Montag, Mai 23, 2011

95 Days...and Irony...

It's not so much that there isn't anything to say and for that reason I haven't written, but rather it's much more that there is so much to say that I don't know where to begin.

Start with this.

The problem with big government is that it is BIG. Seriously big, as in too big to fail big, too big to be ignored big, and above all: taking too much, spending it inefficiently, and then pretending that everything is fine.

If we're in a situation where cutting government spending permanently means entering a recession, that is the definition of government spending out of control.

The road to ruin is paved with the very best of intentions, with the gaps filled by platitudes and all covered with a nice, comfy surface so that those driving along feel no pain, feel no disturbances, but instead blithely continue on their journey.

Key quote:

Treasury Secretary Timothy Geithner has warned that if the debt limit isn't increased by August 2, the government will no longer be able to spend more than it collects in revenue. That means it will have to cut spending by about 35%, probably choosing among such items as payments to contractors, soldiers' salaries, social security and Medicare.

On average, the cuts would amount to about $3.8 billion a day, according to our own estimates based on projections from the Congressional Budget Office. At that rate, over a period of only 95 days, the cuts would add up to 2.9% of gross domestic product, adjusted for inflation*. That's just enough to negate all the economic growth forecasters expect in 2011.

The first and most fundamental problem here? If government spending is so large that 95 days' worth of cuts - not no spending, but rather cuts in the growth of spending - would wipe out GDP growth for 2011, it means that the economy is seriously lopsided, with government spending accounting for far too much growth.

You see, government spending, unlike any other part of the supply side of the US economy, doesn't add value per se, but is distributive: it takes taxes and fees spent by the companies adding value to the economy and spends it as politicians see fit. It also borrows to spend that money: we are at a crossroads where all paths are thorny and disturbingly difficult, but some lead to long-term recovery and the resurrection of the American dream, while others - most - lead to paths of greater debt, insolvency, and other options better left unsaid.

The ironic part has nothing to do, yet, with the US. It's just this: as the Spanish realize that socialism doesn't work (deliberate pun there: Spanish youth unemployment is over 30%) and give the Socialists there a resounding message at the polls for a change, the city-state of Bremen, in Germany, elects a red-green majority in a city that is broke. In other words, the Spanish are behaving like rational, thoughtful members of society and the Germans are behaving like voters who are collectively burying their heads in the sand and saying "Nanananan" in order to not to be confronted with the catastrophe rolling upon them, of insolvency and massive fiscal problems. Normally these roles are reversed, which is why it's so .... ironic.

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