U. S. Congress passed and the President signed into law the act to increase the nation’s debt ceiling allowing the Federal Government to continue borrowing money to pay for the projected deficits in Federal spending. On February 4, 2014, the Congressional Budget Office issued its report titled “The Budget and Economic Outlook: 2014-2024. The report recognizes that the deficits in Federal spending have sharply declined over the past 3 years with the projected deficit for 2014 to total about $514 billion compared to $1.4 trillion in 2009.
The reports includes graphs and illustrations of the history of our nation’s debt and comparisons to GDP. It reports deficits are projected to decline through 2015 but rise thereafter, further boosting the Federal Debt. “Assuming no legislative action that would significantly affect revenues or spending, CBO projects that the federal budget deficit will fall from 4.1 percent of GDP last year to 2.6 percent in 2015—and then rise again, equaling about 4 percent of GDP between 2022 and 2024. That pattern of lower deficits initially and higher deficits for the rest of the coming decade would cause federal debt to follow a similar path. Relative to the nation’s output, debt held by the public is projected to decline slightly between 2014 and 2017, to 72 percent of GDP, but then to rise in later years, reaching 79 percent of GDP at the end of 2024. By comparison, as recently as the end of 2007, such debt equaled 35 percent of GDP.”
It is important to note the report recognizes that GDP growth (adjusted to remove the effects of inflation) will increase to a decade record of 3% between the fourth quarter of 2013 and fourth quarter of 2014. However, the report indicates: “Beyond 2017, CBO expects that economic growth will diminish to a pace that is well below the average seen over the past several decades. That projected slowdown mainly reflects long-term trends—particularly, slower growth in the labor force because of the aging of the population. Inflation, as measured by the change in the price index for personal consumption expenditures (PCE), will remain at or below 2.0 percent throughout the next decade, CBO anticipates. Interest rates on Treasury securities, which have been exceptionally low since the recession, are projected to increase in the next few years as the economy strengthens and to end up at levels that are close to their historical averages (adjusted for inflation).” This is significant considering the “high” most politicians will have in justifying their voting records and positions in the upcoming 2014 election cycle and then the 2016 Presidential election cycle.
What does this mean to the average “Joe” like me? It means that over the next 18-24 months the US economy will appear to be getting stronger. After 2016, things will get really bad. Remember, the real economic effect of The Affordable Care Act will not occur until 2017, when deficits are projected to increase.
We encourage you to read the CBO’s report. You can access it by using the link on the right side of our main page. We also encourage you to read our other rants regarding the Federal minimum wage increase proposals and inflation.
The Redneck Economist