The federal government and the Fed pumped a lot of liquidity into the economy in response to the Great Recession. But the usual domestic users of such liquidity—households and businesses—increased their liquidity holdings only slightly.
Now that the turmoil over the federal budget has quieted down somewhat, it’s a good time to examine how spending and revenue have changed since the 1970s and are expected to change in the next 10 years.
January’s deal on the so-called fiscal cliff only raised projected revenue moderately and continued to push the spending issue forward unresolved. The economy may have been slowed down by such a drawn-out process, as well as by the uncertainty on the future size of government and on the distribution of the tax burden.
To get an idea of the Fed’s impact on prices and inflation, look at the data before and after its creation in 1913. Learn about the gold standard’s role, too.