U.S. Overview: When Will Growth Resume? Douglas Elmendorf Director - PowerPoint PPT Presentation

Congressional Budget Office Milken Institute Global Conference U.S. Overview: When Will Growth Resume? Douglas Elmendorf Director April 27, 2009

The Gap Between Actual and Potential Output Percentage of Potential GDP 8 6 4 2 0 -2 -4 Without -6 Stimulus -8 Legislation -10 -12 1995 2000 2005 2010 2015

Estimated Macroeconomic Effects of the ARRA Fourth Quarters of Calendar Years 2009 2010 2011 … 2019 Real GDP (Percentage change from baseline) Low estimate of effect 1.4 1.1 0.4 -0.2 High estimate of effect 3.8 3.4 1.2 0 Unemployment Rate (Percentage-point change from baseline) Low estimate of effect 0.5 0.6 0.3 0 High estimate of effect 1.3 1.9 1.0 0

The Effect of Rebates on Income and Consumption Billions of Dollars 11500 11000 10500 Excluding Actual Income Rebates 10000 Excluding Rebate Actual Consumption 9500 Effect 9000 2007 2008

Key Business and Household Interest Rates 30-Year Conventional Mortgage Rates BAA Corporate Bond Yield 9.5 9 .5 8.5 8 .5 7.5 7 .5 6.5 6 .5 5.5 5 .5 4.5 4 .5 200 7 200 8 2 009 2 0 07 2 0 0 8 2 0 0 9

Net Lending In Credit Markets Percentage of GDP 40 30 20 10 0 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 Rescue Activity All Other Rest of the World Depositories

Budgetary Impact of Actions Taken in Support of the Financial Markets Treasury Federal Reserve Troubled Asset Relief Program (TARP) : Reductions in Interest Rates $356 billion in 2009 and 2010 Loans to Financial Institutions Takeover of Bear Stearns Fannie Mae & Freddie Mac: $250 billion Support for AIG for existing book of business in early Support for Short-Term Corporate Borrowing 2009; $120 billion for new business over Support for Money Market Funds 2009-2019 period Support for Primary Dealers Support for the Mortgage Market Note : CBO’s baseline for these Support for Consumer/Small Bus. Lending transactions includes an estimate of the Assistance to Citigroup net cost of transactions for the TARP Currency Swaps and the housing GSEs (Fannie Mae and Purchases of Long-Term Treasury Securities Freddie Mac). Broadly speaking, CBO Note : The impact on federal budget from these Fed actions is computed the present value of uncertain. anticipated cash flows using an appropriate discount factor that FDIC and NCUA recognizes the riskiness of the cash Deposit Insurance Fund : net costs totaling $36 billion 2009-2010; net flows. receipts totaling $51billion 2009-2019 Assistance to Citigroup, Debt and other Guarantees : no net budget impact over the 2009-2019 period Note : Deposit insurance activities are recorded in budget on cash basis.

The Size of the Federal Reserve’s Balance Sheet Trillions of Dollars 2.5 2.0 1.5 1.0 0.5 0.0 A PR JUL OCT JA N A PR JUL OCT JA N A PR 2007 2008 2009

Total Deficits or Surpluses Percentage of GDP 4 Actual Projected 2 CBO's Baseline Projection 0 - 2 - 4 CBO's - 6 Estimate of the President's - 8 Budget - 10 - 12 - 14 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019

Revenues and Outlays in CBO’s Baseline and the President’s Budget Percentage of GDP 30 Actual Projected 25 Outlays 20 Revenues 15 0 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019 Note: Solid lines represent history and CBO’s baseline projections of revenues and outlays as a share of gross domestic product; dashed lines represent CBO’s projections of the President’s budget.

Medium-Term Projections: Levels of Real GDP Billions of 2000 Dollars 16000 Administration 15000 14000 CBO 13000 Blue Chip 12000 11000 10000 2005 2007 2009 2011 2013 2015 2017 2019