By Marc Chandler, Global Head of Currency Strategy, Brown Brothers Harriman
This Great Graphic that shows that deficit reduction in the US over the past three years is largest in more than 60 years. I found it at the Investor’s Business Daily, which of course, is not known for its leftist leanings.
The US budget deficit has fallen 3.1% in the 2009-2012 period. Besides the demobilization after WWII, the other time the deficit was cut quicker was the tightening of fiscal policy in 1937 served to extend the Great Depression.
This has gone largely unrecognized and did not even come up during the most expensive presidential campaign in history. The sub-par growth in the US since the economy bottomed in 2009 is partly a function of balancing the needs of fiscal consolidation with the demands for growth.
This also puts the “fiscal cliff” in a different light. The “cliff” is of America’s own making. It is not being imposed by investors, as has been case for the peripheral countries in Europe. Capital is not striking against the US. But more, the fiscal cliff itself is not as much an economic problem as a sign of the dysfunctional political process. How it is avoided, mitigated or postponed, is itself a reflection of that same dysfunctional process.