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Like its annual predecessors, the 2012 Federal Budget published yesterday includes six-year forecasts (2011-2016) for all the major budget categories. Let's examine Gross Federal Debt since 2000 with a focus on the eight six-year debt estimates beginning with the 2005 Bush budget, which was presented in February 2004. As we readily see, 2008 was a pivotal year.
In fact, the Gross Federal Debt from 2000-2008 and the five Bush debt forecasts shown on this chart (2005-2009) deviate only slightly from a linear regression drawn through the debt data and extended to 2016 (shown below). Despite the war or terror and the cost of wars in Iraq and Afghanistan, Gross Federal Debt was a relatively simple extrapolation.
The financial crisis that erupted in 2008 changed everything. Government policies to deal with the crisis have significantly altered the OMB estimates, as the three Obama budgets (2010, 2011 and 2012) dramatically illustrate. The 2010 budget (presented February 26, 2009, 11 days before the market low) included a forecast for the fiscal-year-end debt that proved to be 8.3% higher than the 2009 final number, a fact that underscores the unprecedented uncertainty introduced by the financial crisis.
These Federal Debt forecasts confirm we what already know — 2008 was a major economic turning point, a metaphoric fork in the road. However, the chart helps us quantify the magnitude of the new direction. The current 2016 forecast of a 20.82 Trillion debt is about 49% higher than the equivalent point (about 14 Trillion) on the road not taken.
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