Monday, November 11, 2013

The Scariest Graph You'll Ever See

Keep your eye on one thing and one thing only: how much government is spending, because that’s the true tax ... If you’re not paying for it in the form of explicit taxes, you’re paying for it indirectly in the form of inflation or in the form of borrowing. The thing you should keep your eye on is what government spends, and the real problem is to hold down government spending as a fraction of our income... 

--Milton Friedman - from a speech in 1980 titled "Money & Inflation"  (herein referred to as "The True Tax")

So why is this graph so scary?  Unlike the spikes during WWI and WWII, Obama and Bernanke's spike occurred during relative peacetime.   We are not fighting an all-out global war like WWI and II.  We are just spending our kids money on ourselves.   The Great Depression itself shows no equivalent spike in government spending.  


Notice the three most prominent recessions in our history (Recessions appear as spikes in the blue state and local part of the graph):  two are during the Great Depression and the other is now.    Is it a coincidence that those historic recessions coincide with the ascendency of the two presidents most known for wealth redistribution, Franklin Roosevelt and Barack Obama?

Roosevelt stuck with his redistribution, which contributed to the second recession four or five years later.  Barack Obama is similarly sticking to his redistribution.  

People don't need graphs to sense something is wrong.  They are already doing the rational thing and dropping out of the work force.

The Federal Reserve has indicated it will continue spending $85 billion a month on its bond buying spree.  ObamaCare is shaping-up to be a budget busting, job killing, economic drain.  Could we be repeating history, only this time with a $17 or $18 trillion debt?  How long can a nation discourage its workers and maintain government spending near 70% of the private sector?

Another recession may be the least of our problems.

Notes on the graph:  

The above graph shows total government spending from 1900 to present as a percent of the private sector.  According to Milton Friedman's explanation above, this is the true tax rate.  The red represents US federal spending as a percent of total private sector income.  The blue represents state and local spending as a percent of total private sector income.  The cumulative shows the true tax rates for the country as a whole.

Quantitative Easing I, II, and III are included in  federal spending for the years 2008 through 2013.   Quantitative Easing is not included in traditional government spending figures nor has it shown up in the money supply as of yet, because the Fed is paying the banks to sit on it.   This money, amounting to $3.2 trillion currently, is nevertheless money spent by the federal government and therefore has been included here.      

I have labeled the years 2008 - 2013 as "Bernanke /Obama" and not as "Financial Crisis" or "Subprime Mess".   The recession officially ended June of 2009, before President Obama's policies had any effect.  Yet the TARP spending, Quantatitive Easing,  Stimulus, and regulatory blowout continued unabated, and in fact continues to this day.

(For a full explanation of the "True Tax" read  "The True Tax Rate is 70%!") 

Updated 2/18/14 to better reflect the precise timing of QEI - QEIII.      



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