What Happened to the U.S. Economy in 2024?

What’s really going on with the U.S. economy? In this video, Steve breaks down the trends behind the headlines—like inflation, GDP, and interest rates—and explains what they actually mean for your business, investments, and daily decisions.

Whether you're an entrepreneur, investor, or just trying to make sense of the noise, you’ll get clear, practical insights to navigate uncertainty and make smarter financial moves in today’s economy.

TRANSCRIPT:

Let me show you what's going on in the US economy. If you look at all the economic activity in the United States, we have a factory here producing some goods, other businesses, we have vehicles zooming around, this looks like a little cyber truck, you have people here doing activities, buying and selling products and services. But if you look at all the economic activity, all the products and services that are sold in the United States, this equates to $28.4 trillion.

This is also known as our GDP, which is gross domestic product, right? So this is all the output of the US economy. Now, I'm going to translate this into business terms. If you look at a business, we have revenue, which represents all the income that is generated from a business selling its products and services to customers.

And I'm simplifying here. Then we have expenses, and these are all the costs associated with running the business. And then at the end of the day, we have profit or loss, right? So I'm going to take all of this and translate it into company financials.

So the US economy produces $28.4 trillion. Now, the government doesn't get to capture all this money. Instead, this money is flowing to businesses and individuals and other organizations and entities within the economy.

But the government has the power to tax this money. And therefore, through tax revenues, it's able to generate $4.8 trillion, which is about 16.9% of GDP, right? So this is the government's revenue. And remember, the way the government earns money is through taxation.

Now, if we look at the expenses of the government, remember, the government has to spend money on infrastructure, defense, education, and a variety of other activities. In the United States, each year, the government spends about $6.7 trillion. Now, as time goes on, these numbers will fluctuate up and down.

So depending on when you watch this video, these numbers may be out of date, but I think you'll get the gist here, regardless of when you watch it. This results in a $1.9 trillion loss, okay? This is not good. This is a sad face because the government has a shortfall of $1.9 trillion.

Okay? So imagine this is a business and a company is running at a deficit. This happens quite frequently. Well, in order to cover this loss, it needs to be funded.

And you can fund that through debt or you can fund that loss through equity. For businesses, typically, the cheapest way to fund capital is through debt because you can write off the interest of debt and equity. And since equity is subordinated to debt, it's going to have a higher cost of capital.

So for the government, they have the option to fund this loss. It's $1.9 trillion at loss through debt or through equity. Now, you may be wondering, how does the government go and get debt? And I'm going to simplify this here, but they can issue treasuries.

And these are government bonds where they go to the people and say, look, you can invest in these treasuries and we will pay you some type of return. And right now the 10-year treasury is 4.5%, meaning that it'll earn 4.5% over the next 10 years, every year. That's the annual return if you hold it through maturity.

So the government can issue these treasuries to people. That's one option. Or through equity, which is putting cash into the whole machine, they can decide to print money, which is unique.

This is my picture of money here. And they can print this money and they can create money because the government has the ability to do that. Now for organizations, when they raise debt or equity, and especially equity, it's not like they could just print their own cash and put it into their business.

Instead, they have to raise cash from investors or put in their own cash. But for the government, they're in this unique position where they can print money to cover the gap. Now in business, if you go and raise debt, debt capital, there's going to be certain ratios that banks and others are going to look at in order to determine whether or not you're credit worthy.

So if we just look at debt here, I'll just draw over here to the side. One thing is debt to income. And the ratio is usually around 35%.

So if you go buy a home, your debt to income ratio is going to need to fall within this range. Otherwise you're not going to get credit. The same thing is true for a business.

If you don't have income in a ratio sufficient to support the debt, you're not going to get credit. So if you look at the debt, the total debt or the debt service of the US compared to its annual income, we already know that there's a loss over here. We determined that.

So this doesn't work. I'll put an X here because the debt to income ratio is way too high. All right.

