Debt Will Be Double the Size of the Economy by 2051
The CBO estimates Debt Will Be Double the Size of the Economy by 2051
CBO estimates that federal debt held by the public will reach double the size of the economy, rising from 79 percent of Gross Domestic Product (GDP) at the end of 2019 and 100 percent of GDP at the end of Fiscal Year (FY) 2020 to 202 percent of GDP by 2051. Projected debt in 2051 will be over 4.5 times the 50-year average of 44 percent of GDP and will be on track to double the previous record of 106 percent of GDP a few years later. In nominal dollars, debt will grow from $28 trillion today to over $133 trillion by 2051.
Actual debt levels could be higher than CBO projects. Under an alternative scenario that assumes lawmakers enact an additional $2 trillion of fiscal support in response to COVID-19 (similar to the American Rescue Plan), extend most expiring tax cuts, and grow annual appropriations with the economy instead of inflation, debt would total 259 percent of GDP by 2051.
Budget Deficits
Budget deficits had already risen before the pandemic from 2.4 percent of GDP ($442 billion) in 2015 to 4.6 percent of GDP ($984 billion) in 2019 and set a new record of 14.9 percent of GDP ($3.1 trillion) last year due to the crisis. CBO expects the deficit to fall to $2.3 trillion this year and hit a low of $905 billion in 2024 before resuming its upward trajectory. The deficit is projected to total 5.7 percent of GDP ($1.9 trillion) in 2031, 9.4 percent of GDP ($4.4 trillion) in 2041, and 13.3 percent of GDP ($8.8 trillion) in 2051.
Rosy Scenario
Those projections constitute rosy scenarios.
Why?
They do not factor in recessions. The prior budget projections did not factor in Covid, the Great Recession, or the DotCom bust.
The CBO does not see and has not factored the next recession into any of these scenarios.
Social Security
CBO also projects that four major trust funds will be insolvent in the next 14 years. The Highway Trust Fund would become insolvent in 2022, the Medicare Hospital Insurance trust fund would run out in 2026, and the Social Security Old Age and Survivors Insurance and Disability Insurance trust funds would run out in 2032 and 2035, respectively. The hypothetical combined Social Security trust fund would run out in 2032, at which point benefits would have to be cut by one-quarter to bring spending in line with revenue.
Spending Projections
The projected long-term growth in spending is largely driven by rising health, interest, and retirement costs. CBO expects spending in these three areas to rise from 12.3 percent of GDP this year to 24.4 percent of GDP by 2051. Interest spending will be the largest federal program by 2045.
Read that last sentence again and again until this sinks in: How the heck is the Fed ever going to hike rates again?
“Existential Threat”
We are on auto-pilot for a global currency crisis because the current path is not remotely sustainable.
But hey, rumor has it that climate change is the “existential threat” of our time, so much so that politicians seek $90 trillion solutions to the problems.
I assure you the world will still be here in 50 years even if the oceans do rise another 3 inches. But what about the value of the US dollar?
For discussion, please see Don’t Accept 100% of the Climate Change Story and You Get Labeled a Racist
Currency crisis or not, the more immediate concern should be obvious.
Mish
https://www.bloglovin.com/blogs/infomercantilinfo-20775809
Very good!
Good!
We should reverse the Trump’s tax cuts to lower the deficit.
“The projected long-term growth in spending is largely driven by rising health, interest, and retirement costs. CBO expects spending in these three areas to rise from 12.3 percent of GDP this year to 24.4 percent of GDP by 2051. Interest spending will be the largest federal program by 2045.”
“Read that last sentence again and again until this sinks in: How the heck is the Fed ever going to hike rates again?”
Just focusing on the the US govt debt of 30 so trillion, a 5% interest rate would result in 1.5 trillion in interest payments. I would expect a 40 trillion dollar debt over the next 10 years. Its a no brainer that interest spending will be the largest federal program, only a question of when.
