Spooky Charts
Veronique de Rugy, over at the AEI blog The American, has today's spooky chart. This one is really spooky.
The blue line represents the CBO projected medium-term government debt. In their bizarre universe, "medium-term" lasts until 2035, which is enough time for a young person today to have a baby, raise it, embarrass it in junior high, pay for its college, lend it money to do some stupid thing it thinks it needs to do after college, and suddenly look into the mirror and see yourself greyer, older, heavier, wrinklier, and beset by creaks and pains and aches from nowhere and everywhere at once. But the blue line, for the CBO, is the "best case" scenario.
The black line is what the CBO actually expects to happen, based on highly-likely events, like an increase in Medicare reimbursement payments and a softening of the pay-as-you-go rules.
The red line, as you might expect, is what will probably happen. Because, as Veronique points out in her usual excellent way:
...when the dynamic effects of government debt on the economy are incorporated, things look even worse. When government borrows money, there is less money available for the private sector to invest in capital; this results in decreased economic output in the long run. Economists refer to this effect as crowding out. The red line shown above captures the most likely projection of debt as a percentage of GDP, incorporating crowding-out effects.
That's a debt of roughly 200% of GDP before 2030. In other words, default time. Right?
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Comments :
Jul '10
Re: Spooky Charts
The Greek columns behind Obama were economic foreshadowing.
Jun '10
Re: Spooky Charts
Is there a company that makes both pitchforks and guillotine blades? I'm always looking forward, for things to invest in.
May '10
Re: Spooky Charts
Hard to imagine that we would continue to find folks willing to loan us that much. Seems more likely that we will be forced to find other ways to "default." We'll adjust Social Security, Medicare, pensions and the other big drains, or perhaps inflate the hell out of the dollar, or even both. Somewhere between here and there things break down.
As etoiledunord implies, it won't be pretty. Americans don't do "austerity" very well.
Not that it's just American pain being forecast. As we thrash about in self-inflicted distress, we'll do a lot of damage to other economies; the whole interconnected world will convulse. In those situations, not to put too cynical a spin on it, all sorts of things become possible. Remember that we became the world's dominant economy because of global war....
Jul '10
Re: Spooky Charts
That graph really is scary, and not just the red line; the "best case scenario" is sustained 60-80% debt to GDP levels for a quarter century! I wish we had more left-of-center members so someone could explain why all this debt is a good thing. I'm trying to wrap my head around the economics of it, but the same simple question keeps coming up: What are these people thinking?
Jul '10
Re: Spooky Charts
see there's your problem: you suppose that rationality remains a cultural value.
May '10
Re: Spooky Charts
G.A. Dean:
Not that it's just American pain being forecast. As we thrash about in self-inflicted distress, we'll do a lot of damage to other economies; the whole interconnected world will convulse. · Jul 15 at 4:03pm
I expect something along these lines to happen, but that it will begin elsewhere. If a country on the edge is significantly invested in another country that goes over the edge, then its suffering will not be limited to its actual degree of financial weakness. It's not just real investment that matters, but also perception. The failure of one state can disrupt market confidence in another even if their actual ties are not strong. Animal spirits, as they say. The economy of Greece might be minor on the world stage, but its implosion would impact the worries of traders worldwide about their own markets.
What worries me most is that so many nations have placed themselves in this situation all at once. Some sort of chain reaction does not seem unlikely. But I'm no expert.