CBO: Public debt could reach 87 percent of GDP by 2020

July 1, 2010 - 12:00 AM

America’s long-term financial future has worsened since last year, according to the Congressional Budget Office. And the torrent of red ink from massive overspending that created a $1.3 trillion deficit for fiscal year 2010 is the real reason congressional Democrats are afraid to pass a budget this year.

As of June 1, the “Total Public Debt Outstanding” – which includes intra-government obligations such as Social Security – hit $13 trillion, or approximately 88.9 percent of GDP.

“Debt Held by the Public” is the amount of Treasury securities held by institutions outside the federal government, including foreign nations. That amount is $8.6 trillion. That debt was about 40 percent of GDP in 2008, slightly higher than the 40-year average of 36 percent. But since President Obama came to town and the Democrats took over Congress, public debt has literally exploded. And the numbers are scary as hell.

CBO’s “Extended-Baseline Scenario” shows government debt under current law rising to 84 percent by 2040 and 107 percent by 2080. But that’s the “highly optimistic” scenario, according to the Committee for a Responsible Budget,“since it assumes that all the 2001/2003 tax cuts will expire this year as scheduled, there will be no AMT patches or doc fixes, all of the savings in the health care bill will be sustained over the next two decades, and revenues will eventually exceed 30 percent of GDP.”

But if President Obama’s magic wand doesn’t work, and all these assumptions are not realized (i.e. “savings” in the health care bill), government debt will rise to 87 percent of GDP by 2020, which is just 10 years from now.

In 20 years, U.S. government debt will consume 233 percent of GDP; by 2050 16 percent of GDP will be gobbled up by interest payments alone; and by 2080, the U.S. will owe 854 percent of GDP, according to CBO’s worst-case analysis.

For comparison, last year Greece’s outstanding debt was 115 percent of GDP, which basically turned it into a country that could only get a loan from a pawn shop or a payday lender.

But that’s not all. “These projections understate the severity of the long-term budget problem because they do not incorporate the significant negative effects that accumulating substantial amounts of additional federal debt would have on the economy,” CBO reported.

This gusher of government spending has not created new jobs, which are crucial to an economic recovery. June unemployment figures showed that the U.S. economy shed 125,000 more jobs, which means that more people will be dependent on the same government spending that created this budget nightmare in the first place.

The governing class is already calling for tax increases to cover Washington’s clearly unsustainable level of spending, but a tax hike will suck even more money out of the productive sectors of the economy, reducing job creation even more and strangling any hope for a recovery. When that happens, the U.S. economy goes into a death spiral. Unlike Greece, there’s nobody to bail us out.

By not passing a budget, Democrats are hoping that voters won’t see how much they’ve been spending. Because if they did, they might understand that Congress has not only looted the store, it’s now pawning the fixtures. And they can’t blame it all on Bush.

CBO: Public debt could reach 87 percent of GDP by 2020

America’s long-term financial future has worsened since last year, according to the Congressional Budget Office.

http://www.cbo.gov/ftpdocs/108xx/doc10871/BudgetOutlook2010_Jan.cfm

The torrent of red ink from massive overspending that created a $1.3 trillion deficit for fiscal year 2010 is the real reason congressional Democrats are afraid to pass a budget this year.

As of June 1, the “Total Public Debt Outstanding” – which includes intra-government obligations such as Social Security – hit $13 trillion, or approximately 88.9 percent of GDP.

“Debt Held by the Public” is the amount of Treasury securities held by institutions outside the federal government, including foreign nations. That amount is $8.6 trillion. http://www.treasurydirect.gov/NP/BPDLogin?application=np

.

That debt was about 40 percent of GDP in 2008, slightly higher than the 40-year average of 36 percent. But since President Obama came to town and the Democrats took over Congress, public debt has literally exploded. And the numbers are scary as hell.

CBO’s “Extended-Baseline Scenario” shows government debt under current law rising to 84 percent by 2040 and 107 percent by 2080.

But that’s the “highly optimistic” scenario, according to the Committee for a Responsible Budget,

www. crfb.org/

“since it assumes that all the 2001/2003 tax cuts will expire this year as scheduled, there will be no AMT patches or doc fixes, all of the savings in the health care bill will be sustained over the next two decades, and revenues will eventually exceed 30 percent of GDP.”

But if President Obama’s magic wand doesn’t work, and all these assumptions are not realized (i.e. “savings” in the health care bill), government debt will rise to 87 percent of GDP by 2020, which is just 10 years from now.

In 20 years, U.S. government debt will consume 233 percent of GDP; by 2050 16 percent of GDP will be consumed by interest payments alone; and by 2080, the U.S. will owe 854 percent of GDP, according to CBO’s worst-case analysis.

For comparison, last year Greece’s outstanding debt was 115 percent of GDP, which basically turned it into a country that could only get a loan from a pawn shop or a payday lender.

But that’s not all. “These projections understate the severity of the long-term budget problem because they do not incorporate the significant negative effects that accumulating substantial amounts of additional federal debt would have on the economy,” CBO reported.

This gusher of spending has not created new jobs, which are crucial to an economic recovery. June unemployment figures showed that the U.S. economy shed 125,000 more jobs, which means that more people will be dependent on the same government spending that created this budget nightmare in the first place.

The governing class is already calling for tax increases to cover Washington’s clearly unsustainable level of spending, but a tax hike will suck even more money out of the productive sectors of the economy, reducing job creation even more and strangling any hope for a recovery. When that happens, the U.S. economy goes into a death spiral. Unlike Greece, there’s nobody to bail us out.

By not passing a budget, Democrats are hoping that voters won’t see how much they’ve been spending. Because if they did, they might understand that Congress has not only looted the store, it’s now pawning the fixtures.