DoubleLine’s Post

July 12, 2024 Unsustainable Last month the Congressional Budget Office revised (upwards) its estimate of the budget deficit for the current fiscal year to $1.9 trillion. The deficits thereafter climb steadily to $2.9 trillion by 2034. To put that in perspective, the 2034 deficit reaches 6.9% of GDP which is nearly double the 3.0% average deficit since 1960. To finance a deficit the Treasury must issue an equal amount of debt to pay its bills. As a result, debt outstanding as a percent of GDP climbs from 99% in the current fiscal year to 122% in 2034. As debt swells the interest paid on that debt will climb to 4.1% of GDP by 2034 which far surpasses the previous record of 3.2%. With no end in sight to gigantic deficits, that interest obligation will continue to climb and could reach 6.7% of GDP by 2053. This is not a sustainable situation. This year for the first time interest on the debt is bigger than the defense budget. Next year it will surpass Medicare. But nobody seems to care. Neither of the two candidates running for president ever mention the budget. They talk about inflation, immigration, the wars in Ukraine and Israel/Gaza, Russia, and China. The looming deficits are not on their radar. Meanwhile, the Social Security and Medicare Trust Funds are dwindling and will need help from the new administration to address those two thorny issues on top of all the other pressing problems. The odds of anything significant happening on the deficit front any time soon is virtually nil. By the way, does anybody even remember how to write $1 trillion? In case you forgot it is: $1,000,000,000,000. That is a lot of money! To read the entire article go to: https://lnkd.in/eCr6e-da

This week, the Congressional Budget Office (CBO) released its Update to the Budget and Economic Outlook, projecting that the national debt is expected to exceed its record high in just 3 years, with deficits remaining high over the next 10 years. Read more takeaways at https://lnkd.in/ecdgB7rQ

U.S. Budget Deficit Set to Surpass $1 Trillion Annually for the Next Decade "Economists have proven there is no such thing as a free lunch, but politicians get elected promising free lunches" - Thomas Sowell --------------------- -The last U.S. federal budget surplus was in 2001, with federal debt at $3.3 trillion, 33% of GDP, and the government was on track to eliminate the debt by the end of the decade - Over the next 20 years, tax cuts, spending increases, wars, and an ageing population reversed this trend - The U.S. Federal debt held by the public now exceeds $28 trillion, 99% of GDP, and the 2024 budget deficit is projected to reach nearly $2 trillion (7% of GDP) - By 2035, the U.S. Congressional Budget Office (CBO) projects public debt to surpass $50 trillion, with total debt reaching 122% of GDP - Interest payments on federal debt have risen from an average of 2.1% of GDP over the past 50 years to 3.1% this year and could reach $1.7 trillion (4.1% of GDP) by 2034 CBO estimates are based on current law, but extending 2017 tax cuts would worsen deficit and debt projections. - Defence spending, which averaged 4.2% of GDP over the last 50 years, is projected to shrink to 2.8% by 2034, making it harder to afford national security due to rising interest payments - Social Security reserves are expected to run out by 2033, and Medicare’s reserves by 2036 #US #Deficit #Budget #Medicare #CBO Chart: Apollo

The deficit dips, but the road ahead remains uncertain. The latest CBO report sheds light on a $188 billion drop in the budget shortfall, yet long-term challenges persist. Dive into the details and explore the implications for the economy. 📊🔍 #CBOReport #EconomicFuture

The analysis in this report from Office for Budget Responsibility shows that, based on policy settings in March 2024, these and other pressures would eventually put the UK public finances on an unsustainable path. Over the next 50 years, public spending is projected to rise from 45 to over 60 per cent of GDP, while revenues remain at around 40 per cent of GDP (Chart below). As a result, debt would rise rapidly from the late 2030s to 274 per cent of GDP in our baseline projection. Long-term projections such as these are inherently highly uncertain, but there is a similar upward debt trajectory in nearly all the alternative scenarios that we consider. Indeed, debt is projected to rise further to over 300 per cent of GDP, when further shocks and pressures are taken into account. In practice, if these pressures and shocks were to materialise as we project, then governments would need to take mitigating policy action to prevent this debt spiral from occurring. On our baseline projection, to return debt to its pre-pandemic levels would require an average fiscal tightening of 1.5 per cent of GDP per decade over the next 50 years. This rise in debt and need for fiscal adjustment could be partly alleviated through timely action to tackle growing pressures and also by improvements in underlying economic conditions. As explored in the chapters of this report, over the next 50 years: • limiting the rise in global temperatures to less than 2°C rather than 3°C could alleviate around 10 percentage points of upward pressure on the debt-to-GDP ratio; • improving the health of the population could reduce the rise in debt by a further 40 per cent of GDP; and • boosting the productive potential of the economy, if it does not simply result in higher public spending, could make the biggest difference of all, with every 0.1 per cent increase in productivity growth reducing the rise in the debt-to-GDP ratio by 25 percentage points. A full one percentage point increase, equivalent to a return to pre-financial crisis rates of productivity growth, could keep debt below 100 per cent of GDP throughout the next 50 years. Richard Hughes, David Miles, Tom Josephs The Budget Responsibility Committee

The deficit dips, but the road ahead remains uncertain. The latest CBO report sheds light on a $188 billion drop in the budget shortfall, yet long-term challenges persist. Dive into the details and explore the implications for the economy. 📊🔍 #CBOReport #EconomicFuture

The American government’s big pile of IOUs is about to get even bigger. That was the conclusion of the latest report from the Congressional Budget Office, which forecast this week that the US is on track to add $19 trillion to its national debt by 2034, with payments on that debt totalling some $12 trillion as higher interest rates increase the burden of the nation’s borrowing. Serious interest In the latest fiscal year, which ran to the end of September, the federal government raked in more than $4.4 trillion in receipts from individual taxpayers, with nearly half of that sum stemming from individual income taxes ($2.18 trillion). But, as many of us can surely relate to, the government's spending appetite consistently outpaces its income, resulting in a deficit of $1.7 trillion. The magnitude of the national debt, currently ~$34 trillion in total, means that the government is shelling out nearly $2 billion a day on interest payments (~3% of GDP) just to service the debt. Were the government to somehow magically wipe out its debt — leaving it with no interest to pay — it would have saved a whopping ~$660 billion last year, though that still wouldn't be enough to get the overall federal budget back into the black. The CBO forecasts have sparked a national conversation about the right level of federal spending, raising questions that beg political answers, rather than definitive economic ones.

