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XE Introduction

Advanced Exploration of the U.S. Economy: with the PFI Projectorxe - Extended Edition 

 

 

The PFI Projector Extended Edition is available to "Entry Level" members/subscribers of the PJI Learning Center. 

What Functions are available:

1) Setting the threshold

2) Setting the automatic reaction for modeling changes if the US can no longer borrow.

3) Modeling with Dynamic Interest

 

  • First Level: the wave of spending and tax increases that have already been legislated. You will start to see these occur starting now and over the next 10 years. These projections are based on the CBO 2010 data.
  • Second Level: a wave of possible higher tax increases if the U.S. does not cut spending and if we can no longer borrow (access the capital markets) to support deficit spending.
  • Third Level: utilizing a dynamic interest rate on the debt compared to the relatively static rate used by the CBO of 3 percent long term.

Using the PFI Projector Let you understand and model these levels: Making Changes and  Understanding What Changes are in effect

  • What can you change: you can change the deb-to-gdp alert threshold, the "autopilot" reaction, and the dynamic interest rate. In addition you can continue to change spending levels.
  • How do  you make changes: you can make changes through the XE tool bar and the setting controls (on the top right)
  • How do I understand the changes that are in effect: a) The tool bar will show major indicators b) the setting control will show these in more detail c) clicking on the blue "DETAIL" item on any chart will show you all the settings in effect.  
    • Example:
      • You set the NETI alert to 95% debt to gdp, the reaction duration is changed from 15 to 18 years, and you enter your own values for dynamic interest. These values will affect all charts on the XE microsite
      • In addition you may change spending levels on a "Deficit" set of charts. These spending changes do not affect other chart for Debt, Impacts on American Families, Debt Charts, etc.

The Tool Bar

  • The NETI Alert  (National Economic Threat Index).
    • Background: Many economists belief that a high debt-to-GDP is problematic. Some think that 90% is the high point although this number does depending on the specific situations for a given country. More importantly, at some level people believe that the U.S. may become too risky for lenders to lend any more funds to the U.S. which means that we would be forced to raise taxes, cut spending, etc. Although there are many different factors that could affect when the U.S. is no longer able to "access the capital markets" (ie borrow money), many believe that debt-to-GDP is a key indicator. Although some feel that 90% is a key threshold, others may feel that number could be as high as 150% or more.
    • Activating and setting the threshold: You can turn the Alert Level on or off by clicking on the tool bar NETI on and off circles. You can also turn the Alert on or off in the Setting Control (upper right). The value of the setting definition is defined in the setting sheet as debt to GDP. The default is 90%. The green lights on the tool bar show you if the Alert is currently on or off. The value in orange is the YEAR that our debt to GDP reaches the NETI trigger point. This value will change based on: the current NETI definition, and spending changes. Remember: you can always click on the blue DETAIL link on any chart to see the current definition of the NETI trigger level.  
    • What does the NETI Alert Setting Really Affect:
      • It affects the year shown in orange, when the NETI level occurs and also affects the same information in the DEBT to GDP chart.
      • When the NETI Reaction is TURN ON, the NETI alert level is the point at which the PFI Projector will start invoking that reaction. For example, if the NETI alert is set to 90% and that level of debt-to-GDP occurs in 2020, the the PFI Projection autopilot "Reaction" will begin its adjustments starting in 2020.
  • The NETI Reaction:
    • Background: Hopefully our politicians will cut spending sufficiently to avoid our nation reaching the NETI alert level. But if they don't the PFI Projector will starting acting in an autopilot mode if the NETI REACTION is turned off. The Projector assumes that cutting spending or raising taxes are the only two long term viable actions (ie , that printing money, selling assets, growing productivity, repudiating the debt - are not sufficient given the magnitude of our problems). There are two possible reactions when the NETI trigger point is reached: a) balancing deficit each year or b) bring down the debt to gdp from the NETI trigger point down to a lower level of debt to gdp over a number of years). If politicians don't cut spending, then the Projector will raise taxes to achieve the goal of the Reaction definition. If some spending is cut (which  YOU can model) , then taxes will not need to be raised as much or not at all. NOTE: raising taxes will reduce our interest payments and therefore our overall spending needs.
    • Activating and Setting the Reaction: NOTE: THe NETI ALERT TRIGGER MUST BE TURNED ON in order for the NETI REACTION to go into action. The tool bar can be used to set (and see) the activation mode of the Reaction based on the Green light (or button which  you can click on). The type of reaction can also be selected from the pull down. The values of the Reaction can be defined in the settings control on the top right. The default Debt-to-GDP reaction is to bring down debt to GDP to 60% over a 15 year period, after the NETI trigger level has been set. Reminder: click on the blue DETAIL link on any chart to see the active definitions of the NETI Alert and any NETI Reactions  
  • Dynamic Interest:
    • Background: The long term interest rate on the debt as modeled by the CBO is about 3% after 2020. However since the debt-to-GDP will rise to 90% by 2020, many would argue that 3% is too low.
    • Defining the Dynamic Interest: In the Dynamic interest section, you can see the current CBO interest rates. You will enter any new interest rate definitions in the Settings control. A chart will show you WHEN the rates you define are active compared to the CBO rates. Reminder: click on the blue DETAIL link on any chart to see the active definitions of the NETI Alert and any NETI Reactions

 

 

 

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