Yes, using Government spending as part of the formula for GDP is in error. Using GDP growth to set monetary policy is also broken because you can always have a positive GDP as long as government spends enough. Since Government cannot raise taxes enough to offset this deficit without massive discontent, they resort to other insidious schemes such as Inflation and check kiting.
By devaluing the currency, government can pay off a significant portion of its debt by stealing the purchasing power of all the citizens, this is done by inflating the money supply which causes prices on real goods to go up.
By continually rolling over debt ad infinitum and just printing more bonds to pay for it all is really not any different than kiting checks over and over. By paying for one check with another and just paying the service fee (Bond Coupon rate) every time you kite another. This will happen until the wheels fall off our economy because there is NO political will in the leadership to make the hard choices.
Mathematically the debt is impossible to pay and sometime in the future the USA will default on its obligations, that is when the real suffering begins. Greece will start the ball rolling, and while Spain gets ready to be next, the EU will slump which will cause the US Dollar to gain alot of strength. Commodity prices will deflate, but then after the EU economy is thoroughly cooked, it will be our turn. Watch as those same depressed commodity prices skyrocket and the dollar index dives, inflation will skyrocket, bond coupons will skyrocket also, but hardly anyone will buy them after being eviscerated in most markets and having been left with mere pennies on the dollar.
Of course, the whole world might come to a stop if the derivatives scheme comes undone. Derivatives are hedged with CDS instruments. If countries default those CDS will be paid. You don't want to know how badly the world will hurt if that happens and all of a sudden people are wanting their slice of the $4.2 Quadrillion derivative pie. Make no mistake, if the black swan of the derivative market having the bottom fall out, means every economy in the world will be pretty much crushed. It would make the Great Depression seem like a holiday for many.
The USA practices Neo-Keynesian economics, not Keynesian. Even Lord Keynes said that his ideas would not work if the country had too much debt. Keynes specifically stated that government MUST pay off it's debt during the good times in order to be able to create it during bad times. We don't do that, we just keep adding to the debt, especially after VP Dick Cheney stated that "Deficits don't matter". Even Clinton didn't pay any of the debt off, he just fucked around with the accounting of it to hide some and move some off the balance sheet to look good.
Money isn't power, the ability to create and spend that money for services and items is what brings power, you don't think the politicians are going to give that up do you? Right now they can just buy your votes, it's so easy especially after the 17th Amendment was passed and Senators were to be elected by the easily duped public. All in the name of "Democracy".
