CBO projects massive deficits in coming years

The Congressional Budget Office has looked into its crystal ball and sees the deficit getting much worse in a few years, rising to 106% of GDP by 2039.

The Obama administration has been celebrating a reduction in the budget deficit to $583 billion dollars for this fiscal year. I suppose that's better than trillion dollar deficits but I see no cause for triumphalism, especially when you consider the government is taking in a record amount of revenue.

But CBO says that deficit reduction won't last and that we can expect rising deficits to begin again in a few years.


In its annual analysis of the government’s long-term fiscal outlook, the nonpartisan agency said Tuesday that it expects the deficit to begin growing again in coming years, and continue growing to levels unseen since the wake of World War II.

“Deficits are projected to rise steadily and, by 2039, to push federal debt held by the public up to a percentage of GDP seen only once before in U.S. history [just after World War II],” the agency said.

Publicly held debt will reach 106 percent of GDP by 2039, according to the report, compared to the current 74 percent.

CBO attributed the growth to an aging population claiming Social Security and Medicare benefits, rising health care costs, the expansion of subsidies offered through Obamacare and interest payments on the debt projected to grow sharply as currently low interest rates return to normal levels.

The White House budget office reported last week that it expects this year’s deficit to fall to $583 billion and continue to shrink for several more years before beginning to grow again.

Falling annual deficits and a lack of fiscal deadlines have pushed budget issues to the side in Congress, at least for now.

The Federal Reserve's zero interest rate policies have helped keep the deficit down by minimizing the cost of servicing our national debt. That nearly free ride is about to end as the Fed gets out of the bond buying business. When the Fed stops buying $80 billion a month in government bonds, they are going to have to raise interest rates in order to make our bonds more attractive on the open market. An increase in interest rates to just 3% would add $240 billion a year to our debt servicing bill, nearly doubling it.

We are toast unless we can find a way to reform entitlements. Otherwise, the unsustainable spending path we are on will lead to calamity.


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