Did you know that the government budget makes up over 1/3 of the U.S. economy? In other words, without government spending, 1/3 of the money that flows through our economy would disappear. Put another way, America has not been a truly capitalist country since the implementation of the Federal Reserve and the policies of the New Deal. Yet many people still want to blame evil ‘capitalism’ for inflation, inequality and social problems. The truth is that we have a hybrid economy which is part free, but highly regulated markets and part government funded private corporations. The companies that do not have government contracts operate at a huge disadvantage.

 “The ratio of government expenditure to gross domestic product in the United States was forecast to continuously increase between 2023 and 2028 by in total 0.6 percentage points. The ratio is estimated to amount to 38.81 percent in 2028.” https://www.statista.com/statistics/268356/ratio-of-government-expenditure-to-gross-domestic-product-gdp-in-the-united-states/

The Democrats vote for more of this type of planned economy, and the Republicans pretend not to. Since 2003, the U.S. budget has nearly tripled from $2.2 trillion to $6.3 trillion. Is this ‘government by the people, for the people”? Or is this government by the corporations, for the corporations? The line has become very blurred between the job of the government and the job of business. In fact, the government has become a business. And many people seem okay with this. In fact, Vivek Ramaswamy said he will run the government like a business.

The role of government in protecting our rights to life, liberty, and the pursuit of happiness has been changed to running the economy through controlling the money supply, regulating business, and doing business with private companies. Of course that switch began over one hundred years ago with industrialization and the foundation of the Federal Reserve Bank. The Treasury and the Fed work together in a very interesting way.

Where does the money come from?

The best kept secret is that the government does not rely solely on tax revenue to pay for the budget. It taxes all it can, then it borrows the rest which adds to the debt we already had. At the end of 2022, the nation’s gross debt had reached nearly $31.4 trillion. The strange thing is that many people do not consider that debt to be a problem and there is not much concern about paying it down. It’s like they know that it’s not real money anyway.

What do I mean by that? It’s like the economy is a monopoly game and as long as we keep playing the game and don’t ask where the money comes from or if it has any real value , then everyone is happy. The value of the money is literally based on whether or not people will accept it in trade or not. As long as people think the US dollar has value, then it does. It is not backed by gold. It is backed, as Joe Biden loves to say, on the ‘full faith and credit of the United States.” In other words, trust me, I’m good for it! This is also why he gets upset when people point out the bad economy. He knows that public perceptions matter. Businesses and the public must ‘stay in the game’, or the game is over.

The trouble comes when too much money is printed , like it was during Covid. That causes inflation, like we have now. To reduce inflation, they have to reduce the money supply, which they are doing now. But inflation is hanging on because they have only reduced the supply by a little bit. Here is the bad news. This inflation is going to stick around until we get used to these high prices. Draining the economy of $7 TRILLION dollars that were created for Covid is going to be impossible and I question whether that is actually the plan. They are hoping that a new normal will emerge that includes those $7T. In the meantime, speculation runs wild. We are living in unprecedented economic times.

After the 2008 Financial Crisis, it took 7 years for some parts of the economy to recover, like jobs and household wealth. However, the truth is the economy never really recovered from that monkeying. Instead, it changed. And it is going to change again. The economy will never be what it was before Covid again. “The economy” is not a static thing, it’s always adapting to changes in the world due to supply and demand. Sometimes conditions make the ‘economy’ better for some people than others. Many people got very rich when the economy crashed in 2008 because they had bet that loans would default. Others got great deals when other companies went bankrupt and had to sell everything cheap. This is why having good credit and cash available makes the rich get richer in economic downturns, while the poor have to tighten their belts.

Does the national debt matter? Many economists say no. All that matters in their monetary theory is that money keeps changing hands. How much we owe doesn’t matter as long as we make payments, which isn’t hard since we own the money printer. So, it’s an interesting system. How long will it keep working? As long as people keep trusting the system. Or until other countries stop playing. Or until actual shortages of necessary items occur.

Right now the US has plenty because it imports a lot of things. But keeping the balance of imports and exports, jobs and supply and demand is not easy. It requires companies to keep investing and building. Odds are good that we are heading for a strong recession because of interest rates. That is, unless something unexpected happens to alter the current direction of the economy. In the end, God only knows.

These are just my observations and thoughts. I am not an economist.