CBO: We’ll Be Maxed Out in Nine Years

[Valin]

P J Media:

 

Tom Blumer

9/9/12

 

It seems reasonable to believe that the Obama administration and the Congressional Budget Office may have taken advantage of the way the failed attempt by labor unions and leftists to oust Wisconsin governor Scott Walker dominated the political news cycle earlier this week. On Tuesday, the CBO released the 2012 version of its long-term federal budget outlook. Somehow, the pencil pushers and spreadsheet generators got this year’s rendition done 17 days earlier than last year’s. How convenient.

 

How bad is the outlook? As James Pethokoukis and others noted, it’s so frighteningly bad that the CBO couldn’t project its worst-case scenario on the economic impact of the national debt. According to Page 38 in the full report, “Debt would reach 250 percent of GDP (gross domestic product) by 2035 under the assumptions leading to these estimates. CBO’s model cannot reliably estimate output after debt reaches that amount, in the agency’s judgment.”

 

 

(Snip)

 

Shorter-term, the CBO report’s “Extended Alternative Fiscal Scenario” projects that the federal government will hit what many economists consider the danger-zone level of debt — namely the point at which debt held by the public (excluding intergovernmental holdings) reaches 90% of GDP — sometime during fiscal 2021, the same year as its 2011 projection. That 90% threshold is what I characterized in a column last year as when the country will become “Maxed Out America,” reaching the point where the federal government will likely either have a hard time issuing additional debt, or will have to start paying higher than risk-free rates to do so, starting a vicious cycle which will be hard to stop once started.

 

(Snip)

 

Party is over boys and girls. The fat lady is getting ready to sing. Reality is about to cut up the credit cards.