Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Economic Reality Vs. White House Projections

The CBO score of "the deal" to raise the debt ceiling is falling way short in terms of savings.  Larry Lindsey, President and CEO of the The Lindsey Group and the Former National Economic Council Director under President George W. Bush, recently testified before the Senate Financial Services Committee about the projections.

"These deficit projections are over optimistic expectations of economic growth." Lindsey told me over the phone.

"For example, the President’s budget projected growth of 3.1 percent this year, 4 percent in 2012, 4.5 percent in 2013, and 4.2 percent in 2014. We know that growth in the first half of the year was roughly 1 ½ percentage points less than what the President’s budget projected.

Moreover, there is an academic consensus that growth after a financial crisis tends to be at trend, not well in excess of trend," Lindsey said in his testimony.

Lindsey explained that these misses translates into billions and eventually trillions of dollars.

"The President’s own budget estimates that missing growth by one point in one year increases the ten-year deficit by $750 billion. Thus, just the six month shortfall that has already occurred during the first half of this year means an increase in the 10-year deficit of a bit over $500 billion." Larry explained that if "miraculously" the economy rebounded to a GDP of  2 ½ percent in the current quarter, it would still be far off the projection that by the end of 2014 the United States would be 5 ½ percentage points off—translating into a ten-year increase in the national debt of more than $4 trillion higher than what is now being projected. I don't know about you but boy is that off!  We all know numbers can be fudged based on the models one uses and yes, the numbers out of the White House are "projections".

But geez, how can they be so far off?  To be honest, the rate of GDP growth we have seen I am not surprised at all. You just have to talk to your neighbors, go to the grocery store or be in reality to see the pain the people are enduring. One of my contacts who wished to remain nameless for fear of retaliation, told me the numbers are so far off because "They (the Obama Administration) are politicians and are a bunch of liars."

Capital Alpha Partners Washington policy analyst Chuck Gabriel commented that it's hardly unusual for an administration facing such an intractable fiscal reality to want to optimistically stretch its economic projections to paint a picture of a better tomorrow.

"In fact, it's down-right Reaganesque."  Gabriel said, referring to perhaps the first and most memorable time a stressed White House resorted to employing "Rosey Scenario" as during the Reagan administration.

Wall Street is now bracing itself for "when" the credit rating agencies downgrade Uncle Sam, instead of "if" because of the deals CBO score. We may be entering a new chapter in our nation's history. Uncle Sam may not become a dead beat dad as once feared. But he's moving a step closer to becoming a subprime borrower.

A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."


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