Let’s review.

 

Our gross domestic product (GDP) expanded at just 0.7 percent annual rate in the final three months of 2025. We have a $1.8 trillion deficit and so much debt that it exceeds 100% of our entire GDP. Dollar positioning reached its most negative in more than 14 years in February 2026, according to the Bank of America’s foreign exchange and rates sentiment survey. Bets on the dollar falling are the biggest since January 2012, the earliest year the Bank of England (BoE) had data. In 2025, a record 6 percent of workers in 401(k) plans handled by the Vanguard Group took a hardship withdrawal. That is up from 4.8 percent in 2024 and a pre-Covid average of about 2 percent.

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At the end of 2025, groceries, housing costs and health care were all going up much faster than overall inflation numbers. Costs for goods and services were up 25 percent from where they were in 2020. Although the inflation rate was below the high it hit in 2022, certain things like coffee, ground beef and car repairs were way higher – and that was before the war with Iran upended oil and financial markets. By March 2026, consumer prices were up 3.3 percent from a year earlier, much hotter than February’s gain of 2.4 percent.

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For much of 2025, large retailers tried to avoid raising prices by absorbing at least some of the higher costs caused by the Trump/Vance administration’s tariffs. An October 2025 analysis by Goldman Sachs found that companies were passing along only about half of the costs of higher tariffs on imported goods. However, by the end of the year, companies were warning they would be increasingly passing those higher costs through to consumers.​ This was bad news because consumers were already spending far less – and that was before the war with Iran. By April 2026, consumer sentiment had fallen to the lowest level recorded in the 70-plus-year history of the University of Michigan’s Surveys of Consumers.

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As a matter of fact, the divide between the wealthy and lower-income households is never starker than when you look at who is spending money today. By the end of 2025, we had reached a point where households making over $250,000 a year accounted for almost 50 percent of all spending, breaking a record set three decades before.

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While it’s true U.S. consumers across-the-board spent almost 4 percent more during the 2025 holiday season than they did the year before, an estimated half of them used buy now, pay later plans to finance their purchases.​ In fact, pay-later borrowing has surged quickly in America. The Federal Reserve Bank of Richmond reports that the total transaction value of buy now, pay later (BNPL) loans, measured in real terms, has grown around 20 percent per year since 2021, reaching an estimated $70 billion in 2025.​ But now, according to a LendingTree survey, 41 percent of those who use buy now, pay later options report they paid late on at least one of them in the past year, up from 34 percent just a year earlier.

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In February 2026, the 30-year fixed-rate mortgage dropped below 6 percent for the first time in 3½ years, which was awesome! But then, angst in the bond market over the war in Iran pushed up the yield on the benchmark 10-year Treasury note (which plays a large role in determining mortgage rates and other borrowing costs), which caused mortgage rates to tick back up to 6 percent.

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The share of subprime auto loans that are sixty days or more past due has reached a high of 6.74 percent and repossessions have surged.​ By the end of 2025, average electricity costs had risen 11 percent since the beginning of the year, over three times the rate of inflation. In some states it was way worse. In Missouri, for example, the increase was more like 37 percent. Residential disconnections were rapidly increasing in many states. In New York City, for example, there was a fivefold increase in shutoffs in 2025. This, of course, will only get worse as fuel costs rise.

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Thanks to inflation, shifting supply chains, and broader economic uncertainty, small businesses – that don’t have the resources larger companies have to navigate the Trump/Vance administration’s high tariffs – prepare for the worst, shedding workers at much higher rates.​ This is a major problem because the 36+ million small businesses in America represent 44 percent of the U.S. gross domestic product; employ 46 percent of American workers (59–62 million people); and create roughly 9 out of every 10 net new jobs.

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Small businesses aren’t the only ones struggling. U.S. corporate bankruptcies surged in 2025, to levels not seen since the 2007-2009 Financial Crisis. Blaming tariffs, inflation and interest rates, at least 717 companies filed for bankruptcy from January through November, around 14 percent more than in 2024. Businesses dependent on imports saw the worst of it, as did those tied to manufacturing, transportation, and construction.

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The American labor market lost substantial momentum in 2025, putting an end to, as the Wall Street Journal put it, “the hottest job market in a generation.” In the end, U.S. employers added just 181,000 jobs in 2025, down considerably from 2024, when we added 2.2 million jobs.​ Wage gains slowed and the unemployment rate rose, hitting its highest level in four years. The number of unemployed Americans increased by 700,000 to 7.8 million. Despite Donald Trump’s promises to reinvigorate it, the manufacturing sector alone lost over 70,000 jobs in the one-year period ending in November 2025.

