U.S. Economic Outlook The Systemic failure of Navigating Debt, Inflation, and Perpetual Political Apathy

A historic Collapse Unfolding

The Systemic failure of Navigating Debt, Inflation, and Perpetual Political Apathy

Introduction

The United States faces a challenging economic road to 2035, shaped by high public debt, shifting global trade dynamics, and uncertain inflationary pressures. This report provides a comprehensive outlook through 2035 under three scenarios – a best case (robust growth and reform), a moderate case (current policy trajectory), and a worst case (debt and inflation spiral) – informed by historical trends from 2000–2025 and scenario-based projections for 2025–2035. We examine critical factors including rising federal debt and interest costs, the sustainability of federal revenues, tariff policies and trade balances (in light of the Triffin dilemma), inflation trends (amid supply chain “reshoring”), income growth under price pressures, and structural systemic risks. We also analyze potential policy wildcards such as “Project 2025” and a hypothetical “Mar-a-Lago Accord.” A convergent Systemic Risk Index (CRI) is introduced to gauge the cumulative risk under each scenario. Finally, we provide strategic foresight on likely outcomes and offer advice for American and Canadian households on preparing financially and socially for the transitions or turbulence ahead. All assertions are supported by non-partisan data and primary institutional sources.

PART 1 The Narrative Storybook

This is split into 2 parts, A worst case Narrative (part 1) And Then A Moderate Analysis (part 2 below)

Option A→ U.S. Economic Trajectory 2025–2030: Realistic Worst-Case Scenario

From the post “Fall of the USSA” 2025–2030: Irreversible U.S. Collapse Timeline, There Has Never Been The Political Will To Change Course. 2025: Political Paralysis and Global Alarm, 40 Years In The Making

• Governance Gridlock and Fiscal Erosion: A newly reinstalled Trump administration faces a deeply polarized Congress. No bipartisan consensus emerges on taming deficits or debt, leading to repeated debt-ceiling standoffs and government shutdown threats. Credit agencies and investors grow wary as Washington’s ability to address fiscal issues appears paralyzed . In mid-2025, global markets react nervously when U.S. federal debt tops 130% of GDP (crossing a psychological red line). The U.S. credit rating, already downgraded in 2023 due to “fiscal deterioration… and repeated down-to-the-wire debt ceiling negotiations” , is put on negative watch as governance deteriorates further amid extreme polarization . With neither party willing to compromise on spending or reforms, the national debt continues to balloon unchecked. Interest costs on the debt near Cold War-era records, siphoning resources from vital programs – by 2025, the government is projected to spend roughly $0.95 trillion on interest (more than its defense budget) , underscoring an unsustainable trajectory.

• Destabilizing Executive Actions: Emboldened by victory, President Trump doubles down on an “America First” agenda that defies institutional norms. In 2025 he issues a flurry of unilateral orders: escalating trade wars (slapping new tariffs of 20–100% on major trading partners, including Mexico and China) and withdrawing from international accords . Longstanding allies are alienated as Trump openly questions U.S. commitments – even hinting at undermining NATO despite legal barriers . At home, Trump wields federal power to settle scores: targeting judges, prosecutors, and media critics in an authoritarian-style campaign of retribution . In spring 2025, he attempts to punish law firms involved in investigations against him by executive order, “seeking to delegitimize institutions… judges and others” and bending them to his will . Such moves provoke a constitutional showdown – courts block some actions, and Trump rails against judges, even calling for impeachment of those who rule against him . The Justice Department’s independence erodes as loyalists installed in key roles defy norms, dropping investigations into administration allies. This erosion of legal checks alarms watchdogs, but Congress remains largely paralyzed by partisan divisions.

• Social Unrest and Extremism Ignite: With political grievances at a boiling point, 2025 sees a sharp rise in domestic turmoil. Early in the year, President Trump fulfills a campaign pledge to pardon January 6th offenders, sparking mass protests in several cities. Clashes erupt between jubilant far-right groups and left-leaning demonstrators who view the pardons as an endorsement of political violence. The FBI and DHS warn that armed militias are emboldened, and plots against government targets reach their highest level since the 1990s. Public confidence in democracy plummets – by late 2025 surveys show nearly half of Americans believe a new civil war is likely in their lifetime . Rhetoric of “national divorce” (splitting red and blue states) moves from fringe online chatter to mainstream discourse, with ~20% of Americans openly favoring such a split . Governors in several blue states form informal compacts to resist what they call federal overreach on issues like immigration and voting rights, while some red-state legislatures push resolutions defying federal gun laws and environmental regulations. The stage is set for intensifying state–federal conflict, as neither side backs down.

