The CBO is so riddled with mainstream neo-liberal economic doctrine that it cant be taken seriously as a forecaster. And here's a good example why:
CBO estimates that federal debt held by the public will equal 74 percent of GDP at the end of this year and 79 percent in 2024 (the end of the current 10-year projection period). Such large and growing federal debt could have serious negative consequences, including restraining economic growth in the long term, giving policymakers less flexibility to respond to unexpected challenges, and eventually increasing the risk of a fiscal crisis (in which investors would demand high interest rates to buy the government’s debt).
(Emphasis mine)
This is from its The Budget and Economic Outlook: 2014 to 2024 released in February of this year.
The market is not in charge of interest spending by the Federal Govt. As the monopoly supplier of Reserves aka US Currency, the Federal Reserve has no choice but to set the base rate upon which all longer term TSY securities are built on.
"As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills.6 In this sense, the government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. government debt at home because the U.S. government has the only means of creating risk-free dollar-denominated assets (by virtue of never facing insolvency and paying interest rates over the inflation rate, e.g., TIPS—Treasury Inflation-Protected Securities)."
https://www.stlouisfed.org/...
We have decades of evidence that all TSY securities rates follow the Federal Funds rate that the Fed Board of Governors sets
You would think that the CBO, or mainstream economists in general, would listen to the operations people that actually run the monetary system at the Federal Reserve. Because they couldnt be any clearer on the matter:
Flows of funds between the TGA and private depository
institutions were important prior to the crisis because the TGA
is maintained on the books of the Federal Reserve; increases in
TGA balances stemming from Treasury net receipts drained
reserves from the banking system and, in the absence of offsetting
actions, put upward pressure on the federal funds rate.
Conversely, decreases in TGA balances resulting from Treasury
net expenditures added reserves to the banking system and,
absent offsetting actions, put downward pressure on the funds
rate.
(Emphasis mine)
http://www.newyorkfed.org/...
Deficits (TSY net expenditures) drive down the Federal Funds rate and surpluses (TSY net receipts) drive up the Federal Funds rate. Its not really that complicated.
If banks only need $1 trillion in reserves to meet their Fed-mandated required reserve ratio and settlement needs and the TSY adds $500 billion through deficit spending, the banks would have more reserves than they need. And oversupply drives prices down. Which is why the Govt issues TSY securities in the first place, not because the Govt must acquire the currency that only it can create, but because if they dont do so, the Federal Funds rate goes to either zero, or the rate of interest the Fed pays on reserves. Which is of course exactly what QE demonstrates.
How can the CBO get something so basic so fundamentally wrong? Its almost like they, and mainstream economists, are ideologically against evidence that contradicts their worldview. Markets = good, Govt = bad, so of course the market and "bond vigilantes" control things. Its just absurd.
And thats just on one level of understanding the current operations. History provides an even more explicit demonstration of this. At any time the Govt wanted, it could have the Fed directly set the interest rate on any term TSY Security by simply announcing a price (interest rate) and being prepared to buy or sell any amount of TSY securities at that price. This is the power that the Federal Govt has as the Currency monopolist. And this isnt economic theory, this is an historical fact. During WWII, the Fed operated in just this way up until the TSY-FED accord of 1951:
The Federal Reserve System formally committed to maintaining a low interest rate peg on government bonds in 1942 after the United States entered World War II. It did so at the request of the Treasury to allow the federal government to engage in cheaper debt financing of the war. To maintain the pegged rate, the Fed was forced to give up control of the size of its portfolio as well as the money stock. Conflict between the Treasury and the Fed came to the fore when the Treasury directed the central bank to maintain the peg after the start of the Korean War in 1950.
https://www.richmondfed.org/...