Is the U.S. Economy Headed for a Great Reset?
An analysis of widening disconnects between financial markets and household well-being, exploring whether current imbalances signal an impending structural realignment of the U.S. economy.
Abstract
The U.S. economy is exhibiting signs of a widening disconnect between financial markets and household economic well-being. Stock market indices and investor confidence have soared even as many consumers report pessimism about their personal finances — a divergence unprecedented in recent decades. This paper examines whether these imbalances signal an impending "Great Reset," a major structural realignment of the economy.
We analyze key trends including the gap between stock market enthusiasm and consumer sentiment, sluggish real income growth versus surging asset returns, declining personal savings alongside record corporate profits, a housing affordability crisis undermining wealth building, and wealth inequality at highs not seen since the 1920s.
Key Findings
- Market vs. Sentiment Divergence: Consumer confidence in the stock market is at a 30-year high, while personal financial outlook has plunged to 2008 crisis levels.
- Income vs. Assets: From 2010–2020, real personal income rose ~50% while the S&P 500 gained nearly 300% in real terms.
- Savings Erosion: Personal saving rates fell from over 10% in the 1980s to roughly 4% today, while corporate profit margins hit record highs.
- Housing Crisis: The median house price-to-income ratio has risen from ~4:1 historically to approximately 6:1 nationally.
- Wealth Inequality: The top 0.1% wealth share has climbed back to levels not seen since 1929.
Historical Parallels
The paper draws comparisons to 1929 and 2008, examining how those eras of extreme financial imbalance resolved — one through deliberate structural reform (New Deal), the other through market collapse followed by policies that largely preserved the status quo for asset owners.
Implications
The analysis suggests two broad paths forward: a proactive policy-driven rebalancing through progressive taxation and investment in broad-based growth, or a reactive market-driven correction that could be sharp and disruptive. The current trajectory appears unsustainable, and some form of economic recalibration seems likely if historical patterns hold.
Co-authored with Walid Ahmed. Read the full paper using the PDF viewer below.