The Mother of All Bubbles.....Trouble Ahead.

The Government Bubble is by far going the bubble with the biggest bang when it pops. Total American Government spend is about $6.5 trillion dollars, 50% more than the GDP of China.

http://www.usgovernmentspending.com/index.php?year=2009

Government spend is responsible for over half of all health care dollars, practically all of defense spending, and employs over 20% of the workforce directly and/or indirectly. On balance, those that work for the government make above average incomes. Consequently, government workers' spending contributes significantly to the consumer economy.

Having a $6.5 trillion dollar spend in a $13 trillion dollar economy, once you factor in the multiplier effect, one could say government spending is practically our entire economy as the private economy has contracted.

Up until recently, the private sector was pretty much able to generate enough taxes to support governments seemingly never ending growth. The two worked well together. The private sector generated more and more taxes and government spent more and more driving the private sector.

Nobody took advantage of that relationship more than the Bush/Pelosi era...where government in the U.S. doubled and drove fantastic stimulus into the economy. Instead of balancing the budget when tax receipts flowed in from the credit bubble, they increased the deficit even further by spending trillions of extra dollars mainly on health care and defense.

Now the credit bubble bubble is popping, revenues to government are evaporating, and government must cut back....way back, or else our currency will be worthless. Desperate measures are underway, such as selling off government assets:

Call it a sign of desperate times: Legislators are considering selling the House and Senate buildings where they've conducted state business for more than 50 years.

Dozens of other state properties also may be sold as the state government faces its worst financial crisis in a generation, if not ever. The plan isn't to liquidate state assets, though.

Instead, officials hope to sell the properties and then lease them back over several years before assuming ownership again. The complex financial transaction would allow government services to continue without interruption while giving the state a fast infusion of as much as $735 million, according to Capitol projections.

http://www.azcentral.com/news/election/azelections/articles/2009/07/29/20090729assets0729.html


We as citizens of a nation have an implied contract with our government that we will work in exchange for the Federal Reserve's money as long as the Federal Reserve maintains its obligation to preserve the value of the money.

If the money we were paid was worthless, few of us would be willing or able to work.

Here rests Obama's paradox, cut spending and drive our country into a deep temporary depression, or keep spending and destroy the value of our currency?

For an idea where this may be headed, here is a timely article about Ireland:

Fiscal Ruin of the Western World Beckons

For a glimpse of what awaits Britain, Europe, and America as budget deficits spiral to war-time levels, look at what is happening to the Irish welfare state.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5857074/Fiscal-ruin-of-the-Western-world-beckons.html