Recommendation for Bond Investors: Don’t Fight Financial Repression
The Congressional Budget Office (CBO) released two supplemental reports this month – the first reveals budget scenarios it “did not have enough time” to include in June’s 2018 Long-Term Budget Outlook, and the second shows what needs to happen for policy makers to reach certain government debt targets.
I plan to post a few charts summarizing the new reports, but because I’m sounding off on bonds for now (or in a moment) and don’t need all the detail to support my argument, I’ll share only a short summary of the first report.
The CBO Swallowed the Red Pill, and Here’s What Transpired
In its report titled The Long-Term Budget Outlook Under Alternative Scenarios for Fiscal Policy, the CBO produced three scenarios that didn’t make the publication deadline for its primary long-term outlook. In a more honest world, though, the order of publication would have been reversed—the primary report would have contained only the new scenarios. By building the new scenarios on well-established lawmaking practices that are disallowed in the primary report’s “baseline” scenario, the CBO is finally nudging toward a realistic estimate of our government debt trajectory. The new scenarios address the problem that the baseline is so heavily gamed by devious lawmaking and compromised by shoddy economics that it falls somewhere between unhelpful and fraudulent.
Does that sound extreme? Too radical for you?
If you’ve studied the baseline methodology with any seriousness and yet insist on defending it, I