The US Congressional Budget Office is having a bit of fun on the US population. They’re predicting that our deficits will dramatically drop in the upcoming years after a crappy year this year and then shoot back up again.
But after absorbing these headwinds, the economy will regain momentum in 2014 and fill federal coffers at a faster pace, even without further spending cuts or tax hikes, CBO said. It forecast a $616 billion deficit in fiscal 2014 and a $430 billion deficit in fiscal 2015, equivalent to 2.4 percent of U.S. gross domestic product at that time, a level that many economists view as sustainable.
Uhmm, no, there’s not a chance in heck this is going to happen. First of all, it assumes 2.4% growth in the upcoming years after this year. As explained, over and over again, inflation is eating any gains we’re making in GDP. Our fed has made it known that they won’t stop the QE until the unemployment drops below 6%, which, isn’t going to happen this year. So, even if we do attain the 2.4% growth, there will be no real gains. This will, of course, then increase projected government expenditures and decrease revenues. (income taxes are scaled to inflation). As the graph above demonstrates, we haven’t seen deficits as low as $430 billion since 2007. Obama isn’t going to cut spending beyond what he’s already obligated to do, and we may not see those cuts. The CBO notes that the tax increases will subject our economy to near zero growth this year, but then magically, it assumes all will be well next year. The rationale for that isn’t clearly stated. For those wondering, from 1992-2009 the CBO’s 2 year forecasts average being off by 1.28% points for growth rate in chained dollars. In other words, when they predict a 2.4% growth in 2014, their margin of error is more than 50% of the prediction. See table 3 in their ludicrous comparisons (pdf) to justify how crappy their forecasting is.
To read their new forecast, go here. (pdf)
I think the guys in the CBO are having a good laugh at our expense.