U.S. deficit forecast masks true scope of problem

August 19, 2010

If America ran its books more like a business, the real state of its finances would be clearer. U.S. budget scorekeepers now predict a $1.34 trillion deficit for 2010, a tad less than forecast in March. Still, it’s an enormous gap. And the headline number lowballs the shortfall.

To be fair, the Congressional Budget Office does its best. The unit is the closest thing associated with Congress to an independent and impartial fiscal judge. As the debate over the costs of healthcare reform showed, the CBO’s analysis affects not only public perception of policy but also its substance.

Yet the CBO still operates under rules set by Congress. And those constraints, whether by design or chance, result in an undeservedly rosy U.S. budget picture. For instance, the CBO calculates that the federal government will run up an additional $6.2 trillion in debt by 2020, raising the U.S. debt-to-GDP ratio to about 69 percent — a high but perhaps tolerable level.

But assuming various tax breaks are extended rather than expiring — an increasingly likely-looking scenario — debt would actually balloon to $11 trillion, or 90 percent of GDP. And if discretionary government spending rises in line with nominal GDP rather than the consumer price inflation used by the CBO, that would tack on another $2 trillion of borrowing. Throw in a few other more realistic assumptions, and the debt-to-GDP ratio ends up in scary territory north of 100 percent by 2020.

Then consider that America’s numbers are reported on a cash-in, cash-out basis. They make no provision for future liabilities such as Medicare and social security. As with companies’ financial figures, it pays to read the footnotes. In a little-noticed report, the U.S. Treasury does annually put out the data needed to calculate America’s liabilities according to business accounting principles. If the government were setting aside the money today needed to fund those liabilities fully, the 2010 deficit would be more like $4.3 trillion, according to the Shadow Government Statistics website.

These are the sorts of numbers CBO budgeteers should ideally be highlighting. If they of all people can’t tell it how it is, politicians will never get real with taxing and spending.


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What most people (and all politicians) can never get their heads round is the exponential way in which, on a loan, the interest winds up, goes up and there comes a time when you re sprinting to decelerate the progress backwards.
Yesterday, Moody’s announced it was close to downgrading both the US and the UK.
There remains no better lesson in simple math than Greece.

http://nbyslog.blogspot.com/2010/08/gree k-default-spin-and-truth-collide-as.html

Posted by nbywardslog | Report as abusive

If we would look at the treasury.gov numbers instead of the CBO-announced numbers, maybe we could all be on the same page. For years, the CBO numbers have not included the off-budget costs. The true deficit numbers are found at treasury.gov. (http://www.treasurydirect.gov/NP/BPDLog in?application=np)
There, we find some potential good news? As we are headed to end the 2009/2010 fiscal year with an annual deficit of about $1.5 trillion, this will be LOWER than the $1.8 trillion annual deficit for the 2008/2009 fiscal year. The numbers I have are:

Oct 1, 2008: $10.124
Oct 1, 2009: $11.910
Aug 15, 2010: $13.356

Would this not be a big deal to have a Decrease in the annual deficit in the first full fiscal year under Obama? When he took over January 20, 2009, the debt for that fiscal year had already reached $500 billion, so that fiscal year was a combo Bush/Obama year.

Ideally, the 2008/2009 fiscal year could be the highest annual deficit ever, with decreases continuing as far as the eye can see. Ideally.

Posted by Gfulmore | Report as abusive

Why make things hard? Why not just borrow and print more money? It’s easy. We won’t have a problem till we run out of numbers.

Remember the old days when you thought a billion dollars was a lot of money. And now it’s just chump change for our Washington politicians.

By the way, does anyone know what number comes after a gazillion?

Posted by garrisongold | Report as abusive

[…] U.S. deficit forecast masks true scope of problem […]

Posted by Must Reads for August 20 | NetRight Daily | Report as abusive

Our elected representatives should stand trial for what they have done and are doing. They should be held accountable for their criminal misdeeds. Perhaps this will happen when tens of millions of citizens are living in the streets….but hopefully sooner.

Posted by actnow | Report as abusive

We could very easily solve the problem. The president, Congress, and their aides should only be paid in surplus funds. If they can’t spend our money the right way they don’t get theirs.
Also retired members of Congress will get nothing unless there’s enough surplus to pay their benefits.
Then and only then will they take the deficit seriously.

Posted by cashman57 | Report as abusive

Dealing with deficit won’t be easy, since it invariably touches our respective “sacred cows”.

Take for example defense budget, an obscenely huge number which reasonably should be looked at for its necessity (we maintain a defense budget that tops all the next 10 nation’s combined, and has the capability to annihilate the earth several rounds) . But if we raise that question, we would touch the nerves of those self-proclaiming “patriots”.

Posted by Philo33 | Report as abusive

Here is the issue with all these rosy predictions about Obama cutting the deficit and how wonderful things are going. The underlying facts have the Obama administration cutting Medicare by a half trillion dollars per year as well as other programs for the next several years to front load Obama care. When Obama care kicks in, the bottom is going to fall out of the American economy. Right now the deficit only looks bad, wait until Obama care hits, the money movement is going touch off hyper inflation not to mention the possibility of a depression if the economy has not recovered and has plenty of surplus by then. The light at the end of the tunnel is the train about to run us over.

Posted by Alpha_Blogger | Report as abusive

As I recall, the last conflict in Iraq and some other military operations were done “off the books” from a budgetary standpoint.

I wonder if that immense debt is included in the CBO’s current deficit estimates.

Posted by breezinthru | Report as abusive

I sincerely hope we Greece’s level of problems and the entitlement programs and foreign aid gets axed. The Federal government should only be providing interstate infrastructure (commerce, communication, highways, etc) and providing for national defense. Let people take care of their own retirements, or let the states run these entitlement programs at a much higher level of efficiency. I would rather see 50 competing public health care systems than the horrid one that is going to come out of the feds.

Posted by Trooth | Report as abusive

[…] this dream is evaporating for too many. When will Congress and the president put the brakes on an economic philosophy that is bringing misery to so many American workers? Hat Tip: John Rolls Eileen can be reached […]

Posted by Jobs Picture Worsens With 131,000 Losses; 9.5% Rate | Report as abusive

The problems that the Bush administration left behind, compounded by the intentional destruction of any policies to help American workers by Republicans that think that the worse they make things the more likely we are to vote for them in November.

Well the data us clear, Bush’s tax cuts created no jobs through his eight years, neither did his Dad’s policies, Clinton created millions of jobs and left with a surplus.

Vote with your brain, not your emotions, Obama is on the right track so don’t jump back into the muck that the Republicans like to wallow in.

Posted by jstaf | Report as abusive

jstaf suggests that the data has made clear that the Bush era tax cuts created no jobs during his entire administration and neither did his father’s efforts, though Clinton created millions of jobs and left a surplus. Amazing fantasy. The President is not the person who leaves deficits, it is Congress. When Clinton left office, the Republicans controlled Congress and left a surplus. The Dems. controlled Congress for the final two years of GWB’s administration, and left deficits. GWB was no poster child for being a great Republican President, and like Obama, nearly destroyed his political party through his management style. Of course, Obama has no management style because he has no management experience. People will use their brains and vote out the tax and spend Democrats and replace them with Conservative Republicans. If the Republicans screw up over the next two years, you will start seeing two new political parties representing Progressives on one side and Conservatives on the other – truly definable!

Posted by Marc1943 | Report as abusive