Daily Archives: March 28, 2010

Chart – Predicting Federal Debt 2010 – 2015 with 115 year debt timeframe

The top chart is a snapshot of US Federal debt based on official data from the US Treasury and the 2011 Federal Budget issued by the Office of Management and Budget (OMB) earlier this year. The thumbnail is a linear chart, which highlights the rapid debt increase in the six-year forecast of the OMB.

The second chart is the log scale version, which gives a clearer historical perspective of debt over the 115-year timeframe covered in the chart.

For now let’s focus on the linear chart, which gives us a better look at the OMB debt forecast. In round numbers, the debt at the end of 2009 was $11.88 Trillion (to be more precise, $11,875,851,000,000). Uncle Sam sees a 66% rise in the debt over the next six years — up 16.1% at year end, 9.8% in 2011, 7.9% in 2012, 6.8% in 2013, and 6.2% in both 2014 and 2015.

But how reliable are Uncle Sam’s debt forecasts? Have his forecasts in recent years been on target? Or does he chronically miss the mark?

The second chart above examines the pattern of the seven rolling forecasts since the 2005 Bush budget was presented in February 2004. As you can see, 2008 was a pivotal year. In fact, the federal debt from 2000-2008 and the five Bush budget forecasts shown on this chart (2005-2009) deviate only slightly from a linear regression drawn through the debt data and extended to 2015, illustrated here. Despite the war or terror and the cost of wars in Iraq and Afghanistan, federal debt was a relatively simple extrapolation.

The financial crisis that began in 2008 changed everything. Government policies to deal with the crisis have significantly altered the OMB estimates, as the two Obama budgets (2010 and 2011) dramatically illustrate. The 2010 budget (presented February 26, 2009, 11 days before the market low) included a forecast for the fiscal-year-end debt that proved to be 8.3% higher than the 2009 final number, a fact that illustrates the magnitude of uncertainty introduced by the financial crisis. The 2011 six-year forecast has scaled back the numbers for 2010 and 2011, but it closely tracks the later trend of the previous budget.

These federal debt forecasts confirm we what already know — 2008 was a major economic turning point, a metaphoric fork in the road. However, the chart helps us quantify the magnitude of the new direction. The current 2015 forecast of a 19.68 Trillion debt is about 46% higher than the equivalent point (about 13.5 Trillion) on the road not taken.