There is something the “cut-all-wasteful-spending-NOW!” crowd does not understand.
Our economy depends on that spending and the resulting government borrowing – no matter where the spending goes (and it is NOT just because of the stimulus it provides).
Last week, when everyone was screaming and yelling on X about all of the fraud and waste in government – and how we need to cut it all immediately – analyst Ed Dowd posted this in response:
“… if you reduce the fraud [and waste] too fast, the government outlays shrink and treasury bond issuance decreases too fast – causing the “jenga credit tower” built on “pristine collateral” (Treasury bonds) to wobble as M2 [money supply] decreases.
After the great financial crisis, the banking fraud morphed into federal and state fraud enabled by the Fed. Fraud is a feature not a bug. Hence why nothing ever appears to change.”
Everyone believes that politicians just want excess government spending for control, vote-buying, and actual economic stimulus – and that is all true. Cutting all wasteful spending immediately would likely crash the economy – in the near term, at least.
But the other huge reason we need too much government spending is because it forces the government to borrow money by selling Treasury Bonds – and the world’s financial system REQUIRES those bonds (this is something few people understand).
Those bonds are the “pristine collateral” (no other collateral is as safe or as liquid) that the world’s banking system depends on – allowing the banking system to create all of the “new money” the world depends on.
This is confusing but take my word for it: our government debt is effectively “money” and the world’s financial system depends on it; supply has to keep growing.
If the U.S. balances its budget every year, the world economy would slow down to a standstill or crash. The world is as addicted to our debt as we are to our spending.
Productivity Is the Other Huge Issue Nobody Thinks About
Here’s the problem with just spending for stimulus and to create debt and bonds for the rest of the world: we all end up poorer.
It’s all about productivity – how much labor, capital, and materials it takes to make stuff.
Increasing productivity is what economists pay attention to because it is what makes us rich.
When too much of our economy is bitcoin speculation, Wall Street manipulations, welfare spending, fraud, high-speed trains to nowhere, and very inefficient government spending – GDP grows at a faster pace than productivity and most wage earners end up poorer.
The good news is that productivity growth was almost three times higher in 2025 than it was for the previous four years (when every wage earner got poorer).
With the current rate of productivity growth, real wages (adjusted for inflation) will double in 14 years, per Peter St. Onge.
That is how America used to work – with kids earning far more than their parents – so let’s hope it continues.
And please remember this too the next time a politician tries to convince you we need more government spending.
