💪The US Government Has Played A Big Part In Keeping The Economy Out Of Recession
One big reason why the American economy has stayed strong despite rising interest rates is government spending. The US government has boosted growth and jobs by injecting a massive $5 trillion into the mix in the past four years – an unprecedented amount that equates to roughly 20% of the size of the overall economy.
A big chunk of that cash – around $225 billion – went toward construction in the manufacturing sector, more than double what was being spent there before the Federal Reserve (Fed) began aggressively hiking interest rates to try to tame the country’s red-hot inflation.
And, look, each dollar spent in this way doesn’t simply add a dollar to the economy – it multiplies through the supply chain – adding new jobs, increasing incomes, and boosting household spending. This ripple effect from manufacturing investment has supercharged overall economic output, more than making up for the inevitable drag created by higher interest rates.
Now inflation in the US is cooling and the output is still rising, so it looks like the strategy has paid off. But there's a downside here too: a bigger deficit could lead to more debt problems, pushing up inflation and interest rates. And if the Fed moves too quickly or too aggressively in bringing interest rates lower – in effect, stimulating the economy too much – we could see inflation rise sharply again.
But one thing’s clear: it’s not all about central bank moves anymore – government spending policies are playing an increasingly important role in driving big-picture economic forces, and are worth your attention.
As I've warned before, we're entering an era of fiscal dominance.