Tag Archives: Debt Service

As of last week, the danger in the new Congressional Budget Office (CBO) deficit outlook released on Tuesday was that it might lull some people into a false sense of security.  As it transpired, the good news was that there was so little good news that it was unlikely to distract many people from the bad news.

The headlines picked up that the deficit this fiscal year is likely to fall below $1 trillion for the first time since 2008.  Those looking energetically for sunshine would point out that the deficit in 2015 under current law is projected to fall to only $430 billion – a number that would have struck terror in the heart when I was a mere lad (of 40 or so), but that today looks surprisingly reassuring.

However, that is where the good news stops.

The budget deficit is projected to rise after 2015, reaching $978 billion – just short of that $1 trillion bogeyman – in 2023.  The debt relative to the economy would hit a peak of 77.7 percent of GDP at the end of 2014, then fall slightly to 73.1 percent at the end of 2018, but then climb again to 77.0 percent at the end of 2023.  So at that point, debt and debt service would be piling up on one another in a potentially never-ending spiral – which would prove very painful to stop, the longer we allowed it to build its own momentum.

Of course, CBO makes clear that their budget outlook is not a prediction strictly defined, but rather a projection of what would happen if current law remains unchanged and the economy precisely follows the forecast.  And that leads many folks to ask:  What are the major risks (using that term neutrally, meaning reasons why it could be better or worse) to that projection?  Given that the numbers are on their face troubling, is there a significant chance that we might be saved from that adverse outcome without taking action?

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