Will The Government Continue To Pump Money Into The Economy?

I spent most of last week in Auburn, Alabama at the Austrian Scholars Conference where I listened to 40 presentations on various aspects of the economy from Austrian (or Capitalist) economists. It was excellent. I thought I would share one of my "take home" ideas on government spending (fiscal and monetary).

I think the government will continue to pump money into the economy (financial system) to keep it afloat. Most of the "growth" in GDP growth is from the government and the amount of GDP growth per dollar spent is declining. I am assuming that if the economy were really turning around based on private investment and spending, the government would stop injecting borrowed money into the system.

There is a lot of talk about the election of "Tea Party" legislators and their willingness to reduce spending and begin to get government budget under control. I don't think that will happen. The Republicans are proposing a $60 billion reduction in spending (1.6%) and the Democrats have countered with $6 billion in cuts.

Neither amount is significant and the focus is on cutting a few dollars out of the budget. However, the focus should be on the cause of overspending not just the symptoms of it. Why are we overspending? Why are we willing to borrow 43 cents of every dollar we spend? For what purpose? For whose benefit?

For example: Why are we spending $800 billion a year on "defense" which is 50% of what the world spends on defense? Why have we politicized science: one administration spends billions on programs to get us to Mars (Bush) and the next administration (Obama) shuts down those programs (wasting that money, education, etc.) and then redirects billions on satellites to monitor global warming instead? Why do we have a government (both administrations) that spends hundreds of billions to bail out banks with taxpayer money when these banks could have saved themselves? These are the kinds of questions we need answered before we are going to get serious about priorities and cost reductions.

Therefore, I expect to see one or more of the following: Quantitative Easing III (the Fed printing more money) and or the Fed keeping interest rates low for a much longer time (well into 2012) and/or more "stimulus" programs (we haven't solved our problems yet.) This of course has implications for both business and investment planning.