By the end of this year, unemployment will fall to 9.2 percent, the economy will be expanding healthily and we will boast the highest nominal federal deficit in U.S. history. Those are three of the many predictions made by the Congressional Budget Office in its latest outlook of the economy, released just this morning. Read the executive summary here.
Here are 4 key conclusions:
1. Short term deficits. Even with optimistic growth figures, this year's nominal deficit could be the highest in U.S. history at $1.5 trillion. The deficit will stay over $1 trillion again in 2012, for the fourth consecutive year, before falling sharply in the middle of the decade as the economy picks up and tax revenues recover.
2. Medium term debt: Public debt as a percentage of GDP (a key statistic for budget wonks) is expected to stabilize around 75 percent, which is historically high but not high enough to be considered dangerous by most experts. However, that's only if Congress agrees to revert to 1999-era tax rates when the 2010 tax compromise expires next year -- which is highly unlikely. So the CBO also calculated an alternative projection that makes realistic assumptions about Congressional votes in the next few years. Under this less rosy scenario, U.S. debt would equal GDP by 2020. A 100% debt-to-GDP ratio is, in a word, troubling. In a graph:
