How US Government Spending Continues to Add Fuel to the Fire

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The Government causes problems. It then offers solutions that make them worse.

On a macro level here is what is happening in the US with government spending. The feds created a credit-based economy, increasing the supply of credit 50 times in the past 50 years. This huge swell of credit swamped the entire world…leading to (among other things) the explosion in factory output in China…the bubble in housing in the US…the big increase in wealth for the ‘rich’…the blow up in ’08-’09…high unemployment…and little real growth.

But rather than recognize that, they set the house on fire…the feds arrive on the scene like firefighters, pretending to put it out. Trouble is, they keep adding tinder – more credit!

The feds have added $4.39 trillion to the national debt since Obama moved into the White House. On an accrual basis, they’ll add $20 trillion by the end of this year.

And that’s the fiscal side. Over on the monetary side, the Fed has been doing its part. It has added $2 trillion to its balance sheet (the foundation of the US money supply) since the crisis blew up in ’08-’09.

Even with all that gasoline and dry sticks, they’ve had trouble keeping the fire going. Consumers…and households…have been a wet blanket. They’re trying to de-leverage. That is, they want to get rid of credit, not add more.

But the government comes to the rescue with more student loans, housing loans, bailouts, subsidies, free bread at home…military circuses abroad.

And Paul Krugman, Joseph Stiglitz, Larry Summers et al urge the feds to do even more! In our view, they’ve done enough damage already.

Not that we’re complaining. It’s all very entertaining and instructive.

Regards,

Bill Bonner
for The Daily Reckoning Australia

From the Archives…

The Biggest Fraud in Economics
2012-06-29 – Bill Bonner

Why India is Buying Gold
2012-06-28 – Greg Canavan

Is the Silver Price Finally Bottoming Out?
2012-06-27 – Tim Staermose

A Giant Game of Currency Chess
2012-06-26 – Dan Denning

An Open Letter to the Fed: What’s Your Number Ben Bernanke?
2012-06-25 – Keith Fitz-Gerald

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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