Government and GDP

Here is a chart detailing the percentage of government spending regarding the Gross Domestic Product (GDP). Defined, GDP is the market value of all officially recognized final goods and services produced within a country in a given period of time.

Are you as concerned as I am that our government continues to become a larger percentage of the GDP? Should we be concerned? The chart below helps us understand the history of this phenomena.

The government spends in three sectors: federal, state and local. This chart indicates that in the early 1900s (1900-1940) the government's primary spending was at the local level. The spike of government spending at the federal level after 1940 is World War II. As you can see by the chart, after World War II, government spending at the federal level came back down every so briefly before beginning to grow again.

Today (2013), we see that total governmental spending has soared past the 40% mark for the first time since World War II (See the article referenced below.). We also see that governmental spending at the federal level continues to grow while spending at the local level continues to stay relatively the same. In my opinion, this is a very revealing trend. Keep in mind that the spike that occurred in response to the war was a needed. Without the government, the economy would have certainly been adversely affected. Many business were operating far below optimal levels or not at all due to the collective focus on the war. The government had to step in and fill the void, and fill the void, they did, but once the war was over, the government settled back into its normal trend for a few short years before beginning a climb from which it would never return.

Franklin D. Roosevelt's Great Deal was a push towards large government and resulted in a bump of growth in governmental spending, especially in the area of federal spending. The difference between federal governmental spending and state and federal governmental spending is philosophical. A government that feeds itself does not feed its people. A government that becomes a majority part of GDP leaves little room for small business growth.   

If we look at country comparisons regarding size and population we find a interesting trend.

Brazil 41%
Germany 43%
Mexico 24%

If we look at those economies with which we compete, we find these numbers.

China 21%
India 27%
Russia 34%
Japan 37%

The Heritage Foundation predicts that federal spending with grow 69% in the next ten years. This will most certainly increase government's percentage of the GDP past the current 40% mark. What happens to a democracy when the government of that democracy become a greater percentage of the GDP? Those countries with percentages 50% or greater have one thing in common... none of them are true democracies that operate on capitalistic tendencies. They are various forms of federations with the federal government serving as the focal point of the country.

The Heritage Foundation served as an excellent resource for this post. Click HERE to go to an in-depth article by the Heritage Foundation that breaks down these the numbers in greater detail.

Consumer Debt

The Federal Reserve reported some good news this month; consumer debt is declining. Suspicious? I am and maybe for no good reason, but just the same, I thought I would do a little digging into the numbers to see what I can see. If consumer debt is declining I want to know why because I still know too many who are struggling because of unemployment and underemployment, and they are not in position to pay any debt down anytime soon.

I found a great article about this very issue. The article states the following facts about consumer debt:

• U.S. consumer debt is declining, though at different rates among different groups of borrowers.
• Defaults or bank write-offs account for most of the drop in debt over the past two years.
• Borrowers with weak credit scores paid down auto loans in 2010, while those with stronger scores increased borrowing.
• A similar pattern holds for mortgages in 2011.

The drop in consumer debt could mean any number of things, but it is premature to celebrate it as "good news." Moody's has a good analysis of what these numbers mean according to their views. They go into great detail, and they have published their views in an article that you can access HERE. Read it and see if you agree with their assessment. Blessings!

Politics... Who Do We Support?

I think I have had enough of politics. As I listen to Democrats tell me that Republicans are liars and to Republicans tell me that Democrats are liars, I really have reached a point of not believing any of them about anything. I'll be you are in the same boat, so... what do we do? How do we wade through all the muck, I love that word, and figure out who is the lesser of two evils? Well, here is my take for all its worth which isn't much.

I am firmly planted in the middle class so when I vote I vote with a mindset of who is least likely to mess with my bottom line. Democrats clearly believe that government is the best mechanism in today's world to protect all of us. I do not think any Democrat would disagree with that statement. The Republicans are for the wealthy and for those in the upper middle class and above. They believe in less government and more power for the people, specifically people in the upper middle class and above. They too would not disagree with that. So, which one is best for me?

Here is my take on both. First, I am not a big fan of more government because government has to be run by... people. As much as Democrats say they are for the people and not for big business and the wealthy, they can not deny this: they are for big government. I am not convinced big government is any better than big business. As a matter of fact, I think big government is far worse. Why? Government can not, despite the claims of many, even the playing field. Government can not re-distribute wealth and can not right the wrongs of the oppressed for one simple reason... government is not God. As soon as you level the playing field for one group you have made it uneven for another. Government is not the solution and has never been the solution. The Greeks, the Romans, the French and the list goes on of the many who have discovered absolute government corrupts absolutely because man can not handle absolute authority.

