There is something everyone seems to forget, or in some cases never considered:
The government doesn’t make anything.
The economy as a whole is made up of the private and public sector. The private sector consumes and produces. The public sector only consumes and consumes and consumes. The government takes more from the economy every year and adds little, if anything, back to it. Government adds nothing to the GDP. It is private contractors who build our roads and battleships. Creation of wealth only happens in the private sector.
There are three things that concern me most about our government:
- Government give away programs
- Overall government expansion
- Federal Debt Service
This first chart gives us an idea of our governments give away programs to private citizens. The chart below shows that the Robin Hood like behavior of our Federal, State and Local governments currently subsidizes 18% of private incomes.
Next up is overall government expansion. In 1940 federal revenue was .56% of the GDP. Today it is 19.88% of the GDP. The dip from 2001 to 2003 is when the economy grew faster than the government. This chart represents the increasing amount of actual dollars coming out of the economy into the black hole of government. If this chart doesn’t blow your mind, what will?
Finally there is debt service. Normally everyone likes to see a ratio of total debt to GDP. This can make a great chart; to give you an idea, in 1940 federal debt was 52.4% of the GDP, in 2008 it was 70.2% and in 2011 federal debt is projected to be 101.1% of the GDP. A chart like that would be a mind blower like the other two charts above but I think that a percentage of income paid as debt service tells a better story.
Just how much of anyone’s income can be paid out in debt service? 20%? 30%? 40%? At what point do you default? As the chart shows below 27.11% in 1991 was the highest amount of federal income paid to service the public debt. Then with the dot.com boom of the mid and late 1990s we grew our economy and raised federal revenue so that debt payments went back down to the very manageable 16% range.
As you can see however, we are on the rise again and this time with a shrinking economy, not an expanding one. With the unparalleled debt run up of our government I am betting we will hit new highs on debt service maintenance costs in the coming years. At what point will the US default?
This chart represents only interest paid, not principal:
So how far can the government bailout and ongoing subsidies go? How big can government get? How many incoming dollars can be spent to pay debt interest?
Where does the decades long expansion end? Does it end? YES.
Can you say “Revolution”?
Disclosure: No positions