Sunday, July 05, 2015 11:01am
North Adams, MA now: 73 °   
Send news, tips, press releases and questions to info@iBerkshires.com
The Berkshires online guide to events, news and Berkshire County community information.
LOG IN | REGISTER NOW   

Home About Archives RSS Feed
The Independent Investor: Power Shift Part II
By Bill Schmick On: 11:25PM / Thursday September 27, 2012
Big Brother is Getting Bigger

Depending on whose sound bite you are listening to, government spending has gotten bigger or smaller over the last few years. Oddly enough, both sides are correct. It all depends on what statistics you are quoting.

President Obama claims that federal spending, under his administration, has risen at the lowest pace in nearly 60 years. His statement is accurate, as long as you remember that the 2009 fiscal budget is considered part of his predecessor's legacy. As such, the $700 billion TARP bailout and the $831 billion stimulus package occurred at the end of President Bush's term, even though Barack Obama signed the stimulus bill and voted as a senator for TARP. How does that work?

Part of the confusion lies in calendar versus fiscal year accounting. Before 1842, the federal fiscal year was the same as the calendar year. Since then it has changed several times and since 1977 the government's fiscal year begins on Oct. 1 and ends on Sept. 30, so the spending in 2009 was pinned on Bush since he was president on Oct. 1, 2009. I guess that is fitting since the cause and result of the financial crisis that continues today occurred while the Republican Party was in power.

Despite the administration's double talk, the fact is that 2010, 2011 and 2012 are three of only four fiscal years since 1945 that the federal government spent more than 24 percent of GDP in a single year. The Office of Management and Budget predicts that this year federal spending will hit 24.3 percent of GDP. That is about what the government spent in fiscal 1942, when the Japanese attacked Pearl Harbor and America went to war in both Europe and the Pacific.

Before we look at spending today, readers need to understand that there are at least two measures of government spending. The one most quoted by the economic journals and politicians we'll call "G," which is how much federal, state and local governments directly contribute to economic activity measured as a share of Gross Domestic Product (GDP). It is the sum of all the goods and services they provide.

There is also a broader measure that captures all the spending in government budgets. This figure includes all of "G" plus interest payments on our debt, transfer payments through programs like food stamps, social security, Medicare and Medicaid, unemployment insurance, housing vouchers, Veterans benefits, et al. As you might imagine, when you add all this into "G," government spending, as a percentage of GDP, turns out to be closer to 37 percent. In comparison, the average spend since 1960 is about 32 percent.

Now that is down from the 39 percent that it hit in the second quarter of 2009, when the financial crisis was at its peak. If we confine our analysis of government growth since then, government spending has decreased whether you use "G" or the broader measure.

However, if you measure government growth from the beginning of the decade, when government spending totaled just 30 percent of GDP, then yes, government has grown by a whopping 6 percent in the last 12 years.

Beneath the statistics we can see that the government's economic role has clearly grown larger and with it the power it welds. Its historical role as provider of public goods and services remains but is shrinking as more and more of government's budget is spent on transferring cash and in-kind payments to taxpayers directly through programs like Social Security, Medicare and Medicaid.

This is no accident. Remember that an entire generation of Americans is close to or already in retirement. Baby Boomers are tapping Social Security while experiencing mounting health issues as they grow older. They are turning to Medicare to answer their needs. And why shouldn't they?

Throughout their working careers, these hard-working Americans, (who fought three wars for this country in their lifetime along the way), have contributed paycheck after paycheck to guarantee that when the time came, Social Security and Medicare would be there for them when they needed it. So, yes government has grown larger. It is the "why" of it that so many politicians conveniently forget.

As the government's role in the economy gains force, so does its power. But power is agnostic. It can be used for good or for evil. We have seen how Wall Street has abused power. In my opinion, government spending that is used to honor its contract with America's retiring workers is a proper use of that power. Whether this country can afford to honor its commitments is another story and a question we will answer in a forthcoming column.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.


