Friday, June 21, 2024

Congressional Budget Office Revises Expected 2024 Deficit UP $400 BILLION; From $1.5 Trillion To $1.9 Trillion

As we've been saying since Barack Obama put Joe Biden in charge of the big-money Recovery Summer, it's stimulus. No matter what you call it, Sweet, Sweet Biden Love, whatever, the U.S. must be goosed at the equivalent of 7% of GDP or the whole house of cards falls down. Your financial survival depends on understanding this fact, its ramifications, and what the possible time line is.

From the Congressional Budget Office, June 2024: 

An Update to the Budget and Economic Outlook: 2024 to 2034

Executive Summary

The Congressional Budget Office regularly publishes reports presenting its baseline projections of what the federal budget and the economy would look like in the current year and over the next 10 years if laws governing taxes and spending generally remained unchanged. This report is the latest in that series.

Projections for 2024

Budget deficit: $1.9 trillion

Debt held by the public: 99% of GDP

Outlays: $6.8 trillion

Revenues: $4.9 trillion

The Budget Outlook


In CBO’s projections, the federal budget deficit in fiscal year 2024 is $1.9 trillion. Adjusted to exclude the effects of shifts in the timing of certain payments, the deficit amounts to $2.0 trillion in 2024 and grows to $2.8 trillion by 2034. With such adjustments, deficits equal 7.0 percent of gross domestic product (GDP) in 2024 and 6.5 percent of GDP in 2025. By 2027, as revenues increase faster than outlays, they drop to 5.5 percent of GDP. Thereafter, outlays generally increase faster than revenues. By 2034, the adjusted deficit equals 6.9 percent of GDP—significantly more than the 3.7 percent that deficits have averaged over the past 50 years.


Relative to the size of the economy, debt swells from 2024 to 2034 as increases in interest costs and mandatory spending outpace decreases in discretionary spending and growth in revenues. Debt held by the public rises from 99 percent of GDP this year to 122 percent in 2034, surpassing its previous high of 106 percent of GDP.

Outlays and Revenues

Federal outlays in 2024 total $6.8 trillion, or 23.9 percent of GDP; adjusted to exclude the effects of shifts in the timing of certain payments, they amount to $6.9 trillion, or 24.2 percent of GDP. With such adjustments, outlays equal 23.5 percent of GDP in 2025, stay close to that level through 2028, and then increase to 24.9 percent of GDP by 2034. The main reasons for that increase are growth in spending on programs that benefit older people and rising net interest costs. Revenues total $4.9 trillion, or 17.2 percent of GDP, in 2024. They rise to 18.0 percent of GDP by 2027, in part because of the scheduled expiration of provisions of the 2017 tax act, and remain near that level through 2034.

Changes in CBO’s Budget Projections

In CBO’s current projections, the deficit for 2024 is $0.4 trillion (or 27 percent) larger than it was in the agency’s February 2024 projections, and the cumulative deficit over the 2025–2034 period is larger by $2.1 trillion (or 10 percent). The largest contributor to the cumulative increase was the incorporation of recently enacted legislation into CBO’s baseline, which added $1.6 trillion to projected deficits. That legislation included emergency supplemental appropriations that provided $95 billion for aid to Ukraine, Israel, and countries in the Indo-Pacific region. By law, that funding continues in future years in CBO’s projections (with adjustments for inflation), boosting discretionary outlays by $0.9 trillion through 2034.

Note: When October 1 (the first day of the fiscal year) falls on a weekend, certain payments that ordinarily would have been made on that day are instead made at the end of September and thus are shifted into the previous fiscal year. Because those shifts can distort budgetary trends, CBO often presents adjusted projections of deficits and outlays that treat the payments as if they were not subject to the shifts....


Ctrl+F-ing through "The Budget and Economic Outlook: 2023 to 2033" the word "interest comes up 287 times.

The fifth occurrence, the table on page 4, has fiscal year 2033 net interest payments at $1.429 Trillion, eclipsing the projected expenditure for the military of $1.269 and comprising over half of that year's forecast deficit of $2.702 Trillion.

As we've said for years, every dollar of deficit spending is stimulus. And the U.S. economy would collapse without this new money being injected into the system.

That is the very definition of a Ponzi scheme, always hustling the new money to keep the game going just a little bit longer until...

Until what? Until the current batch of politicians can retire and get on with their lobbying businesses? Until the Sweet Meteor of Death strikes and clears the books for this go-round?

There's another huge problem with the effect of deficits, they don't create growth in the economy, they only "pull-forward" any growth that was already going to happen:

Fed; Treasury; Markets: "Pulling Forward Growth No Longer An Option"
One of the concerns about President Obama's 2009 -2010 ARRA and then the "Recovery Summer" of 2010 - beyond the fact that he put Joseph—‘Don’t underestimate Joe’s ability to f*** things up’—Biden in charge, was the economic issue that the $787 billion in stimulus spending would not create any new growth but would only pull growth forward from the out years, minus slippage, grift/graft, marginal productivity of debt and other incidental costs of stimulus programs....
You can't say President Obama didn't try to warn us, I mean "Don’t underestimate Joe’s ability to f*** things up" is pretty straightforward.
And you can't say we didn't try to warn...well...anyone who'd listen.
Here's an example from 2012:

The Real Problem With Stimulus

I've mentioned a few times that Keynes was all about the countercyclical thing.
In the U.S. we have devolved to perma-stimulus, every dollar of deficit spending being stimulus, and have no plans to ever stop. Anyone who argues that stimulus isn't stimulus unless it is labeled stimulus is being sillier than I felt when I typed this sentence.
Deficit spending is stimulus whether you call it ARRA, sweet, sweet Biden love or Democracy's flaw.....

The Biden reference is to the fact the former Vice-President was overseer of the ARRA stimulus in 2009 - 10 and the Recovery Summer in 2010.....

And January 2020 when talk of BIG stimulus started to percolate:
The Diminishing Marginal Productivity of Debt in the U.S.
Also known as "Bang-for-the-buck".
Last year it took $1.41 of stimulus to generate $1.00 of GDP growth....

July 2021
Diminishing Returns: Getting Less And Less For Each Dollar of Deficit Spending Means Disaster Is Locked In

April 2022
Mohamed El-Erian: "The Growth Engines Are Sputtering"
We are in a situation where years worth of economic growth have been pulled forward from future years by deficit spending, call it stimulus, call it sweet, sweet Biden love, whatevs; and the only way to keep the hamster wheel spinning is to keep feeding money into the system..... And many, many more.Here's  "The Budget and Economic Outlook: 2023 to 2033" (101 page PDF)

Again, continually needing to find new money to pay off earlier investors is the very essence of a Ponzi scheme.

And every Ponzi scheme in history has collapsed.

Just to hammer the point home, from that July 2021 post:

....Not only does each dollar of debt buy less and less growth but as we learned with ARRA and The Recovery Summer, the growth it does buy is actually just pulled forward from future years, to the point that by eating our seed corn today we are guaranteeing we are starved for growth in just ten years.

RIA's next chart has ten-year average growth going permanently below 2% in 2032 and permanently below 1% by 2047 i.e. within our lifetimes. Those dates seem optimistic though. Let's say 2030 and 2043.

And it is baked in the cake, there is no way out.