There was a lot of back-patting in Washington this week after U.S. President Barack Obama signed a debt-ceiling deal that he and members of Congress claim will reduce the national debt.
But here's the truth: This deal does nothing to reduce America's debt burden. In fact, the $14 trillion we owe now could every easily exceed $23 trillion by 2021.
That's a 62% increase.
It only takes a little bit of number crunching to see what I mean.
The deal brokered by Congress cuts spending by just $917 billion over a 10-year period, with a special congressional committee assigned to find another $1.5 trillion in deficit savings by late November.
Even if you round up, that $2.5 trillion in "savings" over a 10-year period is inconsequential when you consider that President Obama added nearly $4 trillion to the national debt in just a few short years in office.
How can you make any progress on the debt front when you're adding $4 billion in new liabilities every day?
And the story is even worse than that: According to the Congressional Budget Office (CBO), even the $2.5 trillion the government claims to be saving is quickly vaporized by inflation and lost economic output.
CBO: Contrary to Barack Obama
The CBO in January estimated that a 0.1% reduction in growth rates would increase the deficit by $310 billion over the next 10 years, while a 1% increase in inflation rate would increase the deficit by $867 billion.
The CBO projects the average growth rate from 2011 to 2016 will be 3.25%, and the non-partisan group has the average rate of inflation pegged at 1.55% over that same period.
However, growth in the first half of 2011was 0.8% and the personal consumption expenditures (PCE) inflation index – the type of inflation the CBO looks at – was 3.5%.
So let's do the math.
If growth and inflation statistics magically revert to CBO expectations – which would be a long shot considering how much they're already off – then the budget deficit over the next 10 years would rise by $928 billion. That alone is more than enough to wipe out the $917 billion of initial savings in the debt-ceiling bill.