The next thing you can look at is debt service coverage ratio. And this is in business. Usually it's around 1.2 to 1.25. Meaning if you look at your debt service, how much cash you have cashflow in comparison to your monthly debt service, then you could look at this ratio here and determine whether or not you're credit worthy, but the government isn't producing positive cashflow and therefore this doesn't work either.

So you may be wondering, then how does the United States do it? How are they not insolvent? The reason why they're not insolvent is because they have the ability to print more cash, right? So they're theoretically never going to default. And if you compare the United States to other countries, these treasuries are typically considered default-free, risk-free. Now there's a lot of caveats to that.

Obviously the government can default on its debt, but most organizations in other countries that are investing in these treasuries, they see it as a safe play because the government could always print more cash in order to do the debt service on these treasuries. All right. So that's a high level overview of the US economy.

Let's go ahead and dive in deeper to understand what's going on here. I'm going to erase all this right here. So I have a little bit more room.

The US government has $34.7 trillion in debt, right? This doesn't include all the unfunded liabilities associated with social security and Medicare, but we'll just take this number for now. This just means that they have a ton of debt. In fact, they have more debt than the entire economy is producing in a given year.

More on that here in just a minute. You're going to want to stick around because I'm going to show you something really, really important here in a second. But if you take this $34.7 trillion, and let's just put a 5% interest rate on this debt, which a lot of debt's a lot higher than this right now, but let's just take 5% for easy math.

That means that the government pays $1.7 trillion a year just in interest. All right. Now, if we go back to this income statement, and we just assume that profit and loss is close, relatively close to cashflow, which it's not.

All right. I talk about that in other videos. Now, I want you to hear me contradicting myself because I know profit doesn't equate to cashflow, but just for simplicity sakes, okay, because I'm not going to do a cashflow statement for the U.S. government.

But right now, the government is running a deficit of $1.9 trillion. So it can't even cover its interest payments. So think of it like this.

You get this credit card. Let's just say this is a visa, right? And the government has this credit card, and let's just say it has a current balance of $34.7 trillion. And relate this to your own life or to your business.

You're making the payments, right? You're making the monthly payments. You're just paying the minimum. And that's essentially what the government's doing.

They're paying the minimum $1.7 trillion in order to keep their credit card open. Now, what happens when the government has this loss, this deficit, and they can't even make the minimum payments? Well, they're going to have to increase their line of credit. And that's what you're hearing in the economy.

They're constantly talking about these government shutdowns because we're bumping up against that credit ceiling. And that's what we're talking about here is we're running out of credit limit. So think about your credit card.

You start maxing it out. Credit card companies are going to say, you're done. You can't buy anything else until you pay something down.

But the government can't pay this down. And therefore we bump up against the ceiling and we need to extend or increase the amount of debt so we can cover all our obligations. And that's why you're seeing our debt go like this exponentially, right? So our debt is climbing at a crazy rate, right? So we have $34.7 trillion.

We can't cover our obligations. So we go, okay, we need to increase this. And we're going to bump our credit line, right? Making this simple to 38 trillion.

And then we bump up against that because we're outspending the amount of revenue that we're bringing in through taxes. And we got to bump it to 40 and it keeps going higher and higher and higher. Well, how do you fix this? Let's go back to the profit and loss of the government.

If our expenditures are $6.7 trillion and our loss is 1.9, because our revenue is only 4.8. There's only two main levers to pull here in order to cover this loss. You could go out there and raise taxes, increase taxes here, which will bump this number up. But that's political suicide.

Think about any candidate out there running for presidency. If they say, look, our whole campaign is on raising taxes. How well do you think that'll fare for them? More likely than not, they won't get elected.

Historically, any of the emperors who try to raise taxes ended up dead. Okay. So the same thing is true here.

Although the president may not end up dead, but it may be political death for them. So raising taxes is typically a bad option. Now, what about cutting spending? How do you think that would go over? If politicians are like, look, we are going to eliminate these jobs in the public sector.

