Friday, October 25, 2019

J. W. Mason — The CBO Just Handed Us Two Trillion Dollars

In their most recent 10-year budget and economic forecast, the CBO made a big change, reducing their long-run forecast of the interest rate on government bonds by almost a full percentage point, from 3.7 to 2.9. 
Most directly, the new, lower interest rate reduces expected debt payments over the next decade by $2.2 trillion. It also significantly reduces the expected debt-GDP ratio. Under the assumptions the CBO was using at the start of this year, the debt ratio under existing policy would reach 120 percent by 2040. Using the new interest rate assumption, it reaches only 106 percent. With one change of assumptions, a third of the long-run rise in the federal debt just disappeared....
The narrative shifts.

J. W. Mason's Blog
The CBO Just Handed Us Two Trillion Dollars
JW Mason | Assistant Professor of Economics, John Jay College, City University of New York

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