It seems there are many who believe that the measure of a successful economy is how much money government has and how much is spent. The government spends so much money it could give every single person in the US more than $20,000. Every single year:
First, taxation. On a basic level, taxation means there was a dollar bill in Joe Blow's wallet, which Joe was going to spend or save. But he was deprived of the usage of his money because government took it and spent it.
Economically speaking, it makes no difference who spends the dollar in terms of the effect that dollar has on the economy. Whether Joe Blow spends it or the government takes it from Joe and spends it, it's still the same dollar. Which means there is no amplifying effect. The government simply deprives Joe Blow of his choice as to how the spend his dollar, substituting its own preferences and objectives.
Second, borrowing. It's not surprising that the government is the big player in the loan market. It borrows inconceivable amounts of money. The money it borrows is obviously money someone else cannot borrow. The thing is, government never pays back its loans.
The federal government is projected to spend roughly $7 trillion in fiscal year 2026, making it the largest single entity of spending on Earth.The numbers involved here are colossal. $7 trillion, for all practical purposes, is an inconceivable amount. So much so that other colossal numbers pale by comparison. This quote attributed to Everett Dirksen (a former congressman and senator) illustrates the concept:
A billion here, a billion there, pretty soon you're talking real money.
These kinds of numbers have a numbing effect on the mind, leading many people to simply choose to not think about it.
Government Money
The first thing we need to understand the simple fact that government has no money of its own. It has to obtain money from others, either by taxing it or by borrowing it.
First, taxation. On a basic level, taxation means there was a dollar bill in Joe Blow's wallet, which Joe was going to spend or save. But he was deprived of the usage of his money because government took it and spent it.
Economically speaking, it makes no difference who spends the dollar in terms of the effect that dollar has on the economy. Whether Joe Blow spends it or the government takes it from Joe and spends it, it's still the same dollar. Which means there is no amplifying effect. The government simply deprives Joe Blow of his choice as to how the spend his dollar, substituting its own preferences and objectives.
Second, borrowing. It's not surprising that the government is the big player in the loan market. It borrows inconceivable amounts of money. The money it borrows is obviously money someone else cannot borrow. The thing is, government never pays back its loans.
In the past there has been enough money to supply every borrower with loanable funds, but that's no longer the case. Government now borrows so much money that it impacts what other parties can borrow. Only a foolish person would think that government borrowing does not affect the economy.
In addition, the government must service the cost of interest on the money it has borrowed, which eats up a sizeable portion of the annual budget. This means the a substantial part of the money it sources from taxpayers goes right back out the door to pay interest on the debt. That amount in 2021 was $413 billion, 8.4% of revenues. In 2025 that number has swollen to $970 billion, 19.2% of revenues.
So if the amount of outstanding debt never decreases, this must mean there have been no balanced budgets.
It would now take more than $17 to buy something that cost a dollar 100 years ago.
One might be justified to think that devaluing the currency is a deliberate strategy. Inflation certainly can benefit the the government in several ways. First, the outstanding national debt becomes effectively smaller because it can be serviced with less valuable dollars. Second, as the appetite of government increases, the taxpayer simply cannot pony up enough dough to satisfy government craving. So the government simply prints it, puts it in neat little bundles and hands them over to various government departments, crony corporations, foreign entities, and yes, to taxpayers, thereby avoiding the bad press that comes with raising taxes.
So the government can keep itself afloat (at least for a while), by spending money it simply creates out of thin air. Through various manipulations, juggling of funds, raiding trust funds (especially the Social Security Trust Fund, which basically contains nothing but government bonds), issuing bonds backed by the "full faith and credit of the United States," and "creative" bookkeeping, it can keep everything going well enough to make it seem like everything is ok.
But eventually inflation starts kicking in with a vengeance, which is the inevitable result of government increasing the money supply. Now the taxpayer will feel it in his wallet. Everything is costing more. A lot more. The taxpayer, though not being taxed at a level comparable to what the government is actually spending, is still paying for it. That's why economists refer to inflation as an indirect tax. The government found a way to spend even more money without directly taking it from the taxpayer's wallet.
