A few days ago, President Donald Trump issued a warning about a potential “1929-style Depression … if the Democrats win.”
This, of course, relates to the upcoming midterm elections in November, and it seems he’s throwing bold statements out there to see what resonates with voters.
Remember his proposal—well, “offer,” I suppose—of a $5,000 payment to everyone if Republicans (somehow) keep their grip on Congress?
I used “somehow” because, let’s be real: the state of both the U.S. and global economies is dire. Typically, off-year elections are challenging for the party in the White House, and let’s not ignore the terrible economic landscape right now. These are definitely not the best circumstances.
I mentioned earlier that Trump is “partly” correct about the looming recession. I believe that, regardless of which party holds power in November, it’s going to happen. Brace yourselves.
The situation hasn’t been improved by his actions regarding the conflict with Iran, which has disrupted the global energy market and, consequently, the world economy.
Additionally, his so-called “Beautiful” Bill has contributed trillions to the national debt and deficits, far surpassing the expenditures from Biden’s Democrat-led Continuing Resolution. That wasn’t very fiscally responsible, to say the least.
Nonetheless, this impending economic downturn is going to happen, with or without President Trump’s tenure.
It’s somewhat ironic, isn’t it? We put him in office thinking he would curtail spending and wars, ideally preventing the recession we all seem to sense on the horizon.
So what’s driving this growing sense of doom?
Well, the U.S. government’s debt, which exceeds $40 trillion, is no trivial matter. Under Trump’s first term, he added about $7.8 trillion, and during his second term, he’s already tacked on roughly $4 trillion. That’s a significant chunk of the total debt.
Trump took office in a D.C. that was already deep in a pattern of excessive spending and borrowing. Instead of reversing this trend, he sped it up.
This mounting debt pushes out opportunities for private investment. Can’t secure that loan for your small business? That’s likely because the government is borrowing over $3 trillion each year for new initiatives and to pay interest on existing obligations.
And let’s not overlook the AI bubble. When I say “bubble,” I really mean it. The total fiscal activity surrounding AI has reached around $3.5 trillion and is projected to hit $5 trillion by 2028.
However, AI’s total revenues sit between $100 billion and $200 billion annually. For it to even manage its current debt, it would need to skyrocket to around $1.2 trillion to $1.5 trillion by 2030.
There’s little indication this will happen, which is why the term “bubble” feels appropriate.
Venture capitalist Tomasz Tunguz anticipates that over the next five years, an additional $4 trillion will flow into AI-related lending.
But honestly, I think we might see the AI lending avenues dry up long before that five years is up. The numbers just don’t add up.
Then there’s the ongoing turmoil in the U.S. bond market, which seems to be worsening (and it’s not just the U.S. facing this issue). The implication? There’s a dwindling appetite for U.S. debt.
This situation forces the U.S. to continually increase interest rates to attract cautious buyers. The catch? Those rising rates mean the U.S. pays even more in interest on its existing debt.
This just makes the debt less appealing to potential buyers, prompting yet another cycle of increased rates. It could lead us into a downward spiral of debt.
Despite all this mounting evidence, the U.S. stock markets are oddly riding high.
But really, that’s also a facet of the AI bubble. A huge portion—62%—of the market’s total value is tied to AI or related sectors.
Meanwhile, nearly 80% of S&P stocks are experiencing declines. It seems that Wall Street is all in on AI.
Yet for most of us who aren’t tied to Big Tech or Wall Street, the economy feels quite bleak. Households are grappling with record levels of debt, totaling $18.8 trillion, and interest rates are climbing sharply.
Prices are also rising. The government’s official inflation rate is pegged at 3.4%, but with the escalation due to the conflict in Iran pushing fuel prices higher, it certainly feels worse—and will likely continue to rise.
Real wages for private-sector workers have barely changed over the last forty years, which isn’t encouraging.
In stark contrast, CEO compensation has surged by an astounding 1,316% since 1978. Seems only fair, right?
I could suggest that there are other areas of the economy ripe for collapse, but let’s focus on this triad we’ve explored.
You have the overwhelming U.S. debt, which is increasingly hard and costly to finance.
Then there’s the AI bubble, which has propped up Wall Street but is nearing a point of unsustainability when it comes to supporting the growing debt.
And finally, the conflict in Iran has only compounded the economic difficulties faced by everyday Americans.
As Main Street suffers, we all sit back and watch Wall Street and the government seem poised for their own crises.
In conclusion, Trump is somewhat right: a Depression is on the way. But the absurdity of U.S. electoral politics doesn’t really factor into it anymore.
