We gon’ be broke:  Story from NPR

The U. S. budget deficit is expected to balloon to a record $1.6 trillion this year and the national debt will nearly double over the next decade, according to reports released Tuesday by the White House budget office and the nonpartisan Congressional Budget Office.

In separate, mid-year reviews, the offices predicted that spending on retirement and medical benefits would continue to push the deficit upward. But the more optimistic CBO analysis assumed that increased tax revenues would restrain the total deficit over the next ten years to $7.4 trillion, nearly $2 trillion less than the projection by the White House Office of Management and Budget.

According to both CBO (Congressional Budget Office) and White House projections, the deficit is expected to swell to the tune of 7-10 trillion dollars.  Keep in mind that the deficit isn’t the same thing as debt.  Deficit is merely the yearly difference between revenue and expenditures.  So if you were to make 50,000$ a year, and spend 150,000$ a year for five years, then 550,000 a year for the next five years on  HDTVs, new houses, a couple lawsuits involving dead hookers, etc. then your deficit would be 500,000$.  But in reality you would owe $3million of actual debt, with compound interest.  You’d be fucked. Likewise, people are projecting government debt to the tune of roughly $20 trillion.

Under normal circumstances, It’d be time to start saving every last dollar possible.  Think Stan’s Dad from the “Margaritaville” episode of South Park.  But there’s one tweak that people are forgetting.  While these projections are done based on trends in past data, they’re just that… projections.  They are incredibly suspect to mathematical fluctuations, as well any change in legislation, etc.  So if I were to project Hooker-Mc-HDTVs future deficit based on his current spending, I would say that because his spending spiked from $150,000 to $550,000, there will be another similar jump at some point in the future.  I would project his yearly spending at roughly $1million.  I would also make projections based on his current living situation.  I project under the assumption that things won’t change.  So I would account for roughly two dead hookers to deal with every couple of years, trends in HDTV prices and home prices, etc.  These projections do no different.  They are made under the assumption tax laws will stay where they are, and other legislation will remain in equilibrium.

We've Angered the Economy.

So say Hooker-Mc-HDTV decides to turn his life and spending habits around.  He starts spending 30,000 dollars a year on food, water, and shelter.  He stops chopping up whores.  He sells 88 of his 112 HDTVs.  He starts selling extra houses.  Suddenly his deficit has turned into a surplus, but this is all under the radar of the projections.  Likewise, if loans from the roughly $800billion stimulus start being paid back to the government, with interest mind you, this will also fly under the radar.  Potential increases in tax revenue will do the same.   This becomes especially pertinent regarding the healthcare debate.  Republicans are using these projections to show that America cannot afford such drastic and thorough reform.  Democrats use these projections to show that we cannot afford NOT having such drastic and thorough reform, because of how much money it will save in the longterm, money that didn’t even get projected in the current projections.  Ugh.

Lastly, the CBO has openly admitted how fickle a process projecting an entire economy actually is in a recent paper, The Uncertainty of Budget Projections: A Discussion of Data and Methods.  I’ll spare readers from the standard deviations and probability distributions and simply link the paper below.  But I did copy and paste one picture, I think it speaks louder than most of the formulas do.  You’ll see potential deviation of roughly 50% of the GDP:

Notice the Fuzzy Part.

The rest of the paper is linked here, its a bit heavy on the math but it’s pretty informative : http://www.cbo.gov/ftpdocs/78xx/doc7837/03-05-Uncertain.pdf

In conclusion, do what you usually do when you see news articles.  Take them with a grain of salt.