Troubling budget dynamics, and economic insights from the Wicked Witch of the West

I just read an article on the federal deficit occasioned by the release of the January 2016 CBO projections. The CBO assumes 1.8% real GDP growth over the next five years, no new programs or program cuts, and interest rates staying below 3%.

The key points are as follows:

1. The deficit now begins to increase as a percent of GDP after falling for some years from the stimulus peaks.
2. Interest expense is over half the deficit this year and grows in importance over time.

The thing that struck me about these numbers is that whether or not the deficit is a problem or a disaster depends importantly on three factors:

1. The future rate of GDP growth. (1.8% is assumed; if it is higher, the deficit goes down, or, conversely, if lower it goes up.)
2. The assumed interest rates. (The CBO is assuming that the federal government will continue to finance the deficit at 1960s' rates. 1.7% this year rising to 2.9% in 2020)
3. The numbers do not include the deficits in social security and the other trust funds.

I do not know how this will all turn out, but I am reminded of the scene in the Wizard of Oz where the Wicked Witch of the West holds Dorothy prisoner in her castle and notes that Dorothy would certainly die, but that "how" was the question, because, "these matters must be handled delicately." Janet Yellin will need all her finesse in the years to come.