U.S. Government Spending Growth Nearly Always Positive

Includes: DIA, QQQ, SPY
by: David I. Templeton, CFA

It goes without saying the most cited market topic every day of late, but I will mention it anyway, is the discussion about the fiscal cliff. The anticipated negative impact on the economy, and hence the market, of going over the cliff is significant. At the end of the day Congress and the administration in Washington, D.C. need to address the mismatch between revenue and expenses of the federal government.

The stumbling block at the moment seems to be what additional revenue sources will be on the table. However, as the below chart details, no matter what the increase in revenue taken in by the government, expenses always grow at a faster percentage rate.

The consequence is the budget deficit never closes and government debt continues to increase. A primary reason the deficit does not close is Washington's definition of expense cuts is simply a lower "growth rate" of spending. Only in Washington does this type of math seem logical.

From The Blog of HORAN Capital Advisors