• Global De-Dollarization Accelerates: Sensing U.S. disarray, international players begin quietly reducing their dollar exposure. In 2025 the U.S. dollar’s share of global reserves falls below ~58%, continuing a multi-year slide from ~66% a decade prior . Major economies like China, Russia, and oil-producing states expand bilateral trade in non-dollar currencies (yuan, rubles, euro), chipping away at dollar demand . BRICS nations (now boosted by new members like Saudi Arabia and Iran) coordinate on alternatives to U.S.-led systems – for example, setting up pilot programs for a cross-border central bank digital currency (CBDC) payment network to bypass SWIFT . Alarmingly for Washington, even some traditional allies join currency diversification efforts to hedge against U.S. instability. While the dollar remains the single largest reserve currency in 2025, its aura of invulnerability is fading. U.S. adversaries celebrate this trend: Moscow and Beijing openly tout de-dollarization as protection against U.S. “economic warfare,” and their media portray the “domination of the dollar” as a waning relic of Western hegemony . By year’s end, global confidence in U.S. leadership is badly shaken. A White House debt-ceiling crisis in late 2025 nearly triggers a technical default – a scenario President Biden (in his final days) had warned would be a “gift to…China and Russia,” damaging U.S. credibility . Though default is averted at the last minute, the mere threat reinforces moves to reduce dependence on U.S. Treasuries and dollars. The trajectory is set: absent a course correction, both domestic governance and the U.S.-led global financial order are on a path of destabilization heading into 2026.

2026: Economic Strains and Escalating Tensions

• Recession and Fiscal Crisis: The compounding effects of trade wars, rising interest rates, and waning investor confidence tip the U.S. economy into a mild recession by mid-2026. Unemployment ticks up as retaliatory tariffs hit U.S. exports and supply chains. High interest costs – now topping 3.3% of GDP (exceeding even Medicaid and defense outlays) – force the Treasury into ever-larger borrowing . With tax revenues dipping in the downturn, the annual deficit blows past $2 trillion. Unable to agree on any austerity or revenue measures, Congress watches helplessly as the debt load climbs toward 135% of GDP . In summer 2026, Fitch and Moody’s officially downgrade U.S. sovereign debt another notch, citing “erosion of governance” and an inability to rein in the debt trajectory. Yields on 10-year Treasuries spike as foreign investors demand a risk premium – a stark reversal for a market long considered ultra-safe. The Federal Reserve faces a dire quandary: raise interest rates further to defend the dollar and curb inflation (which has re-surged above 6% as import prices climb), or ease policy to stimulate growth. Either choice feeds instability: tightening rates would deepen the recession and explode debt service costs, whereas loosening risks undermining the dollar. Treasury Secretary Yellen resigns out of frustration, warning publicly that America’s fiscal path is “unsustainable” and will “inevitably lead to a reckoning.” By year’s end 2026, whispers of an eventual debt default or restructuring – once unthinkable – are heard in financial circles. The U.S. government’s creditworthiness, while still investment grade, is no longer sacrosanct.

• Constitutional Clashes and Authoritarian Turn: As the economic situation deteriorates, the Trump administration grows more combative towards internal critics. 2026 sees an escalation of the “authoritarian playbook” begun in 2025 . The President, frustrated by court injunctions against some policies, openly defies a high-profile federal court ruling (regarding restrictions on press freedom) – ignoring a judicial order for the first time, which triggers a constitutional crisis. The Justice Department (now led by a loyal Attorney General) declines to enforce the court’s contempt finding, effectively nullifying the check on executive power. In Congress, impeachment motions are introduced over this and other norm-shattering acts, but partisan deadlock prevents any real accountability. Trump also continues purging federal agencies: career civil servants in intelligence, the FBI, and even the Federal Reserve face intimidation or replacement if deemed disloyal. By late 2026, democracy watchdogs note that the U.S. can “no longer be considered a full liberal democracy” – the regime resembles a competitive authoritarian system where opposition exists but is perpetually handicapped . Many state governments openly distrust federal authority; for instance, a coalition of blue states refuses to deploy their National Guard units for a border operation they view as unlawful, and some conservative states pass resolutions declaring federal laws null and void within their borders on issues from gun control to environmental rules. American federalism frays as state–federal legal battles pile up in the courts (which themselves are under political assault).

