The Perils of Big Government

The cases of the U.S. and Greece demonstrate what could happen when the size of governments and the government handouts get bloated.

As the economy deteriorates, government revenue decreases, but its spending could increase through monetary and fiscal stimulus. In the case of the U.S., we are seeing the most massive monetary and fiscal stimulus ever applied to a major economy. Who is going to bailout a near-bankrupt country? IMF, the EU? It doesn’t seem to matter that much because this isn’t going to be “one off” rescue. Japan has monetarily capitalized its economy, yet still heavily mired in huge layers of debt.

The thing is unless a country’s total debt load is reduced to a considerable degree and the broken system is reformed, stimulus alone could conceal the reality of the economic debacle, propping up inefficient companies, distorting markets, and impeding new business formation. This is why the stimulus program in the U.S. is not working to stimulate the real economy.

It appears that too many people in the U.S. have become dependent on the government. When a majority of population is clamoring for government benefits rather than engaging in productive activities in the private sector and public policies are geared toward benefiting a few, those are signs of a declining economy.

Excessive government spending tends to cause all sorts of problems. When a government is trying to pour its public funds into covering losses in financial institutions without restoring balance to the economy, then its economy is in for trouble.

Any government needs to bring the budget within sustainability.