Photo above: The Hertford Bridge in Oxford, England. Used by Permission. © Tom Ley 01302 782837

Wednesday, January 27, 2010

The CBO View of the Budget Deficit by Dr. Douglas O. Walker

The Congressional Budget Office released yesterday its latest assessment of the Federal budget and outlook for the economy.

It projects that if current law and policies remain what they are now the economy will grow by 2.2 per cent in real terms this year and by 1.9 per cent in 2011, the unemployment rate will remain elevated this year and next, and inflation will remain subdued.

As to the budget deficit, which was almost 10 per cent of the GDP last year, the CBO expects a small reduction this year to 9.2 per cent of the GDP and next year to 6.5 per cent. The accumulating Federal debt, needless to say, continues to rise, to reach some $16 trillion by the end of 2020 under CBO baseline assumptions.

Needless to say, these are only projections and regarded by many as an overstatement of growth and understatement of the deficits the country faces because many assumptions underlying the projections are seen as optimistic. The CBO, to its credit, includes alternative assessments in its report.

Some snapshots of the economy and its baseline prospects as seen by the CBO:

Budget Outlays and Revenues

The Trend in Actual and Potential GDP

Federal Debt Held by the Public

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