The Congressional Budget Office released a report in September 2-13 (updated in Oct) called the 2013 Long Term Budget Outlook. http://www.cbo.gov/publication/44521
Both Republicans and Democrats heavily quoted the report. Republicans were quick to reference that the report concluded that America can’t sustain the debt path we are currently on. Democrats used a very slight near term improvement to the annual Debt to GDP ratio as great evidence that President Obama and the Democrats in Congress were improving the economy and the US debt picture. As often occurs, the Democrats are stretching the truth to the breaking point. The comparison of spending to GDP, used everywhere in the report, is camouflage for what’s really happening. See a couple of the report’s GDP comparisons by clicking here. Nowhere does the report show the debt in actual dollars. The two charts below expose the truth, extrapolating from the report’s supporting data tables, and proves that fundamentally the US is on a disastrous spending path.
Chart 1 below throws the Debt to GDP ratio away and provides raw constant year 2013 dollars for both Total US National Debt and GDP. Democrats trumpet the minuscule dip of the debt (Red Curve) below the GDP (Green Curve) in the 2018 time-frame as great news. Despite the fact that it was caused by the Republican House, it’s so insignificant that you can barely see it. Unless we control the reckless federal spending tidal wave, the red curve (US real debt) will grow exponentially vs our GDP. US debt will pass $30 Trillion by 2030. At some point in the not so distant future, we’ll cross the point of no return, a cataclysmic debt “event horizon”. The responsible answer involves cutting federal spending.
Chart 2 shows two potential futures from CBO’s report. A $2T reduction across ten years reduces the debt growth to the green curve. A further reduction to $4T across ten years dramatically (purple curve) cuts the debt’s growth more, but it does not yet cut the debt. Additional reductions (beyond $400B/yr), along with pro-growth economic policies are critical to balancing, and perhaps dare I say, paying it off.
For comparison purposes, the Debt to GDP ratio was added to Chart 2 (dotted blue line). Notice that the Democrat’s touted reduction in Debt to GDP clearly happens at the same time that the Debt itself explodes.
BOTTOM LINE: Significant cuts are essential and need to happen yesterday.
NOTE: Comparisons to GDP are useful to assess one time in history to another. However, our goliath government created a new paradigm that makes the debt to GDP ratio a poor future comparison and pundit “feel good” conclusions based upon them grossly misleading. Why?
Past spending spikes were more “single year” events as opposed to spending baked into the Federal baseline as they are today:
- Huge spikes in past Annual Debt to GDP were largely due to military wartime spending, easily reduced after wars ended to return to sustainable spending. See below chart.
- Today’s spending, which drives each year’s budget deficit, is increasingly caused by sources that can’t be easily eliminated (unlike the case with wartime spending).
- Interest on the national debt. The interest avalanche grows each year, as shown here, and must be paid or the US Government defaults on its obligations. Even Progressives admit that’s a bad thing.
- Social welfare programs are the third rail of politics. Democrats use them to buy votes, and bludgeon anybody who suggests responsibly reforming them.
Interest and social welfare programs, which now include Obama Care’s massive costs, will consume the budget, pushing all else aside. That “all else” includes what our Constitution mandates the Federal Government actually do.