require more deficit spending)?

I don't get why people are so dismissive of budget deficits.  I'm not one of those people who thinks we'll become Greece and it's going to cause the apocalypse, but controlling deficits and debts and preparing for future downturns is not an unreasonable thing.

It doesn't really matter if our mortgage payment is rising by $250 billion if our income (tax revenue) is rising by $800 billion.  We don't really have any bubbles forming in any markets. The recession you are worried about before 2020 would only be a self-fulfilling prophesy recession caused by an austerity program to control the debt.
Except the cost of other programs are going to increase as well, so wherever this $800 billion in revenue is coming from will be swallowed up as well, leaving us no better off.

And I'm not proposing massive austerity, but nice strawman. And since the economy has been growing since June of 2009, if it lasts until 2020, that will be the longest period of growth in our history, longer than the 1990s. Do you really believe with all the slack in productivity, employment, and wages that remains, the economy is still healthy? If the Fed hikes interest rates this summer, don't you think that might have some negative effects and potentially cause a recession considering how weak people's personal finances are when the rise in interest rates works its way through the economy to hit them? Interest rate increases have caused recessions in the past, and considering how weak personal finances still are (despite the surge in corporate profits and the stock market, which has mostly gone to the wealthiest), I wouldn't be surprised if a downturn happened. What if gas prices shoot up again?

The business cycle is a thing. Recessions are a thing. Eternal growth is not. Giving the budget some breathing room for larger deficits during downturns by reforming entitlements and controlling the growth of spending is a good idea.
 
Quote
I believe in controlling debt as a % of GDP. If we're stable in that area, we are fine. 74.1% in 2014 to 74.3% in 2019 of GDP is stable. We have to make adjustment's next decade.
So we should wait until costs are already huge to then make changes? The rise begins in 2018 and accelerates. Making changes now and saving that money over the next few years gives us more manuevering room.

Quote
The interest payment doesn't really matter. In context, $500 billion isn't a lot of money.
Actually, yeah it is.
Quote
Finally, debt only becomes a problem if we can't find a borrower. Russia actually had a budget surplus in FY2014 but it's credit rating keeps getting downgraded because it's not a stable economic power and its currency blows. The USA with all its debt has far borrowing leverage than other nations. We could take on three times as much debt as we do now and only be on the edge of a crisis.
That doesn't mean its a good thing to do so.
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Monarch
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« Reply #9 on: February 02, 2015, 12:56:27 pm »
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The economy is not healthy. That's why it will keep growing. Downturns only happen when things are going great. The business cycle is definitely a thing, but we have to peak in order to go down. The slack you speak of is a good thing for extended growth prospects because it means there is still much more growing left to occur. I would be more worried if things were in perfect order and we had a debt issue, which is what life was like in 2007.

I would be shocked if we had a recession before next decade and I'd be confused as to what caused it.

That doesn't mean its a good thing to do so.

I'm not saying we should. I'm just pointing out how astronomically far away we are from a debt crisis. There are far more important things you should be worried about with this country than the debt. National infrastructure, the cost of higher education... I could go on and on.

Create a list of 100 things to worry about with America and I would place this 101.
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Clarko95
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« Reply #10 on: February 02, 2015, 01:12:36 pm »
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The economy is not healthy. That's why it will keep growing. Downturns only happen when things are going great. The business cycle is definitely a thing, but we have to peak in order to go down.
http://en.wikipedia.org/wiki/Recession_of_1937%E2%80%9338
http://en.wikipedia.org/wiki/Early_1980s_recession_in_the_United_States

Yep, things were just going great! Peak times!

Quote
The slack you speak of is a good thing for extended growth prospects because it means there is still much more growing left to occur. I would be more worried if things were in perfect order and we had a debt issue, which is what life was like in 2007.

Slack is not good because it does not guarantee growth. There are external factors that could prevent said growth. It's also not good on a human level. Unemployment is a thing. The social affects it has is pretty terrible. Childhood poverty begets a life of poverty. Depression, anxiety, suicide, alcoholism, domestic violence, homelessness, decline in mental/physical/emotional health, trauma of losing one's homes and belongings.

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I would be shocked if we had a recession before next decade and I'd be confused as to what caused it.
I listed two of them: gas prices could rise again and cause problems. A interest rate hike could cause the economy to stall like it did in early 1995, or go into a full blown recession like 1960-1961. A combination of oil price surges, interest rate hikes, and the run of the business cycle contributed to the recession of 1990 - 1991. A Republican win in 2016 brings 4 years of austerity. Europe could blow up and drag us down. You couldn't imagine any of this?

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That doesn't mean its a good thing to do so.
I'm not saying we should. I'm just pointing out how astronomically far away we are from a debt crisis.

