Cut Government Spending Now!

Author: Vale

Created on December 27 2012

Written by Vale

Have you looked at federal government spending lately? Take a look at the White House OMB. The first thing you should notice from Table 1.1 is that federal spending since 2000 has more than doubled. During the prior ten years from 1990-2000 spending "only" increased 42%. For both periods, inflation was about 33%. What does this tell you? Government continues to grow and the behemoth keeps getting larger, even after adjusting for inflation. There have only been two year-over-year periods where the government spending shrunk in the last 50 years. One was in 1965 and the other was 2010.

Don't jump for joy yet as the spending decreased from their prior years 0.25% and 1.75% respectively. Actually, it is amazing that the growth in government spending is nearly monotonic. Government spending is akin to someone going into your wallet and spending your money because ultimately, the money comes from taxpayers and more money for the government is less money for them.

• The Deficit and Debt

Spending is bad, but a deficit is even worse because you are borrowing to spend even more than you have. Everyone knows that consumption debt is a bad financial play (you can easily dig yourself into a hole that you cannot get out of), but the government fools people into thinking that it is free money. There have only been a few select periods where our country has been "debt free" and none of those periods have been in the last 100 years. The closest we've gotten to zero debt was in 1836. Interest paid on debt is money that the government must pull from private citizens to pay for. Sure, there is a circuitous loop if some of the debt is held by citizens where the money goes right back into the population, but 30% of it is currently owned by foreigners. This money is lost by the Americans populous. And the principle of kicking the can down the road is not only irresponsible financially, it is immoral because it is stealing from future generations. Current generations apparently do not have a problem with this and those not yet born don't get a vote.

• Give Credit Where it is Due

Obama took office Jan 20, 2009, and usually one could argue that his budget went into effect in October 2009 and anything before that was his predecessor's responsibility (at least that is what his supporters repeatedly try to argue). I say usually because Obama doesn't get a pass this time since he signed a $787 billion dollar stimulus into law one month into his presidency. In 2008, during President Bush's final full budget year, the budget deficit was $458 billion, a record at the time, and that even included the $700 billion in TARP funds authorized by Bush in his final year (and most of this has since been re-paid with interest!). However, during every year of Obama's presidency, the deficit has been over a trillion dollars.

• The National Debt

So where does this deficit "go?" As previously discussed, it goes into the national debt. During the 4 years of Obama presidency, we will have added 48% ($5.3 Trillion!) to the national debt bringing the grand total to $16.4 trillion. Our GDP is $15.4 Trillion which means our national debt is now 106% of our GDP. This is bad. Why? Above the threshold of 90%, median growth rates fall by 1%, and average growth falls considerably more. Our massive government debt was a concern for the rating agency that downgraded USA credit quality a year and a half ago when our national debt was 13% less. We can be so 'fortunate' that the rest of the world is also having serious problems because the downgrade did not affect our borrowing costs, which are currently some of the lowest borrowing rates on record. In the future, the markets might become concerned that we cannot pay off our debt and interest costs will rise steeply.

• A Troubling Situation

Our national debt reaching 100% of our GDP happened a lot faster than most were expecting. Even our acting president claimed he would cut the deficit in half by the end of his first term. Not surprisingly, he was not able to fulfill this grandiose claim.

So how could we equate this to an individual? Wouldn't it be great if we could spend all our money that we made during our lives, and then when it came time to retire, just borrow everything we needed until we died? The government seems to think so, because that is exactly what they are doing. The difference is, they are spending our money. This has got to stop before there is nothing left but government debt with the taxpaying citizens holding the bag. We are going to go over the Fiscal Cliff in a few days and it is the best thing that could happen for our country's long term future if the politicians do nothing. Unfortunately, we know that they will be meddling.