The Federal Reserve attempts to fight inflation by raising interest rates, hoping to curb consumer borrowing and slow demand. But this tool misses the mark when the real driver of inflation is government deficit spending.

In 2024, the U.S. government will spend around $6.8 trillion, while running a $2 trillion deficit. That deficit is money injected into the economy without corresponding production—pure demand creation, which stokes inflation.

As this article explains, the Fed can raise rates, but it has no power to rein in Congressional spending. It’s trying to apply brakes while the government is flooring the gas pedal.

And here’s the kicker: with $36.2 trillion in national debt, if interest rates were to return to the 20% levels of the early 1980s, the annual interest expense would hit $7.24 trillion—more than the entire federal budget. That would mean spending 106% of all federal outlays just on interest. This scenario is not only unsustainable—it’s impossible.

Which is why, in reality, interest rates can never go that high again. The debt burden makes it mathematically unworkable. So the Fed is trapped—raising rates just enough to pretend it’s fighting inflation, while the root cause (unchecked government spending) goes unaddressed.

How do we get out of this system as individuals?

Study bitcoin!