Delaying interest rate interest rate increases is kicking the can down the road and there will be a day of reckoning, when that is, I dont know. The world is awash in debt. Theres going to be a lot of hurt one way or the other. For my two cents, it would be better to let the free market decide what interest rates should be, yes there will be a lot of hurt or we can live with death by a 1000 cuts as is likely the path forward.
Not a question of if but when world losses confidence in using dollar for international exchange. US, unlike any other nation, has unique ability to create reserve currency with a key stroke to fund its profligate spending habits. Effectively a tax on all other countries as dollar is debased. Look for emergence and acceptance of decentralized, globally accepted, digital currency to emerge for international payments. Not Bitcoin with limited issuance. Imagine the Swiss promoted and managed digital currency?
Yeah, I think it’s coming. Sovereign cryptos.
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Who do we owe all this money to ? Mostly ourselves. Net out the debt between countries and subtract the liabilities from the assets and the debt picture has another 40 years to play out. Look at Japan.
Aye indeed, mostly. And what say you to the divine families who get to skim? Are you okay with that?
Cheer up guys, in 2051 your grandchildren will be worried about money just like you were but there will be flying robots.
so apparently the way that people think is brought about by the opinions of well educated men and women of vast experience. i certainly am not one of them. i did hear something today about inflation remaining low for decades. this is apparently a problem. it occurred to me that wages have been low for that same time period. seams to me that a living wage tied to true inflation would cure the inflation problem and create a less stressful nation. most of the social net would no longer have funding problems as more people would be contributing more. i’m certain it can’t be that simple. surely we aren’t going to hell in a handbasket because of greed.
“We are on auto-pilot for a global currency crisis because the current path is not remotely sustainable.”
But the current path is inevitable. Human nature is demanding it. Parabolic arcs complete themselves. No one is going to stop the freight train.
I read the other day that Venezuela just printed a 1 million Bolivar note. Supposedly, about all it is good for is public transportation, which still uses currency.
Economic inequality is a major problem. It is just so hard to spread word that it is structural in the Fed and the rights of first money as opposed to the loopholes carved out for Industry (also bad) and definitely not the fault of Capitalism (the most popular belief). Thanks Mish for your blog. Helps me with my own arguments and stories I can tell my circles.
Scary to think that Interest payments will be the biggest Fed cost. And who those people are that are getting those payments.
Correct. Corporations are legal fictions, real people (humans) own those legal fictions. Our forefathers knew this and required a 20 year lifespan on corporations. History does not repeat, but it rhymes.
Politicians are going to spend one way or the other. That is how they get elected/reelected. Might be less debt if more taxes were collected.
You can’t have open borders and a welfare state. You have to choose one or the other or neither.
Climate change is becoming a religion in the West, simple as that
Last president who ran a budget surplus was Bill Clinton. What did Bill get right? What did we do wrong afterwards?
We haven’t had a budget surplus since Eisenhower. Clinton came close in 2000 due to a one time surge in capital gains taxes, but ran sizeable deficits every other year.
Bush decided that a surplus meant that we should reduce taxes. From their it was all downhill with Republicans cutting taxes and increasing the deficit. Democrats would increase taxes to pay for things like ACA (Obamacare). Finally Democrats got tired of having to pay for social programs when Republicans would just cut taxes. Trump cut taxes with TCJA even though it wasn’t needed (although a revenue neutral revamp of corporate tax rates would have been useful).
2 things. 1) Alan Greenspan threatened to raise interest rates. The economy was still not doing well towards the end of Bills first term. He agreed and Alan reduced rates.
That is some cliff notes from what I read.
We still need the student loan forgiveness event that Joe promised. The Government will need to pick up that tab too.
9/11
That changed everything. America went from peace to 20+ years of war and counting. Trillions have been spent in the middle east. Then don’t forget to add up the billions (possibly trillions now) spent domestically too on the TSA and all the other new / expanded programs to ‘save us’ from terrorism.
Clinton reaped the peace dividend from the fall of the Soviet Union. As usual, the POTUS got credit even though his own involvement was zero.
It was a very nice moment, when it looked like we might have a chance at some fiscal responsibility…..and then came 9-11, and we went apeshit again for very poor reasons.
