Posts Tagged ‘government spending’
Why Wall Street Mitt is Wrong When He Says He’ll Cut Government Spending and That Will Solve All Our Economic Problems
Posted in corruption, Economics, Economics, recession, Federal Reserve, free trade, immigration, income redistribution, Mitt Romney, Recessions, the Rigged Game, wealth redistribution, tagged austerity, cause, causes, government spending, Great Depression, income redistribution, mitt romney, reason, reasons, Recessions, redistribution, Ron Wyden, wealth on Jam6000000amSat, 16 Jun 2012 08:44:08 +000012 10, 2010 | Leave a Comment »
The US economy is slowing and there’s a reason for it. This is lost on Wall Street Mitt Romney, a presidential candidate that wants to elevate the economic aristocrats of Wall Street by laying waste the American middle class.
So why is the economy slowing? Government spending is decreasing, thanks to Republicans in the House of Representatives who would rather starve middle class babies to death than follow the president’s lead and enact policies that might make President Obama re-electable.
So why is decreasing government spending a bad thing? Neither Republicans, Democrats or the corporate media want you to know the real reason.
Right now the 1 percent steal via corrupted government legislation about 26 percent of the total US income, that includes 93 percent of all income growth over the last two years. They’re getting more and more while the 99 percent is getting less and less. Thirty years ago, the 1 percent got around 8 percent of total US income. Three years ago it was 24 percent.
That means the 99 percent has less money to demand the goods and services necessary to keep the economy afloat.
What do the rich do with the cash? They invest it in sucking more cash out of the 99 percent. They buy stocks and bonds and push CEO’s to ship jobs overseas. The extra cash gives them additional funds to purchase more legislators, like Wall Street Senator Ron Wyden, and influence them to enact free trade treaties that enable corporations to ship the jobs of the 99 percent overseas, or make it easier to create them there, rather than here. The difference between the old, higher, wages here and the new lower wages there go into the pockets of the 1 percent via higher stock prices, rising dividends and greater corporate profits. The 1 percent also purchase deregulation, which helps to suck us dry, as well as other legislation that does the same thing.
So if the members of the 99 percent experience a reduction of income from 92 to 74 percent, that means they have less money to spend. The economy should collapse unless there’s something that makes up the difference of 18 percent. That difference took the form of a housing bubble to some degree. It took the form of a credit bubble and a tech bubble. The truth is that, ultimately, government spending has gradually taken up the slack.
Reduce government spending right now and the demand for goods and services slows and the economy contracts, which it appears to be doing. It’s possible the cutbacks are insufficient to send us over a cliff just yet, since the spending reductions in terms of percentage aren’t that huge.
On the other hand, if Wall Street Mitt becomes president he’ll put the petal to the metal, slash government spending, and send us barreling further into an economic catastrophe that may make the Great Depression look like great times. Actually, we’re already in a calamity brought about by Republican and Democratic Party income redistribution scams that suck money from the 99 to the 1 percent, but this can’t go on forever, unless most voters prefer the US become a banana republic.
In other words, a vote for Wall Street Mitt is a vote for a rapid expansion of unemployment that will likely enrich Wall Street titans by redistributing income from the 99 to the 1 percent.
As an aside, this redistribution scam has brought on every recession for as far back as statistics are available. Here’s a little known fact. Dividend payments soared during the first eighteen months of the Great Depression. The rich got richer as people were laid off and the wages from the lost jobs were diverted to profits and dividend payments.
Posted in Economics, Recessions, the Rigged Game, tagged 1937, 2013, consumption, FDR, government spending, income redistribution, obama, Recession, wealth redistribution on Jam6000000amWed, 13 Jun 2012 09:51:27 +000012 10, 2010 | 2 Comments »
The conventional wisdom seems to be that our biggest economic challenge is runaway government spending. The reality is that government spending is contracting and pulling economic growth down with it. And worse is yet to come.