Stop for a moment and try and think about your life over the last ten years and answer this question as honestly as you can: who has caused more harm in our country, big business or big government? Now, before you think I am letting the Republicans off the hook, let me say a word about them. I see them in the same light as Democrats. They have been for big business and the wealthy and have compromised their principals in more ways than the Democrats. Most are not conservative even though they claim to be, and most are also for more government because it gives them more power. So, as a middle class member who should I support?

Well, here is how I look at it. If I have to support one it will be the one who understands that the real checks and balances come from pure competition. Currently, the United States has a national debt of 8.68 trillion. In the U.S., this is 60.8 percent of the American GDP. The gross domestic product of a country is the market value of all of the products and services that a country produces in one year. This includes spending that is done by the citizens of the country and by the government of that country. It includes the value of items produced within the county and exported elsewhere, but it does not include the value of any imported items. I worry when a capitalist democratic economy built on the checks and balances of competition has one entity, the government, occupying over 60% of the GDP. A further complication to this delicate equation is this: the government is not subject to the checks and balances of all other entities in a free market economy because the government is that entity which governs the rules and laws that oversee that free market.

So, who will I support if both Democrats and Republicans are corrupt? I have to support those who support smaller government for our future. I do not believe more government is the answer for one simple reason... the nature of man. Scripture is fairly clear about mankind, Romans 3:23 states that "all are sinful and fall short of the glory of God. Proverbs 14:12 and 16:25 warn us of the same issue, "there is a way that seems right to man but in the end it is the way of death." History also paints a terrible picture of the consequences of absolute, all-consuming government.

In the end, those who are for smaller government and more competition must receive our support for they know the nature of man. How will you decide who to support? We can no longer vote the party line. We must be for those who understand man for all that he is outside of the Savior, and all that he can be walking with the Savior! Blessings!

How Are We Doing?

The unemployment rate is one of the many indicators used to determine current economic conditions. Click on this map, and you will get a quick assessment on how we are doing economically. Let me be the first to warn you, the picture is not pretty.

The Numbers Just Don't Add Up

I have been listening to the health care debate taking place between politicians. Let me state first that I don't believe most politicians any more. Democrats, Republicans... most of them are the same to me these days. They are all after only two things... power and money, but putting that aside, the disturbing part of this debate to me is that none of the economic numbers add up.

My simple mind needs to work in smaller numbers. Last weekend I took the economic numbers and reduced them to smaller numbers in order for my small feeble mind to grasp them. What I found is alarming... the numbers do not add up!

Our country currently has an unemployment rate anywhere from 10% - 16% depending on which news website you read. The dollar continues to plummet, and the government continues to grow. How all of this is sustainable is beyond me. But, here is the really alarming number... the GNP of the United States is 0%, and that is a conservative number. Other sites speak of it being any where from 2.3% to - 5%, depending on the site you use.

The Gross National Product (GNP) is the value of all the goods and services produced in an economy, plus the value of the goods and services imported, less the goods and services exported. Scroll through this list of charts and pay attention to the charts that deal with sales and income and those that deal with debt. Look closely at those of imports and those of exports, and look at those dealing with personal and household debt and then look at those dealing with the government. Then, ask yourself this question: do you want the government to become the largest part of your nation's economy?

The GNP is one of the more important indicators in our economy. Most economists believe that the higher the GNP the higher the standard of living. As we listen to the government, let us also pay attention to the economic indicators, especially the GNP, because the numbers will always paint a more accurate picture than most politicians. Let us strive to be an educated populous and not depend on others to do our thinking for us. Blessings!

The Mounting National Debt

I hope I am like you... sick and tired of politics. I don't care which party, and I don't care which state... I just want someone to stand up and make sense of this national debt, and begin to do something about it.

As I write this, our national debt has currently increased by 3.89 billion dollars since 2007. How is this sustainable? How will we ever pay this down? If you care to keep up with this growing figure there is a national debt clock that will give you the up to minute numbers. You might not want to check it too often as it could put you into a state of depression.


I read the following in the Wall Street Journal,

"The federal government will have to borrow $1.6 trillion this year to finance its operations, the highest single-year budget deficit in the post-World War II era, the Congressional Budget Office said in a mid-year update Tuesday."

WSJ also reported,

"The U.S. public debt will exceed 61% of gross domestic product by the end of 2010, the CBO said, with that figure rising to 68% of GDP by the end of 2019."

The article is full of "wonderful" news and worth a read.

I would like to know the plan for paying this debt? I have heard a few ideas from both parties, but to be quite honest... none of them make much sense to me. Does anyone really have a plan?

What are we to do? I am open to ideas, but one thing is for sure... we can not continue to do nothing. If we do, my kids and your kids will not enjoy the same standard of living that we have.

As Christians are we called to do nothing? Are we called to be passive and hope for the best? I believe we are called to engage and be active in finding a solution. We are told twice by Paul in Corinthians that the spirit dwells in us... and if that is true then we ought to be the leaders... even in tough areas like this.

