Government Spending: Where Does It End?

On Thursday, the Treasury Department released its monthly budget statement which summarizes revenues and spending for the month of October. After one looks at these figures, it's hard to believe that they are accurate, but unfortunately they are. Unless you have been living under a rock for the last several years, you know that our Federal Government has been spending money at rates that would make even a sub-prime borrower blush. But even taking this into account, these numbers are still startling, if not scary.

During the month of October, the Federal Government spent $2.30 for every dollar of revenue it took in. Given the fact that this is the fifth time this year that the ratio has exceeded two, one might think that this type of deficit spending is commonplace. However, going back to 1970, October was only the 13th month that the ratio ever exceeded two. Prior to 2008, the ratio exceeded two an average of once every 6.5 years. In the last two years, the ratio has exceeded two an average of once every three months!

The charts below highlight the twelve month rolling totals of government revenues and outlays. It doesn’t take an accountant to see that these two lines are moving in the wrong direction. Given the fact that nobody thinks Washington is going to reign in spending, the only way to solve the gap is through higher revenues (raising taxes) or increasing the money supply. Is it any surprise that barely a day goes by where the dollar doesn't trade down in value?

click to enlarge

In last week's Wall Street Journal, there was an article that discussed how some unemployed Americans who are living on severance packages are depleting their savings and maxing out credit cards in order to maintain their $100K+ lifestyles. It's ironic how we can be so quick to look down on these types of people for not being able to adjust to the new reality they find themselves in, yet at the same time barely an eyebrow is raised in DC when our Federal Government is spending like it's making $100K, even though its earnings are like those of a $42K worker.

Comments

[basehitz:]

When will it end? Next year is an election year. And in spite of the increasing public concern about deficit spending, all indications are there is no abatement. Of course, since we can’t possibly borrow that much money at reasonable rates, Banana Ben is the key to how long the Kool-Aid is dispensed. Both Japan and China spoke out recently adding to the global chorus criticizing the outrageous monetary policy.

So Banana Ben finally said something today. The key point from an AP article:
“He made clear Fed policymakers will keep rates at super-low levels. Yet through his words, Bernanke is also trying to bolster confidence in the dollar WITHOUT ACTUALLY RAISING RATES”.

In other words, it’s BS. The market immediately read that and celebrated continued free money for speculation while trashing the dollar.

But not to worry, the same article asked the “experts”:
“Economists say a free-fall in the value of the dollar is remote”

These would be the same morons who said brilliant things like “subprime is contained”, and didn’t see any of this coming before it imploded. How reassuring they don’t see the risk today. . . again. Banana Ben was in that camp.

Here’s link to full AP story:
finance.yahoo.com/news...=

Nov 16 03:06 PM