Unhappy New Year: CBO Forecasts Poor Economy, Soaring Deficits in 2023

The Congressional Budget Office on November 29 released an analysis that describes “the current outlook for the economy in 2023 and 2024 and the budget implications.”

In short, everything looks bleaker than it did more than six months ago, when the CBO published its Budget and Economic Outlook report in May.

In a May report, the CBO projected that economic output would grow by 2.2% in 2023. The latest CBO update suggests there is a 1 in 6 chance that the economy will grow by more than 1.8%. that the economy will shrink in 2023.

The CBO now expects the unemployment rate to rise in 2023. The report suggests that unemployment will jump between 3.8% and 6.4%, which means that anywhere from 100,000 to 4.5 million more Americans will be out of work next year than today.

What about inflation? The inflation picture is also less optimistic.

The CBO had previously predicted that inflation would fall close to the Federal Reserve’s 2% target by 2023. Now, the budget office is not so sure. The latest CBO report puts the most likely range of inflation in 2023 between 1.8% and 4.6%.

In other words, inflation will be lower than it was in 2021 or 2022, but it will be worse than any other year in the last three decades.

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And because inflation has proven to be a more persistent problem than many economists expected, the Federal Reserve has responded with a larger increase in interest rates than the CBO previously expected.

CBO now expects three-month Treasury bills to pay between 3.4% and 5.6% interest in 2023, up from the 2% expected in May 2023.

That has a big impact on the national debt.

CBO now estimates that the deficit in 2023 will be between 20% and 30% higher than it estimated in the May forecast, due to revised estimates of gross domestic product, unemployment, inflation, and interest rates. That doesn’t mean new legislation has covered the deficit since the last estimate.

CBO noted that higher-than-expected interest rates were the main reason for the dramatic increase in deficit expectations. This should raise serious red flags for lawmakers.

When just a few months of higher interest rates are expected to be the main factor driving the $200 billion to $300 billion deficit up next year, it shows how dependent the federal government is on low interest rates to maintain debt and deficits. even if you are far under control.

Interest rates have been historically low – near zero – for 15 years. But with the recent outbreak of inflation, the Federal Reserve has tightened monetary policy, and interest rates have risen.

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For a nation with $31.3 billion in debt—more than a quarter of a million dollars for every US household—the rise in interest rates is worrisome, to say the least.

High interest rates increase the cost of servicing the already high national debt, leading to higher deficits each year. The rapidly growing debt forces the government to make higher interest payments. All this makes investors wary of holding US securities, so they demand higher interest rates.

It’s not hard to see how this vicious cycle could spiral out of control if lawmakers and federal officials aren’t careful.

May’s extreme optimism suggests that the federal debt will rise from 100% of GDP in 2021 to 185% of GDP in 2052. The November update shows that things are much worse than that.

In context, leading to the debt crisis in 2008Greece had a debt-to-GDP ratio of about 127%.

The Greek debt crisis should serve as a warning to US lawmakers that it is time for America to get its spending and debt crisis under control while we still can.

The European Union and the International Monetary Fund stepped in during the Greek debt crisis to bail out the government and prevent default, but Greece’s economy was already in good shape.

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At the height of its debt, Greece had an unemployment rate of nearly 30%. The Greek economy today is 30% smaller today than it was in 2007. Greece’s recession was much harder and lasted longer than America’s Great Depression.

Is a similar catastrophic situation inevitable in America? No, but the debt is not free, and the American people will pay for it in some way.

And like a landlord who ignores a crumbling foundation, disaster is more likely if Washington chooses to ignore America’s growing spending and financial problems.

However, that is exactly what the Congress seems determined to do, and it is not the only party that wants to blow the whistle from beyond the grave.

During the lame duck before a newly elected Republican majority takes control of the House, some Republicans have signaled their willingness to work with outgoing Democrats to pass another omnibus spending bill.

House Republicans also voted to block the budget—a favorite tool of members of Congress for bringing home pet projects to their districts.

None of this bodes well for Americans who hoped that a divided government would stop America’s march to financial ruin.

This piece first appeared on The Daily Signal


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