See for instance Valerie Cerra and Sweta Saxena, “Growth Dynamics: The Myth of Economic Recovery,” American Economic Review, 98:1, pp 439–457, 2008.
Adjustments to the CGER saving/investment norm to account for staff’s envisioned structural shift in household savings would imply an overvaluation according to the macro-balance approach.
The team observed that large near-term gross financing requirements—estimated at some $5 trillion—put a premium on a well-communicated strategy for medium-term fiscal sustainability to maintain market confidence.
Guaranteed liabilities comprise $4.8 trillion in insured deposits, $700 billion in insured non-interest-bearing transaction accounts, and $336 billion in guaranteed debt (the latter two are under the TLGP program).
Similarly, the principles for managing ownership stakes in auto companies centered on disposing of such stakes as soon as possible, managing stakes in a hands-off, commercial manner to protect taxpayers, and voting only on core governance issues.
The planned Financial Sector Assessment Program (FSAP) will expand upon these and other issues related to the stability of the U.S. financial system.
See “Financial Regulatory Reform: A New Foundation”) (http://www.financialstability.gov/roadtostability/regulatoryreform.html).
Staff employs a real interest-rate/growth differential—key for debt dynamics—of 1.9 percent, compared with OMB’s 0.5 percent, and CBO’s 1.4 percent. For comparison, the differential was 1.7 percent over 1985-1999, calculated using ex-post real interest rates (the average of real three-month Treasury bill rates and ten-year Treasury rates, deflated by the actual change in the GDP deflator over the subsequent quarter or ten years respectively). Real ex-post ten-year rates are not observable beyond 1999; in addition, that period was characterized by unusually low long-term yields.
IRS research has estimated uncollected tax obligations at 2.9 percent of GDP, suggesting sizable returns to enhancing compliance through better enforcement (see http://www.irs.gov/newsroom/article/0,,id=154496,00.html).
On staff’s economic assumptions, this would imply a debt ratio of about 75 percent of GDP.