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The official unemployment rate stayed relatively low by historical standards, but that was likely due to a shrinking base of workers thanks to the Trump/Vance administration’s draconian immigration policies that have vastly reduced the number of incoming workers into the pool.​ In fact, if it weren’t for the health-services sector (i.e., healthcare and social assistance), private-sector employment would have hardly grown at all in 2025. Except for the two most recent recessions, 2025 experienced the lowest rate of average monthly job growth since 2003.

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The number of those who had been unemployed for 27 weeks or more rose almost 400,000 from a year earlier. The number of people who were working part time but wanted a full-time job rose by almost a million. Unemployment for black Americans surged to 8.3 percent in November 2025, after reaching a record low 4.7 percent in April 2023 – over double the unemployment rate for white workers.​ … and, unfortunately, based on numbers from February 2026, it doesn’t appear the health-services sector is going to pull us out this time. The U.S. Bureau of Labor Statistics reports a loss of 92,000 jobs in February – the second-largest monthly decline since the Covid-19 pandemic – with job losses occurring in nearly every sector of the economy.

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In March, Hiring Lab, the economic research arm of the jobs site Indeed, put it this way: “The labor market has averaged essentially zero net job creation over the past six months. This is concerning because when an economy stops creating jobs, it’s often not long before it starts losing them.”

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Meanwhile – despite many indicators screaming we’re headed for “stagflation,” an unusual economic condition combining stagnant growth (high unemployment and slowing economic growth) with rising inflation – Republican leaders seem to be in a state of perpetual denial, at least publicly. President Trump himself told Politico in December 2025 that he gives “his” economy an “A-plus-plus-plus-plus-plus.”​ He also keeps saying things like affordability is a “fake narrative” and “con job” and “doesn’t mean anything to anybody,” as House Speaker Mike Johnson (R-LA) tells frustrated and frightened consumers to “relax” and “it’s gonna be fine.”​ Two weeks into the Iran war, Kevin Hassett, the director of the White House National Economic Council, even predicted a “big positive shock” for the global economy shortly after the war ended, and President Trump said, “Inflation is plummeting, incomes are rising, the economy is roaring back and America is respected again” – which are all just straight-up delusional things to say.

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Unfortunately, the financial circumstances of many Americans had already been deteriorating for years.

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A study from economists at the American Enterprise Institute – Stephen J. Rose and Scott Winship – found that the share of families they define as the “core middle class” (incomes from $67,000-$133,000) has declined to 30.8 percent in 2024 from 35.5 percent in 1979, but that the “upper-middle-class” (incomes up to $400,000) now accounts for 31.1 percent of families, up from 10.4 percent in 1979.​“For the first time in American history, more families in 2024 were above the core middle class threshold (35 percent) than below it (34 percent).” That’s great for those families! The researchers suggest that “we might celebrate that everyone was more than half again as rich as their forebears.” Again, yay! A rising tide lifts all boats!

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But their study doesn’t seem to reflect the daily realities that those people in the “core middle class” and below face.

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Fifty years ago, transfer payments – money from government programs like Social Security, Medicare, Medicaid, veterans benefits, and SNAP – were not a huge factor in the well-being of American families. Back then, transfers accounted for only around 8 percent of total personal income, and the Americans that depended on them typically lived in areas of prolonged economic distress.​ Now, however, transfer payments account for almost 18 percent of total personal income and transfer income, per capita, has increased nearly three times faster than income from other sources over the past five decades. In 2024, Americans received $3.3 trillion in transfer income from the federal government, equaling 16.2 percent of the federal budget. Fifty-three percent (53%) of U.S. counties rely on transfer payments for their economic survival, a four-fold increase.

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To put this in perspective, one in eight Americans – 42 million people – used SNAP to buy groceries in 2025. The income limits to be eligible were $27,495 a year for a household of two and $41,795 for a family of four. Around 62 percent of people who used SNAP were in families with children and roughly 40 percent of them were children under 18. The average SNAP recipient received $187 a month.

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So, it’s not hard to see why the major changes/cuts to things like SNAP and Medicaid in the One Big Beautiful Bill Act are so daunting. < Sidebar: You may have thought the phrase “One Big Beautiful Bill” was just what Donald and the Republicans call the legislation but that’s the law’s actual name. Insert eye-roll emoji. >

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All this would be concerning enough, but there is another reality that takes it from concerning to chilling.

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In many ways, the economic data from 2025 is contradictory. Less than one week apart in December, one government report showed job growth contracting and unemployment rising and another showed the economy expanding at a robust 4.3 percent annual rate in the third quarter (helped greatly by wealthy Americans spending lots of money; the U.S. spending big on our military; and outrageous spending on A.I. infrastructure).

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And, despite trade wars, gutted immigration, and other policies pushed on America by the Trump/Vance administration – which were showing up big time on so-called “Main Street,” Wall Street just kept humming along, breaking record after record in 2025. Even after some late-year wobbles, stock market gains were over 15 percent for the year.

