American Elephants

Why Things Aren’t Getting Better: by The Elephant's Child
November 12, 2012, 5:55 pm
Filed under: Capitalism, Economy, Statism, Taxes | Tags: , ,

President Obama managed to convince the people last Tuesday that government spending stimulates the economy, and that he cares about them. Perhaps he does care, but he’s way off on the government spending:

The Obama administration spent $5.60 for
every $1 of economic growth.

For the government to function, it needs to sell its debt at very low interest rates. The world has usually liked our debt, because they trust the United States to pay them back. If the world doesn’t want to buy our debt (our bonds), then bond prices will fall, interest rates will rise, and the government will be spending huge amounts of money just to pay the interest rates on our debt.

So who is buying our debt? It is our very own Federal Reserve which buys 70% of our debt. To get the money to buy the debt — they print money. But even if they are just printing money, that debt must be paid back, and interest rates can’t really get any lower. Which means that the government is running on fumes.

The Obama administration spent $5.60 for
every $1 of economic growth.

This means that the left hand of the government is borrowing money from the right hand of government. There is no one on the planet, whether it is the rich or the Chinese who can afford to continue bankrolling that rate of the return. And that’s why government spending not only doesn’t stimulate the economy, when a big chunk of the funds meant to stimulate the economy go into the pockets of cronies, it is not a hopeful solution.


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