What was supposed to be healthy for the next eight years may suddenly become sickly as soon as next year. What this means to the budget is catastrophic.
I want you to note the extreme deterioration in surplus funds between the 2008 and 2009 forecasts. Can you spot the trend?
Here’s a prediction – these too will be revised to the worse in about 6 months. I base this prediction on my belief that more people will opt for retirement than are currently projected and that entitlement program tax receipts will be below current projections. Also, nearly every prediction by the CBO has been revised to the worse over the past year so I am “riding the trend” with this prediction.
In the projections for the table above, the CBO has assumed no cost of living adjustments (COLAs) in 2010, 2011, or 2012 and a return to economic growth next year. If either of those assumptions proves wrong, the table above gets smoked to the downside. I give that a better than 90% chance of happening.
From a budget-busting perspective, last year where the US government had a $73 billion Social Security surplus to spend, this year it will be a paltry $16 billion and next year it will be a number indistinguishable from zero. It is hard to overstate the importance of this shift.
This means several things. Instead of $703 billion coming in over the next 10 years, the current (overly optimistic) projection calls for only $83 billion. This means at least another $620 billion in fresh borrowing will have to occur.
If this comes to pass, and it looks like it will, the day that the Federal Reserve will have to start monetizing treasuries en mass is right around the corner. I don't think the rest of the world, which has been dragging its feet, can prepare for this dollar meltdown fast enough.