Well, guess what? Nobody's going to be happy. And once again, it's going to hurt their political career. So nobody wants to cut spending.

Nobody wants to cut the pay of the poor policemen or firemen or firewomen or the teachers out there. All right. So nobody wants to cut expenses in the same gridlock can happen in an organization.

Trust me. I've seen it over and over again. Companies are bleeding money, but they have a hard time going out there and selling more.

And it's hard for them to cut costs because cutting costs means cutting some of their favorite employees and therefore they do nothing and they end up in a very bad spot. So for the government recapping, they don't want to raise taxes. They don't want to cut spending.

They keep suffering these losses. So to cover these losses, they keep bumping up their credit line, their theoretical credit line on their credit card. Okay.

Now, obviously they don't have a credit card, but I'm trying to keep this really, really simple. Now, remember $1.7 trillion in interest is what the government's paying, but that's on 5%. So if interest rates go up, okay.

So if the government continues to raise interest rates to curve inflation, then this is just going to make this debt more expensive. All right. So let me get into that here for a second, going back to what I said about debt or equity.

Okay. So you can do debt or you can do equity to raise capital for a business. And for the government, just think of this equity as printing cash.

So if the government turns on the printing machine and these are dollar bills and they start printing more and more money, guess what happens? More money flows into the economy. And when more money flows into the economy, it causes inflation, right? Because there's more dollars chasing fewer goods and fewer assets. Therefore, asset prices increase, wages increase, products and services increase, and it creates massive inflation.

And that's what's going on in the economy right now, because during the pandemic, the government printed a ton of money and it loosened its monetary policy and it flooded the economy to prevent the economy from crashing. And therefore the result is we're seeing this high inflation. Now, the way to curb inflation is to raise interest rates.

So if you take interest rates here and you increase them, then all of a sudden this business owner says, hmm, maybe I don't want to invest in those trucks or this new factory because the cost of capital is too high. And theoretically it's supposed to slow down the economy. So if you raise interest rates, the economy slows, inflation capers off, and we get back to that target where the Fed tries to manage inflation around two to 3%, we'll say.

Okay. I think that'll change over time here, but let's just use that as the target. But here's the problem.

If the government raises interest rates, that means that their interest rate is going to increase as well. And let's say this bumps up even more. It means that their interest payment, the dollars are paying an interest because it's a higher interest rate is going to be higher.

And if they issue treasuries, remember through debt to fund the gap, then they're going to have to issue treasuries at a higher rate, meaning they're going to have to pay more money to secure this cash on debt. Or the alternative is they just print more cash, right? So inflation is the silent tax. Okay.

You don't have to vote that in. In Congress and in our political system, in order to raise taxes, you have to change the laws, right? But to print more money, you just change your monetary policy. So it's a lot easier to do.

You can do it secretly or silently. It's not secret, but you could do it silently. And a lot of people in the economy, most Americans don't have the financial intelligence or the acumen to understand what this really does.

That's no knock on the American people. It's just complicated. So here's inflation and people think, dang, my Starbucks coffee is going up or at the grocery store, my favorite tortilla chips are going up or gas is going up.

And they understand what inflation is doing and how it's eroding their purchasing power. But what they don't realize is this entire cycle is very destructive and it's very difficult to get out of. Okay.

So the government's out of money. They don't have cash. Okay.

The economy is humming along. They don't want to raise taxes. They don't want to change this.

They don't want to cut their spending. They can't raise debt because debt may be too expensive. They print more money, more money gets thrown into the economy.

Inflation continues to climb in order to curb inflation. They have to raise the interest rates, which makes their debt more expensive, which then causes them to have a bigger shortfall, which either requires them to raise the taxes even higher or print more money. And they print more money and it comes here and it creates this inflationary cycle.

Like I said, it's very difficult to get out of. There's one last thing I want to touch on here. You're going to definitely want to stick around for this.