The American government’s big pile of IOUs is about to get even bigger. That was the conclusion of the latest report from the Congressional Budget Office, which forecast this week that the US is on track to add $19 trillion to its national debt by 2034, with payments on that debt totaling some $12 trillion as higher interest rates increase the burden of the nation’s borrowing.

-The Congressional Budget Office warned in its latest projections that US federal government debt is on a path from 97% of GDP last year to 116% by 2034 — higher even than in World War II. The actual outlook is likely worse. -From tax revenue to defense spending and interest rates, the CBO forecasts released earlier this year are underpinned by rosy assumptions. -Plug in the market’s current view on interest rates, and the debt-to-GDP ratio rises to 123% in 2034. Then assume — as most in Washington do — that ex-President Donald Trump’s tax cuts mainly stay in place, and the burden gets even higher. -With uncertainty about so many of the variables, Bloomberg Economics has run a million simulations to assess the fragility of the debt outlook. -In 88% of the simulations, the results show the debt-to-GDP ratio is on an unsustainable path — defined as an increase over the next decade. -The Biden administration says its budget, featuring a slew of tax hikes on corporations and wealthy Americans, will ensure fiscal sustainability and manageable debt-servicing costs.

𝗖𝗕𝗢’𝘀 𝗥𝗼𝘀𝘆 𝗦𝗰𝗲𝗻𝗮𝗿𝗶𝗼 Last week the Congressional Budget Office set out new projections for budget deficits and debt in the decade ahead, and they weren’t quite as bad as they looked last year.  The CBO now projects a deficit of 6.4% of GDP in 2033 versus a prior forecast of 7.3%.  Total accumulated debt by 2033 is now forecasted to be 114% of GDP versus 119%.  None of this is “good” news – deficits and debt would still be too high – but it is “less bad.” The problem is that the CBO’s assumptions are way too rosy.  In particular, it assumes the end of many of the tax cuts enacted in 2017 without any negative effects on the economy.  Fat chance!  More likely, growth would slow and revenue would come in low, meaning bigger budget deficits. But it will also be tough to hit the CBO’s revenue projections if we keep the 2017 tax cuts fully in place. The CBO is forecasting ... CLICK SHORT LINK AT END TO READ ON ... from ftportfolios.com Disclaimers: https://rfr.bz/l9jg8dl ---- 𝘕𝘖𝘛𝘌: 𝘛𝘩𝘦 𝘳𝘦𝘧𝘦𝘳𝘦𝘯𝘤𝘦𝘥 𝘢𝘳𝘵𝘪𝘤𝘭𝘦 𝘭𝘪𝘯𝘬 𝘵𝘢𝘬𝘦𝘴 𝘺𝘰𝘶 𝘵𝘰 𝘢 𝘵𝘩𝘪𝘳𝘥-𝘱𝘢𝘳𝘵𝘺 𝘤𝘰𝘯𝘵𝘦𝘯𝘵 𝘱𝘳𝘰𝘷𝘪𝘥𝘦𝘳 𝘸𝘩𝘦𝘳𝘦 𝘊𝘩𝘦𝘭𝘴𝘦𝘢 𝘍𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘚𝘦𝘳𝘷𝘪𝘤𝘦𝘴 𝘥𝘰𝘦𝘴 𝘯𝘰𝘵 𝘩𝘢𝘷𝘦 𝘢𝘯𝘺 𝘤𝘰𝘯𝘵𝘳𝘰𝘭 𝘰𝘷𝘦𝘳 𝘵𝘩𝘦 𝘤𝘰𝘯𝘵𝘦𝘯𝘵. 𝘈𝘯𝘺 𝘤𝘰𝘯𝘵𝘦𝘯𝘵, 𝘭𝘪𝘯𝘬s, 𝘢𝘯𝘥/𝘰𝘳 𝘢𝘥𝘷𝘦𝘳𝘵𝘪𝘴𝘦𝘮𝘦𝘯𝘵𝘴 𝘴𝘩𝘰𝘶𝘭𝘥 𝘯𝘰𝘵 𝘣𝘦 𝘤𝘰𝘯𝘴𝘵𝘳𝘶𝘦𝘥 𝘢𝘴 𝘢𝘯 𝘦𝘯𝘥𝘰𝘳𝘴𝘦𝘮𝘦𝘯𝘵 𝘰𝘳 𝘳𝘦𝘤𝘰𝘮𝘮𝘦𝘯𝘥𝘢𝘵𝘪𝘰𝘯 𝘰𝘧 𝘢𝘯𝘺 𝘴𝘦𝘤𝘶𝘳𝘪𝘵𝘺, 𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵, 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘪𝘯𝘴𝘵𝘳𝘶𝘮𝘦𝘯𝘵, 𝘰𝘳 𝘢𝘥𝘷𝘪𝘤𝘦 𝘦𝘯𝘤𝘰𝘶𝘯𝘵𝘦𝘳𝘦𝘥. ---- https://rfr.bz/l9jg8dk