My Mortgage Blog

It is an old adage now. Those who fail to learn from history are doomed to repeat it.

In 1937, the nation seemed on the verge of economic growth after years of the Great Depression. Congress decided it was time to impose fiscal order on the economy, making broad cuts to governmental spending. This resulted in a severe slowing of the economy, and we hastily fell into the worst portion of the Great Depression.

Does this mean that enacting spending cuts today will throw us back into the Great Recession and make it worse than it was the first time through? While that is a real possibility, no one can reasonably make it their forecast. There are too many wildcards.

But we can be reasonably fearful that severe cuts to governmental spending now would indeed result in an economy that has no fuel for further growth. (Why, after last Friday’s news about the non-existent growth of Gross Domestic Product, am I speaking of “further growth”? I have recently been noticing glimmers of hope in the economy, especially in the real estate market, and writing about them. But my observations seem overly optimistic when measured against how poorly the economy now seems to be performing.)

I write these words on Sunday evening, as Congress muddles with little hope of success toward a possible Houdini-like escape from the Default Trap. Perhaps investors all over the world would be elated that we were able to pull the votes together after all. But I anticipate very little elation. Nothing will have been resolved. The can will simply have been kicked down the road a bit.

And this time, there is a feeling much like loss of innocence in the air. Unthinkable questions now have their unthinkable answers. Would many in Congress really risk our preeminent position in the world economy just to make their point about the need to reduce spending? Answer: Yes, it would. Would Congressional leaders refuse to compromise their positions (and, at the same time, would other leaders compromise the positions advocated by their voters)? Yep again. Is it really possible that we could see America’s credit rating lowered and watch Treasury securities lose some of their standing in world debt markets? Yes.

These speculations aren’t any fun at all—which is probably why we didn’t ponder about them out loud very much until recent events forced us to. Now, we cannot avoid a sense that the rules are changing, the ground shifting under our feet. Already, even before we see Treasury securities lose much value—the 10-year note fell to 2.80% at the end of last week—there is an unavoidable feeling that Treasury securities just ain’t what they used to be.

Another cliché—involving the use of a fiddle while Rome burns—springs lamely to mind. What we need is economic growth, especially job growth. Without economic growth, hiring isn’t going to increase. Businesses see no evidence that their sales will remain strong or increase. There is no wind to set your sails to. We’re becalmed.

In order for the economy to grow, we need the perfect alignment in the celestial stars, with every star burning a bit more brightly as a result. We need to place money where it will actually do some good. We need to stop spending money on programs that are obvious losers. We need to open markets. We need to welcome new businesses. We need to support those who have been without work for months on end. We need to create the feeling and mood of an American Economic Renaissance.

I’m inclined to think that anyone in the House and Senate who is not thinking in these terms should be invited to look for another job. And to believe that those who are committed to America’s future should take their places.

Let’s not repeat one of history’s painfully destructive mistakes.