Clinton didn’t get anything right, he was brought to heel by the bond market, bringing the term bond vigilante into use. The US had strong economic growth as the government cut spending (as has been a suggested consequence…), but cutting government spending certainly wasn’t the ticket he stood on.
From wikipedia “Bond Vigilante”.
From October 1993 to November 1994 US 10-year yields climbed from 5.2% to just over 8.0% fueled by concerns about federal spending in what became informally known as the “Great Bond Massacre.” With some guidance from Robert Rubin, the United States Secretary of the Treasury, the Clinton administration and Congress made an effort to reduce the deficit, and 10-year yields dropped to approximately 4% by November 1998.
These were all problems but the Republican tax cuts durig Trump’s Presidency changed and accelerated the trajectory. Totallally irresponsible. Can’t have an intelligent conversation about entitelments when reversing the tax cuts and flattening out the corportate tax rate isn’t even on the table. And by that I mean getting rid of some of the deductions. There’s simply too much corporate welfare. How about we means test corporate tax breaks. Some very profitabable businesses not paying taxes
Good grief. His tax cuts had little to effect on the deficit. The problem is out of control spending. Not a slight decrease in tax collections.
Where on the graph, did we have a big drop in tax collections under Trump?
https://www.irs.gov/statistics/soi-tax-stats-irs-data-book#:~:text=During%20Fiscal%20Year%20(FY)%202019,%24452%20billion%20in%20tax%20refunds.
Good point. Many big companies like Amazon, Google, etc. hardly pay any taxes anyway.
To be fair, I think about $3 trillion was COVID related. Without COVID the increase would have been a lot less. Probably less than $2 trillion.
“There’s simply too much corporate welfare.”
There is simply too much government spending, be it guns or butter.
Yes, a currency crisis is not out of the question. But there’s nothing to replace it. Euro? Yen? Bitcoin? Give me a break. And gold will be suppressed/heavily taxed.
If you had storage, toilet paper could make good currency.
Those are arguments that I have made and I agree with. But I assure you a currency crisis no matter where it starts will not be pretty. I actually think it starts elsewhere but it could start here. Regardless, my point stands. All this moaning about climate when social security is a far bigger and more immediate concern.
SS is easily fixed by making all income subject to the SS tax. Easy peasy.
Not that I love taxes but do consider this country was able to thrive under a much higher tax code. Of course, income distribution was considerably flatter too.
Before the reform of 1986, tax brackets were very high but folks avoided paying them through the many write-offs that existed. In essence, the tax code encouraged investment in productive ways. After 1986, government increased the amount it brought in by eliminating the write-offs, so now all that money is invested in non-productive ways through burecratic programs, and the deficit has risen ever since.
Look at history, Gold and Silver rise together with a falling $ when US budget deficits explode. Mining stocks (GDX) are at 6 month lows and are a levered bet on rising precious metal prices.
Look at history. Gold and Silver rise together with a falling $ when US budget explodes. Mining stocks (GDX) are a levered bet on rising precious metal prices.
I don’t disagree with your concern about the US budget but the world will still be here even if the dollar isn’t so you are guilty of hyperbole. It would be helpful if the Republican party actually had some kind of real, well thought out ideas. Unfortunately the Republicans have worse than nothing so even the lame idea of giving out free money makes the Democrats look smart in comparison. Competition makes things better but the two parties are a race to the bottom by different paths. Given the choice I prefer the Democrats path because I still believe in truth and facts over lying, corruption, and the idea that nothing should get in the way of making money. However I would prefer the road of economic conservatism and social liberalism. For some reason they seem to be mutually exclusive in our party system.
By far the biggest and most meaningful lie in the last election was when Biden said accusations against he and his son were Russian disinformation.
Maybe when Americans wake up to the brutal Class Warfare that the ultra rich exert upon America – as they own both levers we get to pull,-something will change.
Demopublican multi-millionaires and Republicrat multi-millionaires are very much the obscene problem America has- they don’t even deserve one lever in our elections, let alone both of them.
