mises.ca / Robert P. Murphy / Sunday, July 20th, 2014
Paul Krugman reads the latest long-term forecast from the US Congressional Budget Office(CBO) and he likes what he sees. Even though the nearby graph is the CBO’s projections for the growth of federal debt, Krugman nonetheless offers this rosy commentary:
Nick Bunker notes an important point about the CBO’s new long-term fiscal projections (pdf): The budget office has marked down its estimate of long-term interest rates…
This markdown has the effect of making the budget outlook — which was already a lot less dire than conventional wisdom has it — look even less dire. But there’s a further point worth emphasizing: the CBO has just declared an end to the debt spiral.
You’ve heard the story: the more debt we have, the more we pay in interest, so the bigger the deficit, and the faster debt grows, until boom, we’ve turned into Greece, Greece I tell you.
…So we turn to Table A-1 on page 104 of the CBO report, and we learn that for the next 25 years CBO projects an average interest rate on federal debt of 4.1 percent and an average growth rate of nominal GDP of 4.3 percent. And this means no debt spiral at all.
