alstry (35.70)

The Bubble Economists Missed......

July 29, 2009 – Comments (3)

The Government Bubble is by far going the bubble with the biggest bang when it pops.  Total Government spend is about $6.5 trillion dollars, 50% more than the GDP of China.

http://www.usgovernmentspending.com/index.php?year=2009

Government spend is responsible for over half of all health care dollars, practically all of defense spending, and employs over 20% of the workforce directly and indirectly.  On balance, those that work for the government make above average incomes.  Consequently, their spending contributes significantly to the consumer economy.

Having a $6.5 trillion dollar spend in a $13 trillion dollar economy, once you factor in the mulitplier effect, one could say government spending is practically our entire economy.

Up until recently, the private sector was pretty much able to generate enough  taxes to  support governments seemingly never ending growth.  The two worked well together.  The private sector generated more and more taxes and government spent more and more driving the private sector.

Nobody took advantage of that relationship more than the Bush/Pelosi era...where government in the U.S. doubled and drove fantastic stimulous into the economy.  Instead of balancing the budget when tax receipts flowed in from the credit bubble, they increased the deficit even further by spending trillions of extra dollars mainly on health care and defense.

Now the credit bubble bubble is popping, revenues to government are evaporating, and government must cut back....way back, or else our currency will be worthless.

We as citizens of a nation have an implied contract with our government that we will go to work in exchange for the federal reserve's money as long as the federal reserve maintains its obligation to preserve the value of the money.

If the money we were paid was worthless, few of us would be willing or able to work.

Here rests Obama's paradox, cut spending and drive our country into a deep temporary depression, or keep spending and destroy the value of our currency?