There's a subtlety in the Hebrew text here that we would completely miss if we didn't take the time to dig beneath the English. It involves the words God and LORD. While you may think those words mean the same thing, in the Hebrew, they're actually quite different.
"God" is the Hebrew word Elohim, which is the plural form of the word El, which was the common word used to describe the resident deities in many ancient cultures and civilizations. It was a relatively generic designation, the same way "God" is tossed around and used today.
"LORD" is the Hebrew word Jehovah, which is the personal and covenantal name by which the true and living God revealed Himself to His chosen people. It's absolutely unique and not found in any of the other cultures that used the word El. This is specific and personal. It's addressing God according to His own personal name and not according to a general title.
Now look at the verse again: "Happy are the people whose God (El, i.e. general) is the LORD (Jehovah, i.e. personal)." It's saying that blessing comes not to those who just know God in a general sense but to those who know God as Jehovah—who know God as He has truly revealed Himself in a personal sense.
Blessings abound in the lives of those who are in relationship with the Lord, who have entered into the covenant of His Son's blood, who know Him by His personal name and not just by His general title. If you know Him by name, if you know His Son, Jesus, then you can attest to the blessings He has brought into your life. But if God is generic and nameless to you, it's time to pursue a personal relationship with Him.
Jehovah God, may we know You as personally as we possibly can, and draw those who don't yet know You into a real relationship with You.
If you don't know God personally, please read "The New You" article towards the back of this booklet.