The Congressional Budget Office (CBO) published its long-term deficit and national debt projections last week. These are the projections most widely cited in policy discussions about long-term “sustainability” of the national debt and entitlement programs. In this post I focus on a small but very important part of the report—the CBO’s discussion of the “Consequences of a Large and Growing Debt,” which can be found on pages 13-15. This section can be found in past reports going back several years, and hasn’t change much if it has changed at all during this time. It is also consistent with the thinking of most economists on these issues. As readers of this blog will recognize, the CBO’s analysis is “out of paradigm” in that it is inapplicable to a sovereign, currency-currency issuing government operating under flexible exchange rates such as the US, Japan, Canada, UK, Australia, etc.
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