I rank massive weather and crop disruption, forced migration, and famine above the perceived value of pieces of paper… but neither situation is good.
Except one thing is actually happening. Where is there massive weather and crop disruption?
Did you not notice what just happened in Texas? Or was fox flooding the channel with butthurt over the dr Seuss books?
So, what happened in Texas is more important than the future of our entire economy. And what are we supposed to do to stop the weather?
What happened to Texas’ economy immediately after that weather event? It was declared a disaster area, and will be for the foreseeable future. I suppose you could call all that sweet federal money flowing in success, but should Disasters become Texas’ primary export?
And “what are we supposed to do to stop the weather?” Are you seriously that incapable of maintaining the context of our conversation? Do you need you nose rubbed in every single pile of logical fail? It’s easy points, and I feel a little guilty smacking down somebody this weak. At least this once more, smack I shall.
The C02 we make is changing the weather, and we need to make less. It will cost us more in the long run if we don’t.
This isn’t a complex or controversial idea, at least among the people that have made a career of studying and understanding that stuff. It’s an idea that the frightened, weak and greedy can’t accept though.
It means their lives will be harder, and others will benefit from that. This triggers trumpletantrums in such people.
Better to get every single scrap they can, despite the fact that they’re pretty darn comfy and could stand to slim down a bit, and let the problem build for the next generations.
That’s your thing, and I can accept that. It’s logical. Say it clearly, so people understand and stop trying to reason with you. Own your fear, weakness and greed.
Texas has recently experienced two 500 year floods, constant droughts, and now an unprecedented cold snap. Texas is very lucky they have 2 growing seasons. Energy companies going bankrupt. The Great Valley in CA nearly ran out of water. Aquifers being steadily drained. Pestilence moving north from the tropics. Don’t worry it’s going to catch up to us and most of the world. Sea level rise is the least of our worries.
I believe the biggest economic problem facing the US is and will continue to be a cultural one.
People are expecting more and more free money. The deficit is merely a symptom of that problem.
If the culture of America had remained one of personal independence and diligent savings and work we would not be where we are today.
The entitlements have done nothing to help the poor. It has merely created more of them by creating massive disincentives for marriage, and as stats show, kids raised in single parent homes almost always copy that and become another poverty stat.
Entitlements are rotting America. They need to go, but they never will. Once an entitlement becomes law it’s nearly impossible to reverse due to the election cycle. If you promise to cut an entitlement you will never get elected.
Only when collapse is imminent do things change and by then it’s too late.
I read that there has been a historic influx of illegal immigrants arriving at the borders. They probably are trying to get here for the amnesty for all illegals. That way they can then also get free or cheap health care and food stamps. We are 2 months into 2021 and there has been 482k apprehensions by the U.S. border patrol. Last year there were 640k. We are on a pace of almost 3 million. You wonder how many actually get across without being caught.
The government is going to really need to start raising taxes on all families making more than 100k a year to pay for this kind of stuff. Then they will need to double taxes on incomes over 200k.
The good thing is this will increase the population. Good for housing. Good for people owning rentals. You have to look at the trends and invest accordinlgy
It’s getting really hard to earn money. Automation and population increase are just gonna make it harder. People are looking for options.
When will the FEDs balance sheet > US GDP. Could happen before the next election.
I’m sure the occasional war also needs to be factored in. Gulf War III…or is it IV (lost count) will probably add few 10s of trillions to whatever the forecast is
One mustn’t look at the abyss, because there is at the bottom an inexpressible charm which attracts us.
Where one see’s debt others see wealth. We live in a debt based fiat monetary system (worldwide) with double entry bookkeeping. For every debt someone holds the corresponding asset. Sure would be nice to have first access to the debt created, which some families have the divine right to do. Helps explain the growing wealth inequality – and IMO, it is not going to get better until it breaks.
It is nonsensical and it is a fraud. The higher debt grows, the more economic growth slows, and the greater the level of unnecessary inequality and corruption.
End the FED. This all started in 1913. Amazing that private banks own this country and congress and very few people admit or want it to end.