Waking up to reality

Market old-timers (like me) have often said that the four most expensive words in the English language — or, on Wall Street, at least — are „this time is different.” Nevertheless, the phrase usually refers to developments that the masses (or the trading crowd) view as bullish but which are, in fact, precursors to an unwelcome reversal of fortunes.

However, even though a growing number of people, including a former Treasury official see the meltdown in U.S government finances as „unique,” I’m pretty sure we should not interpret this as a sign that the fiscal pendulum will soon be swinging back in a positive direction.

That was the title of today’s luncheon talk to the National Economists Club by Urban Institute Fellow and former Deputy Assistant Treasury Secretary Gene Steuerle. These are the main points he made.

„What makes this fiscal crisis unique is that we can no longer depend upon economic growth to get out of it.”

„World War II is always held up as an example of running the national debt over 100%, but no one remembers that we drove it down below 70% within 6 years by the end of the Truman Administration.”

„We have a budget for a declining nation because we’re increasing federal spending on consumption, and we’re cutting federal spending for education and investment.”

„The enormous budget squeeze of 2009 saw revenues fail to cover entitlement spending and interest for the first time.”

„I call it my ‚Index of Fiscal Democracy,’ how much revenue is left after subtracting mandatory (entitlement) spending and interest.”

„There is no give in this budget.”

„The federal government has signed all of these contracts that can’t be kept.”