There is a lot of talk about how the people in recent elections in Europe have rejected "austerity." In fact there has been no austerity at all. At best there was a very small cut in spending, as the following chart shows.
Click here for an article about this.
Why then is there all the hubbub? It is simple—most people do not understand how out of control spending is. There are very few countries where spending is in line with income. This cannot continue forever.
In the US we have the same kind of hubbub. The Ryan budget is supposed to cut spending, and this is so unChristian, so unCatholic, of Ryan. But when you look at the Budget Ryan proposed, he cut nothing but ObamaCare. In fact that is the main difference between this proposed budget and Obama's proposed budget. Both proposals grow federal spending by an unsustainable amount. I have blogged about this before.
2013 will be an interesting year economically. While I am not a Keynesian, the ending of the Bush tax cuts, the ending of the temporary payroll tax reduction, and the new ObamaCare taxes are going to really suck things out of the economy. I am afraid that when this happens and the effect is temporarily bad, the incoming president will instead postpone these taxes again.
As Herb Stein said, what can't continue won't. There will come a time when investors will refuse to reinvest and buy new government debt. I have been predicting this will happen in 3 to 7 years. I would rather be wrong than right on this prediction.
I will not be surprised, but most people will.