• Civil Unrest and Fragmentation: The social fabric continues to unravel. Sporadic violence becomes a regular feature of politics – in 2026 there are multiple domestic terror incidents, including a bombing of a federal building by an extremist cell citing “patriot revolution.” The Department of Homeland Security reports that violent extremist groups on both the far-right and far-left are recruiting record numbers, fed by grievances over economic pain and governance failures. Major cities see rounds of unrest: e.g. in summer 2026, a deadly riot erupts in Atlanta after a controversial court decision upholding a restrictive voting law; the Georgia National Guard’s deployment fails to prevent spillover into neighboring states. At the same time, talk of secession gains a foothold in mainstream politics. A bloc of rural counties in Texas and Oklahoma hold non-binding referendums on “independence” (sparked by anger at Washington’s gun regulations and inflation), and although the votes are mostly symbolic, the message is unsettling. Polls show two-thirds of Americans believe the nation is hopelessly divided . Communities increasingly self-segregate by political affiliation; “red” and “blue” areas become echo chambers with separate economies (for instance, some red counties begin refusing U.S. dollar cash in favor of gold or crypto due to distrust of federal currency). The U.S. military and law enforcement agencies quietly start contingency planning for domestic insurgency scenarios as 2028’s elections loom on the horizon.

• Adversaries Probe and Advance: Sensing American distraction, geopolitical rivals test boundaries. In early 2026, China ramps up military exercises around Taiwan to an unprecedented scale. The U.S. response is muted – Washington’s warnings carry less weight after chaotic alliance relations, and some NATO allies privately question whether the U.S. would really risk war given its internal woes. By mid-2026, Russia manages to consolidate its gains in Ukraine, pressuring Kyiv into a frozen conflict armistice. European NATO members, bereft of strong U.S. leadership, reluctantly accept a drawn-out stalemate. American global influence visibly wanes: long-time partners start hedging, with Saudi Arabia signing a major security and energy pact with China, and Turkey pivoting East (purchasing advanced air defenses from Russia) in defiance of weak U.S. objections. In the Middle East, Iran capitalizes on the situation – accelerating its nuclear program beyond previous limits. When Iran enriches uranium to near-weapons grade by late 2026, the U.S. finds itself with limited options; Israeli requests for support for a strike go unanswered, as Washington is absorbed in domestic crises. Overall, U.S. deterrence looks increasingly hollow. The Pentagon budget is constrained by skyrocketing interest expenses, forcing difficult trade-offs in force readiness . Intelligence officials warn that Russia and China are coordinating hybrid influence operations to exacerbate America’s internal divisions – state media from those countries amplify U.S. conspiracy theories and unrest footage to “highlight the chaos of Western democracy.” The year closes with the United States largely on the defensive globally, its once-formidable soft power in freefall. Allies quietly begin planning for a world where U.S. security guarantees can no longer be assumed.

2027: Financial Meltdown and Geopolitical Realignment

• Dollar Crash and Bank Runs: 2027 proves to be the tipping point for America’s financial position. Early in the year, a consortium of major economies (including China, Russia, and several Gulf states) announce a new commodities trading framework that bypasses the dollar – key energy exporters will accept payments in a mix of yuan, euros, and a new BRICS digital token. This seismic shift accelerates the dump of U.S. assets: central banks around the world sharply reduce their U.S. Treasury holdings, and the dollar’s share of global reserves plunges below 50% for the first time (crossing the threshold long seen as marking the end of dollar hegemony) . As global demand for dollars evaporates, the greenback’s exchange rate free-falls. By mid-2027 the USD has lost over 30% of its value against major currencies, sending import prices (energy, electronics, food) soaring – an inflationary shock hammering consumers. The Federal Reserve’s attempts to stabilize the currency by hiking interest rates only spook markets further; equity markets crash in tandem with bonds, as investors flee U.S. assets en masse. The U.S. banking sector, heavily exposed to Treasuries and facing liquidity crunches, suffers a crisis of confidence. Several regional banks fail when runs by panicked depositors spread (sparked by social media rumors that even FDIC insurance could be at risk in a federal insolvency). The Treasury and Fed intervene with massive emergency liquidity, effectively printing money to backstop banks and markets – but that flood of new dollars only reinforces the loss of faith internationally. By late 2027, the U.S. faces a classic currency-and-debt crisis usually seen in emerging markets: the government can no longer easily finance its deficits externally, and is forced to monetize debt at a scale that fuels a vicious cycle of inflation and currency decline . Global confidence in the dollar as a stable store of value is shattered. The Triffin Dilemma has fully played out – decades of deficits to provide the world with liquidity have undermined faith in the currency , reaching a tipping point where foreign holders en masse “begin de-dollarizing… and reserves flow out” . What had been a gradual erosion turns into a rapid unraveling of the U.S. financial system.

