This document summarizes America's new fiscal reality in the aftermath of the Great Recession through a series of charts and figures. It shows that the recession caused the largest post-Depression dip in GDP. Federal deficits and debt have grown substantially and are projected to continue rising due to factors like an aging population, rising healthcare costs, and political resistance to tax increases. The housing market crash led to a large decline in home values and high rates of negative equity. Long-term unemployment also rose to historic levels. Overall, the document outlines how the fiscal landscape has changed significantly with growth in entitlement programs, debt, and the challenges of recovering from the recession.

1. Adjusting to America’s New Fiscal Reality
Why This Time It Really is Different
Robert D. Reischauer
Seminars at Steamboat
July 26, 2012

2. Largest Post-Depression Dip in GDP
Source: ―Chart Book:
The Legacy of the
Great Recession.‖
Center on Budget and
Policy Priorities.
July 6, 2012.

3. Source: ―Chart Book: The Legacy of the
Great Recession.‖ Center on Budget and
Policy Priorities. July 6, 2012.

4. Source: ―Chart Book: The Legacy of the
Great Recession.‖ Center on Budget and
Policy Priorities. July 6, 2012.

5. Source: Michael
Greenstone and Adam
Looney. ―The Role of
Fiscal Stimulus in the
Ongoing Recovery.‖
The Hamilton Project.
July 6, 2012.

6. Federal Deficits 1950-2012
% of GDP
4
2
0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
-2
-4
-6
-8
-10
-12
Source: ―White House Historical Tables.‖ Table 1.2. Office of Management and the Budget. (Updated July 2012.)
Note: Years with positive numbers are surpluses rather than deficits; 2012 is an estimate.

8. Growth of Deficit 2009-19
Testimony of Chad
Stone, Chief
Economist, Before
the Joint
Economic
Committee United
States Congress
Hearing on ―Spend
Less, Owe
Less, Grow the
Economy.‖ Center
for Budget and
Policy Priorities.
June 21, 2011.

9. Growth of Debt 2001-19
Testimony of Chad Stone, Chief Economist, Before the Joint Economic Committee United States Congress Hearing on ―Spend Less, Owe
Less, Grow the Economy.‖ Center for Budget and Policy Priorities. June 21, 2011.

10. Roots of the Long-Run Budget
Problem
 Demography: The baby boom retires
 Sectoral: The inexorable rise of
health care costs
 Political: Americans aversion to
taxes

12. Growth of Medicare Beneficiaries
1980-2040
1980-1990 1.9
1990-2000 1.5
2000-2010 1.8
2010-2020 3.0
2020-2030 2.4
2030-2040 0.9

14. Source: Douglas W. Elmendorf. ―Choices for Federal Spending and Taxes.‖ Presentation at Harvard University. Congressional Budget Office.
February 24, 2012.

16. 100,000
Median Family Income
90,000
80,000
70,000 Married-couple
Constant 2009 dollars
families (Total)
60,000
50,000
40,000
30,000
20,000
10,000
0
1964 1969 1974 1979 1984 1989 1994 1999 2004 2009
Source: U.S. Census Bureau, The National Data Book: The 2012 Statistical Abstract, Table 699; taken from the U.S. Census Bureau, Income, Poverty and
Health Insurance Coverage in the United States: 2009, Current Population Reports, P60-238, and Historical Tables -- Table F-7, September 2010.

17. Labor Force Participation
Rate of Married Women
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
1960 1970 1980 1990 2000 2010
Source: U.S. Bureau of Labor Statistics, Women in the Labor Force: A Databook, Report 1018 and 1026, September 2009 and December
2010, and Basic Tabulations, Table 12

18. Median Family Income
100,000
90,000
80,000
Married-couple
70,000
Constant 2009 dollars
families (Total)
60,000 Wife in paid
labor force
50,000
Wife not in
paid labor
40,000 force
30,000
20,000
10,000
0
1964 1969 1974 1979 1984 1989 1994 1999 2004 2009
Source: U.S. Census Bureau, The National Data Book: The 2012 Statistical Abstract, Table 699; taken from the U.S. Census Bureau, Income, Poverty and
Health Insurance Coverage in the United States: 2009, Current Population Reports, P60-238, and Historical Tables -- Table F-7, September 2010.

19. Household Size and Number of Children
3.5
3
Persons per household
2.5
2
Number of children in
families with own
1.5 children
1
1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: U.S. Census Bureau, Current Population Survey (CPS) Reports, Table HH-4 and FM-3

20. Bigger Slice of the Same
Sized Pie

21. Total Consumer Credit Outstanding as a
Percent of Disposable Personal Income
26%
24%
22%
20%
18%
16%
14%
12%
10%
1980 1985 1990 1995 2000 2005 2010
Source: Federal Reserve Bank of St. Louis, Federal Reserve Economic Data, U.S. Department of Commerce: Bureau of Economic Analysis and
Board of Governors of the Federal Reserve System, July 2012

22. Personal Saving Rate
12
10
8
Percent
6
4
2
0
1980 1985 1990 1995 2000 2005 2010
Source: Federal Reserve Bank of St. Louis, Federal Reserve Economic Data, U.S. Department of Commerce: Bureau of Economic Analysis, July 2012

23. New Home Mortgage Yields
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011
Source: 2012 Economic Report of the President, Council of Economic Advisers, February 2012.

24. House as a Piggy Bank

25. House as an ATM: Equity Extracted from Homes
350
Home equity
300 loans net of
unscheduled
payments
250
Billions of Dollars
200 Cash out
refinancings
150
100
50
0
1991 1993 1995 1997 1999 2001 2003 2005
Source: Alan Greenspan and James Kennedy. ―Sources and Uses of Equity Extracted from Homes.‖ Finance and Economics Discussion
Series, Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board, Washington, D.C. March 2007.

26. Decline in Home Value
 Case-Shiller reported a peak decline in
house prices nationwide of almost 34% at
the end of 2011 (relative to 2006)*
 According to CoreLogic, 24.6% of US
properties with a mortgage were
underwater in 2011 (23.7% in the first
quarter of 2012)**
 Worst Cases (Q1 2012):
 Nevada: 61% of homeowners with negative
equity; Florida 45%, Arizona 43%; Georgia
37%; Michigan 35% *The Standard & Poor's Case–Shiller Home
Price Indices, July 2012
** CoreLogic. ―CoreLogic Reports Negative
Equity Decreases in the First Quarter of
2012.‖ July 12, 2012.
<http://www.corelogic.com/About-
Us/ResearchTrends/Negative-Equity-
Report.aspx>.

27. U.S. Housing Market Circa 2012

28. Value of US Dollar
140.00
120.00
100.00 Nominal: Broad
index (January
1997=100)
80.00
60.00
Real: Broad
index (March
1973=100)
40.00
20.00
0.00
1992 1995 1998 2001 2004 2007 2010
Source: 2012 Economic Report of the President, Council of Economic Advisers, February 2012.

29. Increasing Deficits
 Deficits allowed Americans to enjoy more
public services without paying for them
with taxes
 Failure to maintain physical capital created
an infrastructure deficit that will have to be
corrected
 Unfunded liabilities—public sector
pensions and retiree health benefits.

31. The Share of the Population with a Job Fell to Levels Not Seen Since the Mid-1980s

32. Long-Term Unemployment Rose to Historic Highs

34. End