Shutting Down

The Path to Social, Political and Economic Chaos in America

The U.S. government is shut down. But the budget fight is only the surface. Beneath it lies a systemic fracture: an unravelling of institutions, norms, the economy, and America’s credibility abroad.

Shutdowns have become routine political theatre. What used to be an extraordinary crisis is now standard operating procedure. That is not because of accounting disputes; it is because the country itself is split into two incompatible visions of government. One side sees government as the problem; the other sees it as the solution. This is no longer a policy disagreement, but an existential rift.

The divide cuts across every fault line.

• Inequality has hardened into exclusion. The widening wealth gap turns politics into a zero-sum struggle where every debate becomes existential.

• Political violence is no longer an outlier. Threats, intimidation, and physical attacks on civic spaces and officials raise the cost of doing politics. Extremism looks effective, moderation looks weak.

• Censorship and information silos mean Americans no longer debate facts. They live in curated realities, unable to find common ground.

• Scandals and “sex files” have become weapons. They are no longer about accountability but about destroying rivals and eroding trust. Norms of reciprocity that once sustained institutions are disappearing.

• Militarization of civic life is creeping inward. The deployment of troops in American cities signals the normalization of force in managing unrest. Once the military becomes a political tool, civilian democracy corrodes.

• Immigration policy has been weaponized. Immigrant workers are targeted, and visa costs are raised. It plays as patriotism, but the result is fewer workers, higher costs, weaker growth, the opposite of what the U.S. economy needs.

• Federal agencies are politicized. The BLS, the Census, and even the Fed, institutions meant to anchor trust, face political interference. When data and money themselves are treated as partisan instruments, the entire informational backbone of markets collapses.

And all of this comes against a backdrop of economic fragility. Growth is slowing, inflation remains sticky, and the government faces a crushing debt overhang. In the past, Washington could offset crises with fiscal stimulus and cheap money. Today, fiscal space is gone. What is left is monetary easing, but that tool no longer stabilizes society. Instead, it inflates asset prices, fuels inequality, and deepens the very divide that makes America ungovernable. Monetary policy has become a driver of the fracture, not a remedy.

At the same time, America faces escalating geopolitical risks. The war in Ukraine is draining resources and reshaping Europe’s security order. Confrontation with Iran raises the risk of a wider Middle East conflict. Tensions with China stretch from trade to technology to Taiwan. Meanwhile, trade policy itself has turned inward: tariffs, sanctions, and industrial policy walls are raising costs, fracturing supply chains, and undermining the very free-trade system the U.S. once built to project power.

This is the reality of America in 2025: a nation divided internally, overextended externally, and with markets behaving as if none of it matters.

Echoes of 1928–1929

The parallel to the late 1920s is unmistakable.

• Speculative euphoria amid cracks. Between 1921 and 1929, the Dow Jones rose sixfold. But underneath, agriculture was depressed, industrial overcapacity was building, and debt burdens were mounting. The market soared while the economy weakened. Today, equities rise while surveys, freight indices, housing, and capex all show strain.

• Debt and leverage. By 1929, investors were borrowing two-thirds of their stock purchases on margin. Leverage turned small reversals into cascades. Today, the leverage is in margin debt, private equity, and shadow banking — hidden, but no less dangerous.

• Easy money fuelling fragility. In 1927, the Federal Reserve cut rates to ease pressure on Britain’s gold reserves, inadvertently fuelling Wall Street speculation. Cheap credit magnified leverage and pushed stock prices to unsustainable levels. Today, with fiscal space exhausted, only monetary easing remains — and like in the late 1920s, it feeds speculation, enriches asset holders, and widens inequality. Then it inflated a bubble. Today it deepens the social fracture.

• Policy risks ignored. The Smoot–Hawley Tariff was being debated in 1929, casting doubt on America’s global leadership. Today, tariffs, sanctions, and trade fragmentation are once again destabilizing, yet investors dismiss the risks.

• Markets are divorced from reality. In 1929, car sales, steel output, and construction slowed months before the crash, but Irving Fisher declared that stock prices had reached a “permanently high plateau.” Today, sticky inflation, slowing growth, and record debt are waved away as noise.

• Debt sustainability. In 1929, U.S. debt was just 16% of GDP. Today, it is over 120%. There is no policy space to cushion a shock.

• Confidence is the tipping point. In October 1929, once confidence cracked, the Dow lost half its value within weeks and nearly 90% over the following years. Today’s calm looks eerily familiar, resilience that holds, until it doesn’t.

Regards,

Andre Chelhot, CFA

Editor

The Macro Anchor