Gloomy CBO forecast is now Obama’s best-case scenario

August 24, 2011

After reading one bearish Wall Street economic report after another, the new Congressional Budget Office budget and economic forecast looks absolutely glowing by comparison. The CBO sees the U.S. economy growing 2.4 percent this year, 2.6 percent next — and then a brisk 3.6 percent through 2016.

By comparison, Goldman Sachs forecasts just 1.5 percent growth this year and 2.1 percent next. JPMorgan is even gloomier with a prediction of 1.5 percent this year and 1.3 percent next. If only the CBO knew something the bank didn’t. Actually, it’s just the opposite. The CBO forecast doesn’t include any of the deteriorating economic data from recent weeks, nor does it take into account the stock market’s stomach-churning volatility of late.

Yet even CBO’s dated optimism still shows the average annual unemployment rate staying above 8 percent until 2016. If the budget scorekeeper saw the world like Goldman and JPMorgan, its unemployment prediction would be more like their’s. Goldman sees the jobless rate hitting 9.25 percent in 2012, while JPMorgan thinks it will climb to 9.5 percent.

The rosy economic forecast is one reason I place little confidence in the CBO’s budget projections. The CBO now sees just $3.48 trillion in additional borrowing over the next decade, allowing the debt burden to fall to 61 percent a decade from now. Back in January, the CBO baseline forecast saw the federal government borrowing another $6.97 trillion from 2012 to 2021, pushing the country’s debt-to-GDP ratio to 76.7 percent from 69.4 percent in 2011. (Two-thirds of the difference between the two forecasts is due to the recent Budget Control Act. Keep your fingers crossed on that one.)  If CBO overestimates growth by just 0.1 percentage point a year, the debt will be $300 billion larger. A full percentage point equals $3 trillion in additional deb

In addition, CBO thinks that with a more realistic policy forecast,  annual deficits from 2012 through 2021 would average 4.3 percent of GDP instead of 1.8 percent. And with cumulative deficits of 8.5 trillion, total public debt would be 82 percent of GDP by the end of 2021. Once you add in the slower growth forecast, we might easily be talking about $10 trillion in new debt over a decade. And that would likely push the debt-to-GDP ratio to around 100 percent of total output (not counting Social Security IOUs.) There is nothing in this report to make one feel better about the economy, debt trajectory …  or President Obama’s chances for reelection.


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James, James you keep predicting Obama as being a one-termer. Well, I wouldn’t ’cause I see him stacking
his cards and playing the angles again. One little nod from Oprah and he’s in again. It doesn’t matter if he created a birth certificate or not. It doesn’t matter if the economy is tanked. Voters aren’t that bright anymore and thinking someone else is always going to pay.
Life is going to be getting worse, trust me.

Posted by limapie | Report as abusive