Again, that's true, but that money could be put to better use. For example:
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National infrastructure, the cost of higher education... I could go on and on.
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Monarch
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« Reply #11 on: February 02, 2015, 01:22:06 pm »
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1937 was ignorant Federal Reserve moves combined with really dumb austerity demands by people worried about the debt. Again, the self-fulfilling prophesy. Early 1980s was an inflation crisis and a special case. We felt like we were in a recession before we were in it, and so the Fed forced a recession to control inflation. Neither of these things are relevant to today.

You're right that the Federal Reserve hiking interest rates would cause a recession, but the Federal Reserve knows how the economy works, too, is not hiking interest rates so we should not prepare for something that isn't happening.
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« Reply #12 on: February 02, 2015, 04:49:29 pm »
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I'd be interested to see what assumptions they are making about the structure of the government's debt issuance and the interest rate when calculating interest payments. If the government only issues short term debt and interest rates are approaching zero, then in theory, they should essentially only be making coupon payments. Given the example of Japan: in 2010, its government debt to GDP ratio was 194 percent, interest rates were zero (although real interest rates were positive due to deflation), and its interest payments were about 14 percent of the non-interest budget (according to Krugman). That seems a manageable amount.

The other question is, how much of those interest payments, over time, are just payments to the central bank. If the experience of the past 2-3 years is any guide, the Fed's QE policy has not only failed to generate inflation, it has also failed to prevent a strong dollar. If the US government really wanted to return to the weak dollar policy of the 2000s, it could in theory accelerate QE and buy up even more debt. Then, the interest payments would simply be returned from the Fed to the Treasury.

Edit: I've found part of my answer:

" More significantly, CBO estimates,
the interest rate paid on 3-month Treasury bills
will rise from 0.1 percent in 2015 to 3.4 percent in 2018
and subsequent years, and the rate on 10-year Treasury
notes will increase from 2.6 percent in 2015 to 4.6 percent
in 2020 and subsequent years. " (page 85)

So they've penciled in a 2.6 percent interest rate for 10 year Treasuries in 2015, to rise to 4.6 percent by 2020. What they've forgotten about is that we're killing the women and children...
« Last Edit: February 02, 2015, 04:57:27 pm by Beet »Logged

Indy Texas
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« Reply #13 on: February 02, 2015, 06:34:13 pm »
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The economy is not healthy. That's why it will keep growing. Downturns only happen when things are going great. The business cycle is definitely a thing, but we have to peak in order to go down.
http://en.wikipedia.org/wiki/Recession_of_1937%E2%80%9338
http://en.wikipedia.org/wiki/Early_1980s_recession_in_the_United_States

1937 was due to an unnecessary tightening of fiscal policy.
1982 was due to a necessary tightening of monetary policy.
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« Reply #14 on: February 02, 2015, 10:42:09 pm »
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I trust economic projections 10 years out as much as I trust a weather forecast of a month in advance..........heaps of salt needed.
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« Reply #15 on: February 04, 2015, 07:52:24 pm »
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Our debt is manageable - sure, but I find the interest rates of interest. Weren't we paying $250 billion a year in interest rates when Obama became president? I'm not blaming him, necessarily, but $500 billion is a lot of change. You could finance a ton of things, even if you took that interest rate down to $100 billion a year.

We can all agree that debt reduction could be beneficial, purely because of the reduction of the interest rate that we'd be paying yearly - which would free up more money for projects. It's unlikely, however, that we could muster the political courage to run surpluses long enough to reduce that interest rate.

Liberals should be worried about this. Higher deficits will just quicken the public demand for reforms to entitlement programs, and the safety net, and conservatives (not Republicans, important distinction here) can capably argue that that reducing the debt and deficit is a necessity for the next Democratic or Republican White House.

In that sense, Clark95's commentary is spot on.
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« Reply #16 on: February 06, 2015, 09:59:30 pm »
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Debt as GDP stabilizing around 74% means we don't really have to do anything about the budget until next decade.

As long as you ignore intra government holdings (the gaping hole in SS/Med funding), you're right. We'll just let old people die or put people out of work in the meantime.
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« Reply #17 on: February 06, 2015, 10:02:26 pm »
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Household analogies are stupid and simplistic. If we go with that analogy, what happens if the mortgage payments keep rising when we have other bills to pay? What if we have to take a paycut (a recession will require more deficit spending)?

I don't get why people are so dismissive of budget deficits.  I'm not one of those people who thinks we'll become Greece and it's going to cause the apocalypse, but controlling deficits and debts and preparing for future downturns is not an unreasonable thing.

People dismiss the deficit hawks because deficits can be stabilized. It actually happened under Bush, but no sooner had we stabilized the deficit than the economy came crashing down due to lack of natural resource development, and very poor socioeconomic policy for lower-middle class.

Even if we stabilized the deficit now, the interest payments are such that future generations will be adversely affected.
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