CBO: Obama to Push Public Debt above $20 Trillion by 2021

March 23, 2011 - 4:01 AM

(CNSNews.com) – The Congressional Budget Office (CBO) says that President Barack Obama’s 2012 budget will cause large and persistent yearly deficits that will push the public debt to $20.8 trillion by 2021.

“Federal debt held by the public would double under the President’s budget, growing from $10.4 trillion (69 percent of GDP) at the end of 2011 to $20.8 trillion (87 percent of GDP) at the end of 2021,” the CBO said in its March 18 analysis of Obama’s 2012 budget.

This means that the debt incurred as a result of Obama’s planned decade of deficit spending would be worth 87 percent of the value of all the goods and services produced by the economy, the Gross Domestic Product (GDP).

This figure, known as the debt-to-GDP ratio, is used to illustrate the size of a country’s debt relative to its economy in order to show how stable a country’s finances are.

$20.8 trillion is also more than double the size of the current level of public debt, which is $9.6 trillion. It is also 1.4 times as large as the economy is today.

In a December 2010 issue brief, the CBO said that allowing the national debt to continue on its current path, as Obama’s budget does, would lead to less savings and investment because investors would buy more government debt.

“A growing portion of people’s savings would go toward purchasing government debt rather than toward investing in productive capital goods, such as factories and computers,” CBO explained.

“That ‘crowding out’ of investment would reduce the size of the nation’s capital stock by between 7 percent and 18 percent compared with what it would be if action was taken in 2015,” the issue brief said.

The CBO also predicted that this crowding out of capital investment would lead to lower wages, fewer jobs, and a weaker economy.

“The smaller capital stock would result in lower wages, which would diminish people’s incentive to work,” said the CBO. “In all, the delay would reduce the supply of labor by between half-a-percent and 2 percent.”

“The lower capital stock and labor supply would in turn reduce output by between 2½ and 7 percent, and total consumption by between 1½ and 5½ percent, compared with what they would be if action was taken in 2015,” the issue brief said.

Ultimately, the CBO warned that an uncontrolled federal debt would lead to a Greek-style fiscal crisis. Greece’s debt-to-GDP ratio at the height of its fiscal crisis was 115 percent.

“Higher debt would increase the likelihood of a fiscal crisis, in which investors would lose confidence in the government’s ability to manage its budget and the government would thereby lose its ability to borrow at affordable interest rates,” the CBO stated.

All of these statistics and predictions do not take into account what is known as off-budget or intra-governmental debt. This debt – essentially money the Treasury owes to other government entities – currently stands at $4.6 trillion and is not included in the CBO’s analyses of Obama’s 2012 budget.

However, intra-governmental debt is not the same as debt held by the public because the Treasury bonds that make it up are known as non-marketable securities, meaning they cannot be sold to other investors.

This means that, in practice, intra-governmental debt is really a commitment to future federal spending or public debt, since the non-marketable securities issued by the Treasury will have to be repaid using either tax revenue, new public debt, or both.