0 Comments
     
News Headlines
SteepleCats Blanked on July 4 Fireworks Night
Developing Story: FBI On Scene at Adams Residence
Fourth of July: The Declaration of Independence
Fourth of July Festivities Include Parades, Fireworks
Pittsfield 15s Impressive in Babe Ruth District Opener
Economic Development Commission Will 'Roll Out Slowly'
North Adams Youngster To Throw Out Friday's First Pitch at Fenway
Bianchi Accepts Road Race Challenge; Teams Announced
Bird, Blue Devils Earn Win in Giorgi League
North Adams 13s Battle on Difficult Night in Babe Ruth Play

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (172)
Independent Investor (234)
Archives:
June 2015 (7)
May 2015 (6)
April 2015 (8)
March 2015 (6)
February 2015 (7)
January 2015 (9)
December 2014 (7)
November 2014 (4)
October 2014 (9)
September 2014 (5)
August 2014 (7)
July 2014 (2)
Tags:
Taxes Stimulus Crisis Stocks Commodities Europe Jobs Housing Retirement Bailout Energy Fiscal Cliff Metals Federal Reserve Euro Congress Markets Pullback Debt Banks Japan Rally Stock Market Selloff Debt Ceiling Economy Recession Interest Rates Fed Oil Currency Election Deficit Europe Greece
Popular Entries:
The Independent Investor: Don't Fight the Fed
The Independent Investor: Understanding the Foreclosure Scandal
@theMarket: QE II Supports the Markets
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: Will the Municipal Bond Massacre Continue?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: How Will Wall Street II Play on Main Street?
Recent Entries:
The Independent Investor: Tiny Houses Gain Appeal
@theMarket: From Russia With love
The Independent Investor: Robo-Advisers Have Landed
@theMarket: Don't Try to Trade This Market
The Independent Investor: Why Interest Rates Are Moving Higher
@theMarket: Too Hot or Too Cold
The Independent Investor: How to Run for President and Make a Fortune
The Independent Investor: Man's Most Expensive Friend
@theMarket: June Is Off the Table
The Independent Investor: Will Memorial Day Kick Off a Strong Summer?


Solid Sound Day Three
Solid Sound concluded Sunday with performances from the...
Solid Sound Day Two
Saturday's performances at Solid Sound included NRBQ,...
Solid Sound Day One
Solid Sound gates opened at 4:30 and concert goers enjoyed...
Colegrove Park School Tour
School and city officials toured the far-from-completion...
Down Street Art 2015 Kickoff
Down Street Art kicked off Thursday night with music, food,...
High School Softball All-Star...
High school softball players from throughout the county...
Bashevkin Farewell Party
Nearly 100 staff, friends, family and partners of the...
Little League Championship...
Hunter Sarkis and Logan Briggs Tuesday evening singled...
Candlelight Vigil for S.C....
More than 300 residents gathered at United Methodist Church...
Central/South Relay for Life...
Hundreds spent Friday night and Saturday morning walking...
'Amazing' Book Launch Party
Hundreds turned out for the release of Ty Allan Jackson's...
Third Thursday June 2015
Third Thursday in Pittsfield brought thousands to North...
Bruins Rally At Cheshire...
The Boston Bruins held a rally for Cheshire Elementary...
Pittsfield High Graduation...
Pittsfield High School held its graduation on Sunday at...
Taconic High Graduation 2015
Taconic High School held its graduation exercises on...
Lenox High Graduation 2015
Lenox Memorial High School presented diplomas to 64...
Solid Sound Day Three
Solid Sound concluded Sunday with performances from the...
Solid Sound Day Two
Saturday's performances at Solid Sound included NRBQ,...
Solid Sound Day One
Solid Sound gates opened at 4:30 and concert goers enjoyed...
Colegrove Park School Tour
School and city officials toured the far-from-completion...
Down Street Art 2015 Kickoff
Down Street Art kicked off Thursday night with music, food,...
| Home | A & E | Business | Community News | Dining | Real Estate | Schools | Sports & Outdoors | Berkshires Weather | Weddings |
Advertise | Recommend This Page | Help Contact Us
iBerkshires.com is owned and operated by: Boxcar Media 102 Main Street, North Adams, MA 01247 -- T. 413-663-3384 F.413-664-4251
© 2012 Boxcar Media LLC - All rights reserved

Privacy Policy| User Agreement