Tuesday, July 5, 2011

"The True Size of the [Federal} Budget Deficit"

"...existing official budget numbers are too optimistic across several fronts.

...existing growth assumptions are too optimistic.

The government assumes GDP growth of +4% over the next 3 years,
while the US is currently struggling to grow 2%.

Even a modest growth shortfall means hundreds of billions less in tax revenue every year.

Second, if interest rates rise to their 20 year average,
the government will have a much larger interest bill
than is being factored into current official budget forecasts.

Finally, the president’s healthcare initiative
is likely to be considerably more expensive than forecast
as this is what ultimately happened with Medicare.

In short, even with a budget deal, deficits over the next decade
may be higher than even the gargantuan figures that are being forecast.

So what does this mean...?

...higher interest rates and potentially higher inflation."

The True Size of the Budget Deficit
July 2, 2011

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