The Economy Grew 2.1%. What Did It Cost?
We live in a headline-obsessed culture. Maybe it’s because people like the gasp-inducing tantalizing bits of gossip or the thrill of the amazing thing that happened to someone, somewhere.
Whatever the reason, the amplification of communication that media created (as opposed to gossiping with your neighbor over the back fence), many people find themselves doomscrolling news sites, social networks or YouTube in an attempt to stay informed.
Too often, though, with the focus on headlines, we miss the real, important story beneath the headline.
Here's a a perfect example...
The latest GDP revision
Reuters reports that the Bureau of Economic Analysis of the Commerce Department revised GDP for first quarter up from 1.6% to 2.1%. Now these are small numbers but GDP is massive, something like $31.8 trillion -- so even tenths of a percent are significant. Overall, the revised growth rate was nearly one-third higher previously reported.
That's good news! And additionally, corporate profits are near record highs.
Big-picture, that's great news. Economic growth is generally a good thing overall. Higher corporate profits may lead to higher wages for employees and more jobs, more people getting hired by those corporations and earning paychecks.
Most people just gloss over everything else when they see those headlines, though, and the factors driving that growth are important to know.
So, what were the drivers of that first quarter economic growth?
The biggest driver for the revision of first quarter 2026 GDP was an accounting change involving imports. But the primary driver of GDP and corporate profits right now?
Government spending.
And I’m not exaggerating that by any measure.
Even the much lauded influx of private investor money to fund AI growth was 2.7% of GDP.
That’s nothing to sneeze at, but is it really something to write home about (or write headlines about) when two thirds of GDP comes from federal government spending?
Yes, really, two thirds of GDP is from federal government spending.
Is it any wonder that the federal budget never actually pays down the deficit but only grows it?
So, what’s the big deal?
Many people, when they see statistics like that, simply shrug their shoulders and go on with their day as if nothing is going on.
But I understand why they feel indifferent about it.
We human beings have an inconvenient tendency to think and act as if the current situation will continue forever.
And in the case of the current economy and pricing in the economy, it still looks on the surface like it’s working for most people. They can pay (most of) their bills and maybe even have enough for a Snickers bar at the end of their grocery trip every week (I’ll have mine with almonds, please).
We’re not currently dealing with any majorly life-altering economic catastrophes.
The thing about momentous events, though, is that they rarely happen all at once. Nearly always there is a build up to the “big event” that made the big event possible. It’s just that almost no one noticed the buildup, and almost everyone reports on the big event itself.
For example, people read about Patrick Henry’s “Give me liberty or give me death” speech or about George Washington crossing the Potomac on Christmas night 1776.
But how many people know about the Navigation Acts, Writs of Assistance (which were not nearly as “helpful” as the name would seem to imply), or other factors that led up to the actual Revolutionary War (The Boston Tea Party Ships & Museum list ten different causes leading up to that war, in case you’re interested.).
If you want to really understand that war and what it was about, you need to know about the issues that were underpinning it.
In the same way, the reason that you need to understand that government spending is the biggest driver of the U.S. economy currently and has been for several years is because of the consequences of that overspending.
The Budget Lab at Yale University says that the consequence of higher government debt is a tendency to have increased inflation, both in the short-term and in the long-term.
So, while we might feel cheered by the headline lauding a higher GDP, this particular time (and most fiscal quarters nowadays), there is an underlying spending and debt issue on the part of our government that is moving us in the direction of another inflation “big event.”
Remember the nine percent inflation that we had four years ago? Most people don’t want to experience that again.
And, remember, once the price increases caused by inflation are in place, they almost never go away again. Even if we could hypothetically get the Fed to move the currency into deflation (and we should talk long and hard about that before doing it… if we even could), most prices wouldn’t be decreased by that, and the average person wouldn’t see their paycheck last any longer.
At this point, some people like to ask,
What about the Fed?
While I like what our friend Ron Paul has to say about the Fed (“End the Fed!”), that would take quite a bit of work to disentangle our entire financial system from a central bank. Realistically, that means that it’s unlikely to happen anytime soon, if ever.
And to most people, it doesn’t even occur to them that getting rid of the Federal Reserve could be an option (even an unlikely one), so it makes perfect sense that they think that the Fed can do something about inflation.
Controlling inflation is one of the Fed’s stated goals, after all.
But we’ve seen over the last decade (and longer) that the Fed can’t control inflation. Sure, at times, they can exert some influence over it, but with current inflation running over twice the Fed’s target goal for inflation, it’s pretty clear that they have, at best, limited control over it.
As the Budget Lab points out,
- Even in countries where central banks have the tools to fight inflation with higher real interest rates, such as the United States, household cost-of-living still rises.
Put simply, the Fed can’t keep prices from rising, and we all must suffer through that as prices continue getting higher.
So, what can you do?
In this day and age, it’s not practical to be able to completely remove yourself from the Fed and the current debt-based (fiat) financial system (unless you want to move to an obscure place working with barter for everything… You’ll be less likely to have current modern conveniences for life like the internet, though…).
You can, however, seek a measure of financial independence from policies that are outside of your control by diversifying your savings across asset classes – including physical precious metals.
If you want to find out more about inflation-resistant asset classes, including gold, you can read our comparison of inflation-resistant investments, and if you’re ready to diversify into precious metals now, give us a call at (877) 749-7738.
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