Monday, March 9, 2015

CBO Expects Lower US Productivity And Wages Due To Highest Federal Debt Levels Since 1950

From Congressional Budget Office, "Updated Budget Projections: 2015 to 2025," Report, March 9, 2015:

Source: CBO

Under the assumption that current laws will generally remain unchanged, the budget deficit is projected to decline in 2016, to $455 billion, or 2.4 percent of GDP, and then to hold roughly steady relative to the size of the economy through 2018. Beyond that time, however, the gap between spending and revenues is projected to grow faster than GDP: The deficit in 2025 is projected to reach $1.0 trillion, or 3.8 percent of GDP, and cumulative deficits over the 2016–2025 period are projected to total $7.2 trillion.
With such deficits, CBO projects that federal debt held by the public would amount to 73 percent or 74 percent of GDP over the next several years—more than twice what it was at the end of 2007 and more than in any previous year since 1950 (see figure below). By 2025, in CBO’s baseline projections, federal debt rises to 77 percent of GDP.
Source: CBO
Such high and rising debt would have serious negative consequences for the nation: When interest rates returned to more typical, higher levels, federal spending on interest payments would increase substantially. Moreover, because federal borrowing reduces national saving over time, the nation’s capital stock would ultimately be smaller and productivity and total wages would be lower than they would be if the debt was smaller. [Emphasis added.]

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