May we be part of the solution for His glory! Blessings!

The Numbers...

Dr. George Grant posted the following chart on his blog. This chart is built with the actual numbers and estimates from the White House and the CBO.



Interesting...

Bailout to the Rescue, Maybe...

Dr. Mark T. Mitchell wrote an interesting article on the recent government bailout. He writes what most of us think, case and point:

"In the days leading up to the passage of the final package, politicians from both parties grimly warned that what was at stake was "our American way of life" and without massive intervention the country and perhaps the world was heading toward an "economic apocalypse." I must admit that I am skeptical when powerful folks ask for more power. I'm even more skeptical when they do so using fear as a motivation. When the putative choice is massive government intervention or world-wide disaster, we do well to ask how we got into such a conundrum."

Dr. Mitchell writes of ten important questions regarding the bailout. They are questions that should be on your mind if they are not already. His article, Ten Questions and a Modest Proposal, present the ten questions in all their glory. They will cause you to think, and, hopefully, remember that a Holy God is in complete control. Blessings!

Economics Made Easy by Dr. George Grant

Dr. George Grant provided the economic lesson below on his blog. Enjoy!

Economics, commonly known as the "dismal science," can actually be easily understood. Here are each of the basic economic philosophies explained in simple "two-cow" terms (first articulated years ago during a delightful dinner in Washington DC with Murray Rothbard):

Communalism: You have two cows. You keep one and give one to your neighbor.


Communism: You have two cows. The government takes them both and--from time to time--provides you with sour milk.


Fascism: You have two cows. The government takes them and sells you the milk.


Liberalism: You have two cows. The government takes them both, shoots one, milks the other, pays you for the milk, and then pours it down the drain.


Socialism: You have two cows. The government taxes you to the point that you must sell them both in order to support a man in a foreign country who has only one cow which was a gift from your government.


Free-Market Capitalism: You have two cows. You sell one and buy a bull.Centralized, Multi-National-Corporation-Based, Government-Subsidized,


Democratic Socialism: You have two cows. You sell one, force the other to produce the milk of four cows and when it dies you write off the depreciation, hire a lobbyist, and garner a government bail-out and tax-breaks in order to purchase two new cows. Repeat.

The Current Financial Mess

The current financial mess is some one's fault, right? Well, let's consider, first, that the ramifications are now being felt world-wide. As Asian and European markets begin to drop and become unstable, we all should realize the power of the American market. The first neat answer is yes, many are at fault, but then, the answer gets complex. Let me explain.

First, let me clarify that I am no financial wizard, but I am concerned about what is taking place in the financial industry, and what has taken place in general society, and I believe the two are linked.

All we hear, these days, is this idea that mark-to-market accounting has to be eliminated. Before we eliminate it, I would like to know what it is? I did a little research and share with each of you what I found.

Mark-to-market is an accounting methodology of assigning a value to a position on an instrument based on the current market price for that instrument or similar instruments, well before it matures or expires. There are two problems my simple minds sees: first, what prevents anyone from assigning a higher value than market value especially, if the current market value results in net lost profit?

Second, this practice of mark-to-market has been going on so long, now, that there are bound to be many more, annually, who knowing overestimate ( a nice kind word) their market price in order not to take a loss. How do we police them, and how do we recover after we set parameters? I believe over the years, more loop holes and tricks have been discovered, and eventually, a good percentage of the market was being held up by the proverbial house of cards.

This issue, as I see it, is directly related to this idea that there is no god, and that, for the most part, people are good, and do not need Him. If we can not be trusted with out constraints, discipline and a police force, what makes anyone think we can trust anyone to assign a value to a commodity when the value assigned will directly affect the ability to make or lose money. This practice might have worked in a Christian or even ecumenical society, but in a secular self-centered society it was doomed.

There are current constraints in place however, case and point:

IRS Section 475 contains the mark to market accounting rule. Section 475 states that dealers that "elect mark to market treatment shall recognize gain or loss as if the property were sold for its fair market value on the last business day of the year, and any gain or loss shall be taken into account in that year."

In the end, the cause is not mark-to-market according to Joanna Ossinger of Fox Business. Ossinger states that, "Mark-to-market, which is part of fair-value accounting, simply means that companies assigning values to assets they hold must value them at current market levels. If something is trading right around $10, it’s given a value of $10, regardless of whether it was bought for $2 or $20."

What happens if it is given a value of $20 instead of $10? Who oversees the process to ensure that companies value assets properly?

In the end, the cause is the same...we can not be trusted without the guiding light and indwelling presence of the Holy Spirit. Join me in praying for this financial crisis... that it will end quickly, and that it will move many to reconsider the meaning of life and put their trust in the Lord Jesus, as He is the only way (Acts 4:12). Blessings!