What is outrageously hypocritical about the whole affair, however, is that this same Administration admitted to a similar $2 trillion mistake in their ten year deficit projections back in August of 2009 after ripping the CBO for miscalculating (what you and I know to be mythical) savings.
And how good is CBO's track record, you might ask? We all know the myriad of under estimations from cost of entitlements like Medicare and Medicaid to other government programs. More recently, in 2001, CBO estimated that by 2011, U.S. indebtedness would be negative by nearly $2.5 trillion. Go figure.
As Zero Hedge put it:
While we reserve judgment for S&P's effectiveness at being accurate in anything they do (they are, after all a rating agency and as such they goal seek results to comply with what their paying group think seeking customers demand), we would like to redirect to the modest topic of CBO predictive efficiency (the organization that is at the basis of the current credibility spat between Treasury and S&P, and which, incidentally has created the baseline forecast against which the debt ceiling compromise plan is supposed to cut $2.1 trillion over the next decade), by pointing out according to the same CBO back in 2001, net US indebtedness in 2011 would be negative $2.436 trillion, the ratio of debt held by the public to GDP would be 4.8%, total budget surplus would be $889 billion, and GDP would be $16.9 trillion. We won't comment on the error interval in CBO forecasts when compared to actual 2011 results, and we most certainly won't comment on the idiocy of the Treasury chastising someone, anyone, for erring, or disputing, forecasts.The $2 trillion math error that S&P supposedly made is a mere technicality. With or without that error, it was a matter of months before S&P reached the same conclusion. As vindication, Moody's and Fitch had also cautioned the government that its rating is in danger of being downgraded sometime next year.
The U.S. is in deep trouble with its current $14.5 trillion federal debt and well over $100 trillion in unfunded social security and Medicare liabilities (which does not take in to account of the burden to be imposed by Medicare Part D and Obamacare!). Whether one looks at the total indebtedness of the U.S. government in 2021 as $24 trillion or $22 trillion, the picture does not change appreciably. If the U.S. was a household, you could not find a single financial institution that would be willing to lend it money - not with a current income of $2.2 trillion against expenditures of $3.7 trillion that are projected to increase several fold over the coming years. Default or chaos is imminent. Despite former Fed Chairman Greenspan's claims that we can always print money, the end game is disastrous to the citizens of this country. Here are some basic facts:
- Entitlements are on auto pilot. They cannot be touched short of major entitlement reforms which have been demagogued every time someone suggested reforming them a la Bush when he floated the idea of privatizing a small portion of social security, and Congressman Ryan who recently outlined his plan reforming Medicare (meaning effectively privatizing it) for those under the age of 55. In both cases, the left went on full attack mode, shamefully and falsely accusing their opponents of kicking grandma out in the street.
- Entitlements currently make up nearly 2/3 of entire federal spending. That means what can be cut totals approximately $1.3 trillion (less than the current deficit, therefore you can literally shut down government and you still couldn't close the budget gap). Of that, defense spending constitutes little over half.
- The future projection of entitlement growth as well as debt service is what drives the entirety of our projected future indebtedness. The inescapable conclusion, therefore, is that nothing short of abandoning entitlements as they exist now will save us from impending doom. Sounds harsh? It is the reality politicians must face.
Real leadership would entail the President and the Congress making the tough decisions that are inescapable: reforming the entitlements. Until that happens, the U.S. can look forward to more downgrades and progressively increasing pain that is associated with fiscal irresponsibility.