• Sovereign Debt Default: The cascading financial turmoil forces the unthinkable: in August 2027, the U.S. federal government defaults on a portion of its debt. With interest rates skyrocketing and rollover of short-term debt impossible at affordable rates, the Treasury announces a temporary halt on payments for certain Treasury bonds (effectively a selective default) and moves to restructure debt maturities. The immediate fallout is chaos – global markets convulse as the once-“risk free” asset is now in question. Domestically, the default, even if partial, devastates pensions and balance sheets and further sinks public trust in institutions. The U.S. dollar, already weakened, plunges to historic lows, sparking import hyperinflation. Ordinary Americans face 40–50% price surges on basic goods within months; a gallon of gasoline costs over $10 as the dollar’s value erodes. In response, the Fed initially tries extreme rate hikes, but by now the problem is one of trust, not just policy. The U.S. rapidly loses its status as the world’s financial safe haven. Internationally, rivals point to the U.S. default as proof of the West’s decline – Chinese state media call it the end of “American financial imperialism,” and even European allies consider creating a new reserve asset (perhaps an IMF Special Drawing Rights expansion or a euro-yuan basket) to stabilize global trade. For the U.S., the loss of the dollar’s reserve currency status isn’t just symbolic – it means the government can no longer easily finance deficits by printing currency accepted abroad. Facing this stark constraint, drastic austerity measures are rolled out: deep cuts to federal programs, mass layoffs of government workers, and tentative discussions of selling federal assets to raise funds. But these emergency steps come too late to avoid systemic economic collapse.

• “Great Depression II” – Social Collapse: The financial collapse of 2027 ushers in a devastating economic depression. By year’s end, unemployment exceeds 20% as thousands of businesses, unable to cope with currency volatility and interest shock, shutter their doors. Breadlines reappear in major cities; tens of millions slide into poverty almost overnight. With the federal government effectively insolvent, the social safety net frays – unemployment benefits, food assistance, and Social Security checks are delayed or reduced, worsening the misery. Large-scale civil unrest breaks out as despair and anger grip the populace. In the winter of 2027, protests over hyperinflation and joblessness in Midwestern states turn violent, with looting and clashes that overwhelm local police. The President declares a national emergency and invokes the Insurrection Act, deploying military units in several states to quell riots. Scenes of U.S. troops confronting civilians in the streets of Chicago and Houston stun the world and deepen Americans’ sense that the republic is unraveling. State governments begin taking matters into their own hands: some declare that they will assume responsibility for distributing aid and securing order independent of Washington’s directives. In California and a few Northeast states, leaders openly coordinate an alternative economic response – exploring the use of a regional digital currency or foreign currency to stabilize commerce within their borders since the federal dollar is unreliable. This effective fragmentation of monetary authority is unprecedented. Meanwhile, radicalization accelerates – extremist militias (on the right) and militant protest networks (on the left) each frame the collapse as proof of their worldview (tyranny vs. revolution) and see an opening to assert power. Political violence becomes widespread domestic insurgency in pockets of the country. The once united States of America are increasingly splintered into de facto regions, each struggling for stability amid the chaos.

• Allied Abandonment and Adversary Triumphs: By 2027, America’s geopolitical stature is in freefall. Longtime allies drift away to avoid sinking with the U.S. – the European Union convenes an emergency summit to forge a defense and economic plan that excludes U.S. leadership for the first time in NATO’s history. They accelerate efforts to create a European army and deepen ties with other powers to hedge against a failing America. In the Asia-Pacific, U.S. treaty allies like Japan and South Korea, horrified by the U.S. financial implosion and wavering commitments, consider accommodation with Beijing. Sensing its moment, China makes a bold move on Taiwan in late 2027: imposing a partial naval blockade and flying daily fighter sorties overhead to force capitulation. The crippled United States issues stern statements but, mired in domestic meltdown, cannot marshal a coherent military response beyond token naval maneuvers. Without a strong U.S. deterrent, China’s strategy succeeds in isolating Taiwan, which by 2028 faces an ultimatum to negotiate “reunification.” U.S. credibility in Asia collapses; several Southeast Asian countries pivot to openly align with China’s regional order. Russia, meanwhile, consolidates a new Eurasian sphere of influence. It brokers a settlement in Ukraine on its terms (entrenching its territorial gains) and forms a military pact with Belarus and other friendly regimes, filling the vacuum left by a retreating NATO. In the Middle East, Iran declares itself a nuclear-weapons state after a successful test, dramatically altering the power balance – U.S. influence was too diminished to prevent it. Israel and the Gulf states, seeing the U.S. as an unreliable partner, enter into precarious dialogues with Tehran and Beijing to safeguard their interests. By the end of 2027, the global order has effectively realigned into a multipolar configuration with U.S. leadership greatly diminished. The BRICS bloc and other rising powers tout a new era of multipolar cooperation – pointedly excluding the once-dominant United States. America’s adversaries have masterfully exploited its dysfunction: China and Russia emerge as co-guarantors of a new financial system (offering their currency swaps and development banks to nations in need), and U.S. alliances lie in tatters. The “American Century” has come to an abrupt, ugly end, with the collapse of U.S. economic might and unity at its core.