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But when you look closer, that strength was only thanks to the world of Artificial Intelligence (A.I.).

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Reuters reports that, as of 2024, investors had thrown almost $1.6 trillion at A.I. technology since 2013 – outpacing massive government-led projects like the Manhattan Project and the Apollo program. 2025 was expected to bring another $375 billion. Companies like Alphabet, Amazon, Google, Meta Platforms, and Microsoft are building $100 billion+ data centers and spending outrageously on talent.

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Essentially, anything associated with A.I. – from developers and chipmakers to data centers and those that build them to the utilities that serve them – has been on fire.​ For much of 2025, seven AI-focused companies, known as “The Magnificent Seven” – Alphabet (Google), Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla – constituted over a third of the value of the S&P 500 index.

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But, if you set everything A.I.-related aside, the stock market was relatively weak as tariffs and economic uncertainty had already led to both declining sales and investment. The Russell 2000, a U.S. stock market index that makes up the smallest 2,000 stocks on the market, lost 4.5 percent in the one-month period leading up to November 21, 2025.

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This, of course, leads to the inevitable question: What if the A.I. boom goes away?

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In truth, there are signs the A.I. craze may have already started to slowly unravel. In the end, only Alphabet and Nvidia outperformed the S&P 500 in 2025, and in the beginning of 2026, five “Magnificent Seven” stocks were performing worse than the broader benchmarks – which essentially put an end to the nickname “Magnificent Seven.”

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Although plenty of investors continue to pour billions into A.I. – some estimates suggest as much as 2 percent of our GDP – many people think we could be in yet another speculative financial bubble (think: dotcom in the late 90s/2000 and U.S. housing in 2007-8).​ There are several parallels, the number one being the insane level of extravagant investment in A.I. by a plethora of enamored investors that seems to be completely detached from the amount of profit A.I. can plausibly generate – the hallmark of a bubble.

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In October 2024, OpenAI, the research organization that created ChatGPT, announced they had raised $6.6 billion, then the largest venture-capital raise of all time. That sounds like a lot of dough, but it’s even crazier when you hear that the investors had been told that OpenAI was expecting to lose $44 billion over the following five years.

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JPMorgan, the largest bank in the world, estimates that the tech industry will have to generate $650 billion in revenue every single year for A.I. investments forecast through 2030 to earn even a modest 10 percent return. Uh oh.

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… and people are catching on. At the end of 2025, CoreWeave – an A.I. cloud computing platform backed by Nvidia and several investment firms and hedge funds – lost $33 billion of value (46 percent) in just six weeks. There were several reasons for this, including a failed merger and delays in the construction of a data-center complex, but one of the main reasons was that prominent short-seller Jim Chanos, well known for predicting the collapse of Enron, started publicly criticizing the company.

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These signs are something we can’t ignore. There was already one huge wake-up call in January 2025, when America was blindsided by the Chinese scrappy startup DeepSeek’s latest AI model. Although the tech itself was comparable to models recently released by U.S. companies, it was built with less computing power and less money…. and, in the blink of an eye, DeepSeek-R1 challenged the assumption that the United States was the dominant, undisputed force in A.I.

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DeepSeek-R1 triggered a financial panic, erasing a trillion dollars of market value in a single day. The day before its release, Nvidia – the dominant computational chip dealer for the A.I. boom – was the most valuable company in the world. In the days after the release, it lost $593 billion of value, a loss greater than the entire market cap of ExxonMobil and the worst day for any stock in history. (Note: That said, in July 2025, Nvidia became the first public company worth $4 trillion and, three months later, the first to reach $5 trillion).

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DeepSeek-R1 stoked fear from Wall Street to Silicon Valley, and it signaled to the entire world that the battle between the United States and China for tech supremacy had only just begun.

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Here’s another example: In September 2025, OpenAI signed a deal to purchase $300 billion in computing power from the cloud-computing company Oracle over five years, beginning in 2027.

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The deal was a huge commitment for a startup that just two months earlier had reported it was generating only around $10 billion in annual revenue (which is just one-fifth of the $60 billion it owes Oracle each year of their deal).

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Three months later, Oracle announced a quarterly revenue of $16.1 billion and adjusted operating income of $6.7 billion, numbers that fell short of analyst expectations. The company also increased its capital-expenditure forecast, which signaled an even greater delay in profit returns for investors. This didn’t go over very well, and Oracle shares tumbled.

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One of the problems for Oracle is that, since OpenAI is a privately held company, investors – who are clearly beginning to question the sustainability and timing of returns from their sky-high A.I. investments – have little option other than divest in companies that have sizeable exposure to the money-losing startup. This could trigger a massive sell-off, not just for Oracle but for the only industry that is singularly propping up the entire U.S. economy.