CBO Predicts 2018 Will Mean Unsustainable Debt

The CBO predicts 2018 will end a good period in American finance, but he is assuming the economy continues to recover.

I expect the mainstream media, to the extent they cover the story, will spin the Congressional Budget Office report as a “glass half full” story. But the CBO predicts 2018 will be when the glass starts emptying. I think the Washington Times headline is accurate: “CBO report forecasts unsustainable debt in long term.”

The economy is sluggish but growing and inflation remains low, painting a decidedly mixed picture for the federal government, the Congressional Budget Office reported Tuesday, saying the fiscal situation is improving this year but will snap back by 2018 to swelling deficits and unsustainable debt.

The inflation rate is so low that Social Security beneficiaries probably won’t get a cost-of-living raise after this year, the CBO said. But tax revenue is up and spending has stayed pat, which is helping reduce the pool of red ink in the federal budget.

Combined, those numbers mean the government will run a deficit of $426 billion in fiscal year 2015, down about $60 billion from 2014 and marking the smallest deficit of President Obama’s tenure.

The good news will continue for a couple of years as the economy belatedly but fully rebounds from the recession of December 2007 to June 2009. By 2018, though, debt will rise as government spending grows and the economy will cool again, the CBO said.

“The growth in debt is not sustainable,” CBO Director Keith Hall said in presenting the estimates. “At some point, it’s going to get to a very high level. Obviously, you can’t predict tipping points, but at some point this becomes a problem.”

Several observations:

First, “the smallest deficit of President Obama’s tenure” is not really that small. Obama was just a huge spender other years.

Second, that large a deficit when “tax revenue is up and spending has stayed pat” is not encouraging. If revenue is up and spending is stable then we should have no deficit. As it stands, our debt has only grown bigger.

Third, a smaller deficit adding to a debt that will be an unsustainable load as soon as 2018 is not really good news. This is a bad picture, not a “mixed picture.” It is not “good news” by any rational interpretation of facts.

Fourth, the CBO report does not take into account what is happening to our stock prices right now, as well as in the rest of the world. Claiming, “the economy belatedly but fully rebounds” over the next couple of years sounds more like wishful thinking than a fact-based prognostication.

So it looks to me like we are in for a much worse time than the CBO is saying. But even if he is right, it is pretty obvious that our politicians are not going to do anything to stop the crisis from coming. The majority of them are looking for ways to increase spending when they need to be making massive cuts.