Since the election two weeks ago, the US stock market benchmark S&P 500 is roughly flat, but a stock such as Tesla is up an eyewatering 32% – given CEO Elon Musk’s proximity to Trump as his consigliere and new head of the Department of Government Efficiency (or Doge, a name synonymous to a dog-based Musk-backed cryptocurrency which is incidentally up a cool 143% since the election).
Astonishingly, the growth in market cap of Tesla since the election – around $250-billion – is roughly the same as the entire value of the world’s second most valuable motor company, Toyota – or more than the entire combined value of the next five – VW, General Motors, Mercedes Benz, Ford and BMW.
The market is betting that Trump is intent on deregulating crypto and the oil industry, defanging antitrust authorities and awarding lucrative government contracts to his inner circle. Investors are duly piling in. Stocks and assets that look to benefit from being close to the president through regulatory changes and government contracts such as SpaceX, Goldman Sachs and Bitcoin have therefore outperformed.
While the consensus is that Trump means higher growth, higher deficits, higher inflation, higher stock prices and higher bond yields, the reality is more nuanced. When one scrapes beneath the surface of AI hype and Elon Musk’s hyperbole, the US economic boom is a mirage. We are entering the nepotistic death rattle of American capitalism.
Disparities in spending and wealth
The apparent strength of US economic growth masks deep structural imbalances, benefiting a small elite while leaving most Americans behind. Wealth gains and discretionary spending are increasingly concentrated among the richest households, while tech mega-cap corporate profits soar. Though the economy appears robust on the surface, this growth is fragile, heavily reliant on government spending and borrowing, which now functions as the primary driver of economic momentum.
Data from Oxford Economics highlights the growing inequality in consumption. The bottom 40% of US households by income contribute just 20% of total spending, while the top 20% account for a staggering 66%. This is the widest recorded gap and is expected to grow. For many Americans, discretionary spending – on travel, dining out or entertainment – has become unattainable. Essentials such as housing, food and healthcare dominate household budgets, leaving little room for extras.
Trump’s re-election campaign played to these deep-set grievances. After years of fiscal irresponsibility and soaring inflation, most Americans feel worse off than they did four years ago and duly punished the incumbents. Kamala Harris’s election campaign message on the economy, that despite feeling poorer they should be happy about the US’s economic performance since the Covid pandemic, unsurprisingly fell flat.
Consumer confidence further reflects these divides. Post-pandemic, optimism rebounded strongly among the wealthiest third of Americans, while middle- and lower-income households remain significantly less confident. Wealth concentration exacerbates this trend: US financial markets added $51-trillion in wealth over the past decade, but most of these gains accrued to the wealthiest individuals.
Even within the millennial generation, wealth disparities are stark, with affluent millennials capturing the lion’s share of these gains. The resulting intra-generational inequality is compounding frustrations, particularly as younger Americans face greater housing and debt burdens than previous generations. Trump tax cuts and tariffs will only compound these disparities, ironically biting the very hands who elected him.
The role of government borrowing
Unlike past economic booms, which were fuelled by private-sector borrowing and invested into the real economy, the current expansion is being driven by surging public debt. Over the past decade, the federal deficit has more than doubled to exceed 6% of GDP and continues to rise. Public debt has ballooned by $17-trillion in just 10 years, matching the increase of the previous 240 years combined – a trajectory that raises serious concerns about fiscal sustainability.
While the US benefits from strong demand for the dollar as the world’s reserve currency, history shows no economy is immune to fiscal reckoning. Rising global interest rates have already exposed vulnerabilities, with even advanced economies like the UK and France now feeling the strain. The US, though shielded for now, cannot remain impervious forever.
America’s “gilded” economy shines brightly at the top, but rests on a precarious foundation of inequality and government borrowing. Without addressing these systemic imbalances, the veneer of prosperity risks being stripped away, revealing deeper vulnerabilities that could undermine long-term economic and social stability.
Rising yields could be the catalyst for a recession
Rising US bond yields, with the US 10-year benchmark having moved from 4.2% to 4.5% since the election, may indeed be less of an indicator of faster future growth but the first signs of investor apprehension about ever higher volumes of US bond issuance and borrowing.
Trump may want to remember the words of former president Bill Clinton’s political adviser James Carville: “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.”
Of course, higher issuance, and higher yields, have another effect: they will result in higher borrowing costs across the economy, which could be the exact thing that tips the whole teetering gilded cage over into a recession. At that point, the US government truly will be the spender of last resort. That cannot continue forever.
Empires fail when they can no longer cover their debts, and the way the US is headed, its ever-bullish president may learn this lesson the hard way. DM