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CBO Budget Report Shows Tough Times Continue for Investors

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Monday, 10 Feb 2014 07:06 AM Current | Bio | Archive

I watched with considerable respect as Doug Elmendorf, director of the Congressional Budget Office (CBO), testified before Congress and presented the CBO Budget Forecast for 2014-2024.

Thank goodness for C-Span.

How he remained calm and even tempered was a testament to the power of mathematical thinking and reasoning over political ideology.

Based on the assumption there will be no change in current law regarding tax law and spending, the forecast presents projections of what the revenues, spending and deficits will look like for the next 10 years.

When asked if the government will ever not have deficit spending, he testified, as I recall, that it will neither happen in the next decade nor in the decades to follow.

He was clear that the debt accumulating as compared to the size of the economy — GDP — is now high by historical standards. And it will stay that way.

I was not surprised our political representatives demonstrated little understanding of the economic reality of the CBO forecasts. Predominately, our congresspersons demonstrated an inability to fully appreciate the magnitude of the financial disaster of what was being told to them, or, for the few that did, they merely dug at the other side.

No one took responsibility. It was as if they were not there when the government passed tax law, spending bills and other statutes that enabled the government to become economically out of control.

The expansion of government control over the economy is an unmitigated disaster.

The CBO reported there would be growth in the economy, although it will be slow for years to come. When growth is measured in terms of 2 percent, then that is not growth at all. That is, at best, economic stall.

Elmendorf was guarded in being specific that even these projections are subject to future events.

It struck me that for investors, these are rather static budget projections, as they do not include costs of existing political risks, such as the ongoing war with Muslim terrorists, which has taken on serious, and expensive, global proportions. What would happen to the U.S. economy if Israel were subject to an economic boycott? What if Iran gets nuclear weapons?

The United States is not alone in this world. How any actuary or economist could project how the collapse of China or Japan would impact future fiscal consequences is beyond me.

But it seems to me that when it comes to making budget projections, some attempt to calculate these possibilities into the mix would be significantly helpful to Congress as it makes domestic and foreign policy decisions.

Congress apparently is satisfied with the CBO forecasts as they are. They serve their political purpose.

For investors who live in a different reality, the CBO budget forecast tells the story that tough economic times, under the best-known circumstances, will continue.

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Kleinfeld
I watched with considerable respect as Doug Elmendorf, director of the Congressional Budget Office (CBO), testified before Congress and presented the CBO Budget Forecast for 2014-2024.
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2014-06-10
Monday, 10 Feb 2014 07:06 AM
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