Given the federally sponsored redistribution of income and wealth from the 99 percent to the 1 percent since 1981, the demand by the 99 percent for goods and services in sufficient amounts to keep the economy afloat cannot be sustained without heavy and increasing government spending. The economy cannot stand on its own, which is what FDR discovered when the federal government cut back on spending in 1937. This is especially true given that more and more income is being redistributed from the 99 to the 1 percent. The process is continuing unabated under President Obama.
Perhaps the best measure of active government intervention in the economy is something called “government consumption expenditure and gross investment.” This includes total spending by all levels of government (federal, state, and local) on all activities with the exception of transfer payments (such as unemployment benefits, social security, and Medicare).
The graph below shows the yearly percentage change in real government consumption expenditure and gross investment over the period 2000 to 2012 (first quarter). As can be seen, the rate of growth in real spending began declining after the end of the recession, then jumped off a cliff beginning in 2011, which means that government spending (adjusted for inflation) is actually contracting.
The following chart shows the ratio of government consumption expenditure and gross investment to GDP; it highlights the fact that government spending is also falling as a share of GDP.
Adding transfer payments, which have grown because of the weak economy, does almost nothing to alter the picture. As the chart below shows, total government spending in current dollars, which means unadjusted for inflation, has stopped growing. If we take inflation into account, there can be no doubt that total real government spending, including spending on transfer payments, is also contracting.
The same is true for the federal government, everyone’s favorite villain. As the next chart shows, total federal spending, unadjusted for inflation, has also stopped growing.
Not surprisingly, this decline in government spending is having an effect on GDP. Real GDP in the 4th Quarter of 2011 grew at an estimated 3 percent annual rate. The advanced estimate for 1st Quarter 2012 GDP growth was 2.2 percent. A just released second estimate for this same quarter revised that figure down to 1.9 percent. In other words, our economy is rapidly slowing.
What caused the downward revision? The answer says Ed Dolan is the ever deepening contraction in government spending:
What is driving the apparent slowdown? It would be comforting to be able to blame a faltering world economy and a strengthening dollar, but judging by the GDP numbers that does not seem to be the case. The following table (see below) shows the contributions of each sector to real GDP growth according to the advance and second estimates from the Bureau of Economic Analysis. Exports, which we would expect to show the effects of a slowing world economy, held up well in the first quarter. In fact, the second estimate showed them even stronger than did the advance estimate. The contribution of private investment also increased from the advance to the second estimate, although not by as much. Exports and investment, then, turn out to be the relatively good news, not the bad, in the latest GDP report.
Instead, the largest share of the decrease in estimated real GDP growth came from an accelerated shrinkage of the government sector. The negative .78 percentage point decrease of the government sector is the main indicator that we are already on the downward slope toward the fiscal cliff.
If current trends aren’t bad enough, we are rapidly approaching, as Ed Dolan noted, the “fiscal cliff.” That is what I was referring to above when I said that worse is yet to come. As Bloomberg Businessweek explains:
Last summer, as part of its agreement to end the debt-ceiling debate (debacle?), Congress strapped a bomb to the economy and set the timer for January 2013. Into it they packed billions of dollars of mandatory discretionary spending cuts, timed to go off at exactly the same time a number of tax cuts [for example, the Bush tax cuts and the Obama payroll-tax holiday] were set to expire
The congressional deficit supercommittee had a chance to disarm the bomb last fall, but of course it didn’t. And so the timer has kept ticking. The resulting double-whammy explosion of spending cuts and tax increases will likely send the economy careening off a $600 billion “fiscal cliff.”
The fiscal contraction will actually be even worse, since the extended unemployment benefits program is also scheduled to expire at the end of the year.
So, what does all of this mean? According to Bloomberg Businessweek:
If Congress does nothing, the U.S. will almost certainly go into recession early next year, as the combo of spending cuts and tax hikes will wipe out nearly 4 percentage points of economic growth in the first half of 2013, according to research by Goldman’s Alec Phillips, a political analyst and economist. Since most estimates project the economy will grow only about 3 percent next year, that puts the U.S. solidly in the red.
One can only wonder how it has come to past that we think government spending is growing when it is not and that it is the cause of our problems when quite the opposite is true. Painful lessons lie ahead—if only we are able to learn them.