Fiscal and economic perspectives of the nation has deteriorated substantially from the last Congressional Budget Office (CBO) baseline in May of this year, when CBO projected debt to reach a record 110 percent of Gross Domestic Product (GDP) by 2032 .
After the Biden administration racked up more than $1 trillion in debt in the first half of fiscal year 2023, the Congressional Budget Office estimates that the national debt will be increase by $19 trillion over the next decade under current law, $3 trillion more than projected last May.
Based on an updated baseline of current law, we now project that debt by 2032 will reach 116% of GDP, deficits will reach 6.6% of GDP, and interest will reach a record 3.4% of the GDP. Under a more pessimistic (and in many respects realistic) scenario, debt would reach 138% of GDP by 2032, deficits would reach 10.1% and interest would reach 4.4% of GDP. These projections suggest an unsustainable fiscal trajectory. See these new projection scenarios in the chart below and learn more here.
As part of the economy, interest costs would be in uncharted territory. In the entire history of the United States, federal interest costs have never exceeded 3.2 percent of GDP. Estimates now project interest costs to reach 3.4% of GDP in 2032 under our baseline scenario, 3.9% in the intermediate alternative scenario, and 4.4% in the high cost alternative. Of course, that assumes no more aggressive inflation-fighting interest rates from the Fed.
Looking at the raw US deficit numbers below, one can stretch the current Fed chart ten years to see what the national debt will look like in 2033: more than $50 trillion.
Notice the red line in the graph above: it is an arc indicating that the current phenomenon is exponential. In mathematics, it is called an exponential curve. The exponential function is a mathematical function denoted by f(x) = ax, which means that as time passes, the situation gets worse. But understand that the current bow curve may become steeper if the CBO continues to make “sooner than expected” adjustments to US fiscal policies made by our politicians.
Remember the legend of Payasam in Ambalappuzha? The king made a deal with the wise traveler that the king thought was good, at least in the short term. It goes something like this: for my payment, give me one grain of rice on the first square of this chessboard, then two grains on the second square, four grains on the third square, eight grains on the fourth square , and so on. so that each square contains twice as much rice as the previous square.
The total number of grains of rice needed to fill the chessboard would have been 18 quintillion grains of rice, which would weigh approximately 210 billion tons and would be enough to cover the entire country of India with a layer of rice of one meter high. Obviously, the king did not understand mathematics, and the scheme was not hidden, it was in plain sight.
The point of Payasam’s legend in Ambalappuzha is that the US deficit is in the same pyramid scheme: everyone knows it, but refuses to do anything about it. And there will be a big reset at some point in the arc curvature.
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Syndication source for the original RWR article.
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