If we look at debt to GDP over the history of the United States, maybe not the whole history, but if we just look over the past few decades, we'll start with 1960, go to 1980. We'll go to 2000 and then we'll go to now. So if we look at the debt to GDP ratio here, the amount of debt that we have to GDP, remember the total GDP for the US economy as of 2024 is $28.4 trillion.

In 1960, the ratio was 53%. In 1980, it dropped to 35% as we started paying down some debt. In 2000, even with the dot-com bust and the infusion of cash into the economy, it was at 58%.

So it climbed back up here. And now we are going at an accelerated rate and we are at 122%. That means our debt is 122% greater than all of the output of the economy.

This is really dangerous territory for the United States. Now, I don't say this to scare you. I share all this to help you to understand what's going on in the economy in a very simplistic manner.

I have a lot of friends or family members who come to me because of what I do for a living. And they'll ask me, okay, what's my advice on the economy, the state of the finances for the US? What does that mean for their businesses and for them individually? And therefore I was like, you know what, I'm just going to record a video, put it all in here. So it's easy to share and explain all this to people.

And this is what I want you to understand. Now, if this is making sense to you, can I get a yes in the comments box below? Okay. What other questions do you have? Do you have feedback on this? Do you have thoughts on this? I would love to hear from you.

So go ahead and drop that down in the comments box below. But this is really important to understand. Now, if you're a business owner, okay, or you're an individual understanding this and understanding what this is going to do to inflation.

All right. And nobody has a crystal ball. I don't pretend to have a crystal ball on the economy.

I'm just going off basic principles of how the economy works. But my guess is we're going to continue to run a deficit here. All right.

Because taxes will most likely not be enough to cover our spending and we're not going to reduce spending. And therefore inflation is going to persist. So if you're sitting on debt and you have the income to service that debt, inflation can actually erode the effects of debt.

It can actually be a good thing on debt. Now, if you're sitting on a bunch of cash, this may make you really sad because your cash is going to lose its purchasing power. And this is where you have to be really careful in the economy because right now stocks can be argued that they're trading at a high valuation.

Bonds, if you invest in bonds and interest rates go up, you're going to lose a bunch of money. If you're just sitting in cash, you're losing purchasing power. If you put it in real estate, you know that may work, but the commercial real estate in the United States is kind of shaky and unstable.

That's a whole nother question. But the whole reason why I'm so bullish on business is because if you can invest in business and you can grow the business by following key principles around strategy and finance, then you can protect your wealth because putting it into the business, assuming the business can grow and capture value and create value for the long-term, your money may be protected from the harmful effects of inflation. So this is really important to understand.

It's nothing to be afraid of. And in fact, there are a lot of things that you and I, we can't do to impact the macro economics of the economy. It's not like we're going to go out there and protest and all of a sudden it's going to fix this whole model.

This is just the situation that we're in. 

But if you educate yourself, if you invest in your financial literacy, that's why I'm so passionate about boosting your financial IQ. That's why I have the podcast. That's why I put on these episodes.

If you can understand all this, then you're going to be in a really good position to take advantage of opportunities that are going to come your way out of all this. Even if the economy contracts, it just means that there's going to be opportunities to invest in assets that will later on recover and appreciate, and it'll help you to build your wealth.

So like I said, nothing to be fearful of if you're prepared. But in order to prepare yourself, you have to put money aside, you have to have the capital available, and you have to invest in a business that is going to work well and it's going to weather the storm and be resilient. And you have to invest in yourself.

That's probably one of the most important things. In fact, one of the most successful investors of all time, Warren Buffett has said, the best thing you could do in inflationary times or in a bad economy is invest in yourself. And I completely agree because that knowledge will go with you and it will give you the power and the IQ to make strategic moves.

All right, that's all I have for you. Thanks for checking out this video. Be sure to check out the other videos, like and subscribe and share with others to get the word out there.

Take care of yourself. Cheers.