The budget that “produces” these great results is actually built on sand. The assumptions that result in the dramatic improvement the President is counting on are not going to happen. Therefore we are in for a disappointment.
The CBO produced a set of slides last week that describe the economic fundamentals that are behind the magic the President is selling:
The key assumption is that GDP is onward and upward every year for the next ten. Forget the structural weakness(s) that makes this most unlikely. Forget that the US has a recession of some form or another every five years or so. If this completely Goldilocks outcome is the future then the Prez is right. We have nothing to worry about. The problem is that this scenario is the least likely outcome.
This graph stinks to me. Somewhere around tomorrow (or the next day) unemployment is going to plunge according to this. It will fall in just a year or two from now to a level not seen in history. And it will stay at that “perfect” level for, well, for ever. Give me a break!
This shows the rate of jobs creation. A hockey stick is what it is called in finance. And financial guys know whenever someone shows them a plan like this, you just look the other way on the deal being offered. Hockey sticks never come true. Those that bank that they will, are always the losers. In this case that means the public.
Sub 2% inflation. Forever. The lowest rate on the charts. No wonder the president’s budget looks so “good”. His core assumption is that the rising cost of government will be tame. If you build a house on this assumption, your house will fall down.
These final charts look at that phony “Baseline”. Even the CBO admits that in order to achieve that baseline some big changes must be made. If we don’t, we end up on that lighter blue line. So what are these pesky things that are referred to as “certain policies”? The answer is: (I) All of the Bush tax cuts get reversed. (II) AMT is indexed (major tax increase on all income over $75,000). (III) Deductibility for all types of things (mortgage interest, property tax, state income tax) is eliminated.
These things will not happen. If they did we would have the longest running recession in history as a result. The budget deficit would be north of 10% forever if we did that. And the CBO, OMB and the President all know that.
No wonder the big O was cracking jokes. It’s a good strategy. It gets the audience distracted from the facts.
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Not just unlikely. Impossible. Consider the implications of exponential growth.
ReplyDeleteI dunno.
ReplyDeleteSen Charles Schumer (NY) says that if we cut back on government spending it will nip our economic recovery in the bud.
We don't want that, do we?
Bruce, we all need to see past our racism and accept that maybe the President knows what he's doing.
Our version of the Five Year Plan. . .
ReplyDeleteI have contended that without any changes to the tax code we may have seen Peak Revenue (and I don't see those changes being made with the current political alignment), that is, the federal government's net revenue will never be higher than it was in 2007-08. Even without modest revenue growth, however, the deficit is unsustainable without monetization.
Hi Bruce.. if QE3 does'nt happen, will we hit 5% on the US Ten Year sometime this year ? Thanks
ReplyDeleteHey you "fat rich bastard," good read. Looks like from Anon 10:31 now you are a racist. It's unbelievable the name calling that goes on from the ill informed. Obama is black and you tear his speech to shreds and it makes you a racist. Too many people are walking around with rose colored glasses. Keep up the good work and get your "fat ass" to the gym. "Jowly?" Having marked jowls : having full or saggy flesh about the lower cheeks and jaw area. WTF?
ReplyDeleteI don't know how you could concoct a better setup for a deflationary bust. Seriously, if you like Obama don't vote for his reelection.
ReplyDeleteIn so many words, Obama is a wanker.
ReplyDeleteHey, and I voted for the wanker and even sent him money (first time EVER to a politician).
Does it make me homophobic to call him a wanker?
From the photo, BK looks pretty fit to me.
ReplyDeleteI fully agree BK has brightened my day!
ReplyDelete"The key assumption is that GDP is onward and upward every year for the next ten. "
ReplyDeleteThat's modeling, not assumption. If they predicted a downturn 6 years from now you would think that was silly too.
"[unemployment] will fall in just a year or two from now to a level not seen in history"
You are misrepresenting what the chart says.
"The lowest rate on the charts."
Another misrepresentation.
"A hockey stick"
I agree that the projection is overly rosy, but some of your complaints don't hold up.