Monday, February 6, 2012

The Government Bubble

Just my latest theory:
We are probably headed to a second recession as a result of "the government bubble".

The GDP of the country is roughly 14.5 trillion dollars/year.
The national deficit is roughly 10% of our GDP and has been for the past few years.

That's just the numbers.  You can look them up in half a minute through Google.

Roughly 10% of our economy right now is coming from deficit spending, which is to say, it is coming from borrowed money at a rate we can't keep up forever.
Roughly 1 out of every 10 people currently employed owes their job to this deficit spending.

So, for example, the upcoming cuts to the DOD call for the Army to shrink by 80,000 positions and the Marines by 20,000 positions.  So this will be 100,000 job openings that are being canceled as we try and draw down the deficit.  The Navy is additionally canceling about a dozen new ship orders over the next 5 years, for however many jobs that would have accounted for.

Not that I am, by any means, saying I supported this massive level of government spending.  I think Keynesian economics is probably bullshit, but I do think we have propped ourselves up with a frenzied pace of borrowing money and that lifeline is going to get pulled in the foreseeable future.

The problem, I think, is that the Obama administration has not addressed the core problem, which is America's competitiveness in the global market.  In order to really turn the economy around, we have to compete better with foreign companies.  We need to look more attractive to businesses and corporations looking to set up shop.  I know of nothing the Obama administration has done towards this end.  So we are no better off now than we were in 2008 when this all started.  The "economic recovery" has been entirely due to the 5+ trillion dollars Obama/Congress spent in the form of new debt over the last 3 years.

If we can keep adding 5 trillion to the national debt every 3 years, we might be able to hold steady.  If not, then we are going to go right back in the recession, because the underlying problems have not been addressed.