Government Spending is Not Unlimited

It is hard to believe, but government spending has increased at a far lower rate under Obama than it did under Bush, his predecessor.  It is not to say that Obama has been fiscally conservative in any way.  He started off with a much higher starting point.  But if you had asked me back in 2009 what I thought federal spending would be in 4 years, I would have guessed it to be well over $4 trillion.  It is not.  It will likely be about $3.8 trillion.

Obama has been a complete disaster in so many ways.  He has continued the Bush foreign policy of interfering and aggressing against other countries.  He has continued and expanded the assault on civil liberties.  He signed into law a huge "stimulus" bill.  He signed into law what has become known as Obamacare, which we still don't know the full ramifications of.  He helped to raise income taxes.  And he has continued to spend massive amounts of money.

While the deficits have been horrible and unprecedented, it is still noteworthy that government has not been expanding as much.  It is not because of the House of Representatives.  It is not because of Obama.  It is simply that even the federal government has some limits.

Even with a powerful central bank like the Federal Reserve, there is still only so much the government can continue to expand.  It is limited by its ability to tax and it is limited by its ability to create money out of thin air.  Even the bureaucratic Keynesians, whether they'll admit it or not, realize that they can't take too big of steps or else the whole thing could blow up in their face.

Even the Fed is limited up to a point, unless it plans on becoming like Zimbabwe.  But the Fed does not want to become like Zimbabwe.  People like Bernanke would be ruining themselves.  Their government pensions are in dollars.  Their salaries are in dollars.  Plus, they would not want to face the angry mobs when the dollar becomes completely worthless.  So I don't think we will see hyperinflation, or at least not purposely.

At some point, the Fed will have to slow down its monetary inflation.  It is on pace to create $1 trillion in new money in this year alone.  This cannot be sustained.  At some point, we will see higher price inflation.  At some point, the Fed will slow down or stop its inflationary policies and we will see a severe recession, unless the Fed is somehow able to manage a slow deleveraging over the course of several years.

The more the government spends and the more the Fed creates money, the worse it will be in the future.  But there will be an end to all of this.  So-called entitlement spending is going to have to be cut in some way.  It is simply mathematically impossible for the government to fulfill its previous promises.

As long as we can muddle through and avoid hyperinflation, then I think things will turn out to be ok.  There will be some really difficult times ahead.  They are already tough, but it will get tougher.  But there is some light on the other side of the tunnel.  At some point, the government will be forced to cut back.