Home > Uncategorized > Deficit Commission: Blowing Sunshine

Deficit Commission: Blowing Sunshine

It’s sad that our so-called leaders feel they need the political cover of a deficit commission to begin to do the right thing and take on our looming deficit. Sadder still are the sunshine blowing GDP estimates the commission uses.

Bruce Krasting gets to the heart of the matter by looking at the ‘top line’ GDP assumptions made by the commission:

Baselinegdp
Dcforecast

These are estimates for what I call ‘top line’ GDP. Notice the hockey stick of growth that we are going to experience from 2011 to 2014. To get to real GDP you have to subtract an inflation number. Possibly the DC consulted with Bernanke on this. To get 6% growth in 2013-14 you have to have a lot of inflation. Ben probably told the commission that he would guarantee 4% inflation for those years. That would put real growth around 2.0%. Note also that in the critical period 2011 to 2020 there is no period of economic slowdown much less a recession. 

For some historical perspective, let’s look at real (inflation adjusted) GDP from 2000-2009.

Gdp-2000-2009
Gdp-2000-2009-key

Source: BEA.gov

Given our low GDP growth it doesn’t seem likely GDP, even factoring in inflation, will be as high as projected. Even if the Deficit Commission is correct, I don’t think Americans will be too pleased with 3-4% inflation rates combined with low real GDP growth.

With Europe in crisis over deficit spending and widening bond spreads, our leaders piddle around with commissions and economic projections straight out of Fantasy Island. 

If pumping several trillion dollars into the economy (or at least the banks) we still have nearly 10% unemployment and unimpressive GDP growth how does anyone expect growth to double – almost triple – in size.

Then, to top our fantasy economy off, we have to believe their won’t be another economic downturn between now and 2020.

I have pretty much concluded that we can’t expect any serious efforts by our “leaders” to solve the deficit issue until their hand is forced. Of course, once their hand is forced, it will likely be too late to save our economy from the vultures that will swoop in and pick the flesh from the carcass of our once vibrant economy.

 

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