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Oct 15, 2012

Projections of #US. Public #Debt Continue to Accelerate | Mercatus

In 2007, the CBO projected that public debt would equal up to half of total U.S. economic output by 2019. In reality, public debt-to-GDP passed this milestone in 2009—ten years ahead of the CBO’s 2007 projection

Projections of U.S. Public Debt Continue to Accelerate

Veronique de Rugy | Oct 08, 2012
This chart compares Congressional Budget Office (CBO) long-term projections of the debt held by the public as a percentage of GDP, or the debt-to-GDP ratio. Public debt comprises over two-thirds of gross national debt, and is owed to individuals, businesses, and foreign and state/local governments.

In the five years between the long-term projections calculated in 2012 and 2007, public debt milestones have moved up by nearly a decade on several occasions. In 2007, the CBO projected that public debt would equal up to half of total U.S. economic output by 2019. In reality, public debt-to-GDP passed this milestone in 2009—ten years ahead of the CBO’s 2007 projection. Importantly, the long-term projections used in this chart come from the CBO’s alternative scenario, which incorporates policy changes that were likely at the time. Hence, this is a more realistic projection than the CBO’s baseline scenario. 
Using the same methodology, CBO currently projects that debt will reach 80 percent of GDP by 2014, which is five years ahead of the 2009 projection, and thirteen years ahead of the 2007 projection.
This means that the U.S. is slipping down an unsustainable fiscal path at a much faster rate than before. This unforeseen acceleration in the public debt is important because high levels of debt can have a negative impact on the economy. Economists Carmen Reinhart and Ken Rogoff have shown that when a country’s level of debt reaches 90 percent of GDP, its economy could start shrinking by 1 percentage point every year. The U.S reached this milestone four years ago. One percentage point may not seem like a lot, but as Mercatus Senior Research Fellow Matthew Mitchell has shown, if the U.S. had reached this point in 1975, our standard of living could be 30 percent lower than it is today.

Data notes: The figures in this chart represent CBO alternative scenario projections that are meant to reflect likely changes and extensions of policies at the time of projection. The chart shows public debt, which is a portion of gross national debt. The Reinhart and Rogoff piece alludes specifically to gross national debt exceeding 90 percent of GDP.



Projections of U.S. Public Debt Continue to Accelerate | Mercatus

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