Eventually, inflation will be bad for government as well, but one can be sure that government will invent new ways to kick the can down the road, most certainly leaving a trail of destroyed families and shuttered businesses in its wake, and perhaps the end to this nation as we know it.
In addition, the government must service the cost of interest on the money it has borrowed, which eats up a sizeable portion of the annual budget. This means the a substantial part of the money it sources from taxpayers goes right back out the door to pay interest on the debt. That amount in 2021 was $413 billion, 8.4% of revenues. In 2025 that number has swollen to $970 billion, 19.2% of revenues.
And this is just paying the interest, because the government has not paid back principal on the debt since 1957.
No, Bill Clinton did not create a surplus, just to clear up a possible objection. The national debt increased every year during the period the budget was supposedly balanced:
So if the amount of outstanding debt never decreases, this must mean there have been no balanced budgets.
There is actually a third source of money for the government: Inflation. We need to be clear: Only government can cause inflation, because government controls the supply of money and the money supply is the influencer of inflation. The number of dollars in circulation determines what each dollar is worth. That is, the total value of US currency divided by the number of dollars in circulation is the value of a dollar.
Government has printing presses, and can simply feed paper through the machine and create money. That's all that's required. This is known as fiat currency. It's not backed by something tangible, like gold. Government simply declares it to be money and its money.
Simple math is involved here. If the total amount of dollars has a certain value, adding more of dollars to the economy means each dollar is worth less. That's inflation, the devaluing of currency. But since the economy is not a closed system, small amounts of change in the money supply has had limited effect until recently. But that's not what's been happening now. Huge amounts of dollars have been added to the economy, and it is catching up with us.
Government has printing presses, and can simply feed paper through the machine and create money. That's all that's required. This is known as fiat currency. It's not backed by something tangible, like gold. Government simply declares it to be money and its money.
Your Dollar Lost 23% Since 2020
Simple math is involved here. If the total amount of dollars has a certain value, adding more of dollars to the economy means each dollar is worth less. That's inflation, the devaluing of currency. But since the economy is not a closed system, small amounts of change in the money supply has had limited effect until recently. But that's not what's been happening now. Huge amounts of dollars have been added to the economy, and it is catching up with us.It would now take more than $17 to buy something that cost a dollar 100 years ago.
One might be justified to think that devaluing the currency is a deliberate strategy. Inflation certainly can benefit the the government in several ways. First, the outstanding national debt becomes effectively smaller because it can be serviced with less valuable dollars. Second, as the appetite of government increases, the taxpayer simply cannot pony up enough dough to satisfy government craving. So the government simply prints it, puts it in neat little bundles and hands them over to various government departments, crony corporations, foreign entities, and yes, to taxpayers, thereby avoiding the bad press that comes with raising taxes.
So the government can keep itself afloat (at least for a while), by spending money it simply creates out of thin air. Through various manipulations, juggling of funds, raiding trust funds (especially the Social Security Trust Fund, which basically contains nothing but government bonds), issuing bonds backed by the "full faith and credit of the United States," and "creative" bookkeeping, it can keep everything going well enough to make it seem like everything is ok.
But eventually inflation starts kicking in with a vengeance, which is the inevitable result of government increasing the money supply. Now the taxpayer will feel it in his wallet. Everything is costing more. A lot more. The taxpayer, though not being taxed at a level comparable to what the government is actually spending, is still paying for it. That's why economists refer to inflation as an indirect tax. The government found a way to spend even more money without directly taking it from the taxpayer's wallet.
Eventually, inflation will be bad for government as well, but one can be sure that government will invent new ways to kick the can down the road, most certainly leaving a trail of destroyed families and shuttered businesses in its wake, and perhaps the end to this nation as we know it.
Conclusion
Many economists and politicians have been warning us about the debt for years, even decades. Yet because life seems to go on just fine for the average person such warnings seem like chicken little warning the sky is falling. But the sky will eventually fall. The debt is unsustainable because the government will run out of accounting tricks when the cost of debt service exceeds its ability to pay it. And some believe we are past the point of no return.
Perhaps. But reform of this magnitude is a daunting task, and certainly the current political climate doesn't possess the will to do any sort of financial discipline.
It doesn't look good.
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