Figure: “De-dollarization” – As U.S. governance falters, countries accelerate moves away from the dollar. By 2027 the dollar’s reserve share plunges below 50%, triggering a self-feeding currency crisis .

2028: Point of No Return – Institutional Break and Dollar Abandonment

• End of the Dollar Era: In 2028, the U.S. dollar formally loses its global reserve currency crown – an outcome viewed as irreversible. Following the prior year’s financial cataclysm and debt default, most of the world swiftly moves to ring-fence themselves from U.S. exposure. OPEC and other major trading blocs announce pricing oil and key commodities in a basket of currencies (including a gold-linked BRICS currency unit). The IMF reports that by mid-2028, only ~30% of global foreign exchange reserves are held in USD – a stunning collapse from nearly 60% just a few years earlier. The “exorbitant privilege” the U.S. enjoyed is gone . For Americans, this translates into lasting economic devastation: import-dependent industries have withered, and a new barter-like economy emerges in some areas as the dollar’s value fluctuates wildly day to day. Amid hyperinflation (running in the double or triple digits annually), the Federal Reserve attempts a radical stabilization plan in early 2028 – introducing a new U.S. digital currency to replace the imploding dollar, and declaring a temporary freeze on bank withdrawals to facilitate a currency reform. But the plan backfires spectacularly: public trust is so low that the new digital dollars are widely rejected, and people flock to alternative stores of value (precious metals, cryptocurrencies, foreign stablecoins). The U.S. Treasury holds a fire sale of gold reserves and strategic assets to try to prop up the currency, but confidence cannot be restored. By late 2028, the U.S. dollar effectively ceases to function as the national currency for ordinary commerce in many parts of the country – a phenomenon unheard of in modern U.S. history. In an echo of the 1930s, some states start issuing scrip or IOUs to pay employees, and multiple localities adopt alternative currencies for transactions. The once-mighty Fed finds itself powerless, its tools exhausted and its credibility destroyed. Internationally, the dollar collapse sends aftershocks through any remaining dollar-linked economies, but the new multipolar financial system buffers much of the world. For Americans, however, decades of accumulated wealth held in dollars are wiped out. The U.S. standard of living craters – by 2028, GDP per capita has fallen drastically as the currency crisis and depression cut output by a quarter from its 2024 level. This economic inferno ensures that any path to recovery, even if attempted, would be painfully slow.

• Collapse of Federal Authority: 2028 is the year that U.S. federal institutions reach a breaking point. The executive branch, under an increasingly embattled Trump (nearing the end of his second term), resorts to open authoritarian measures to maintain control. Following 2027’s unrest, martial law-like conditions persist in several regions. The President postpones the 2028 November general election “due to emergency,” provoking a constitutional outcry. When some states pledge to hold their own elections regardless, Trump’s Justice Department threatens to prosecute state officials for insurrection. America faces an unparalleled constitutional rupture: multiple states (led by a coalition of Western and Northeastern states) refuse to recognize the postponement and effectively cut off cooperation with the federal government. They halt remittances of federal taxes and attempt to assume control of National Guard units away from federal direction. The Union is openly fractured – a de facto secession by portions of the country, though they refrain from using the term. In the South and interior West, hardline pro-Trump governors rally behind the President’s emergency rule, deepening the national schism. Congress, already sidelined and dysfunctional, fails to act decisively – the few remaining moderates try to broker a constitutional negotiation, but neither side yields. By mid-2028, the U.S. has two rival claimants to legitimacy: the Trump-led federal authority (in D.C., backed by red states and much of the military’s senior leadership) versus a “Provisional Government” formed by breakaway blue states asserting that they are upholding the true Constitution. Government agencies themselves splinter – for example, a faction of the intelligence community and some federal judges align with the provisional authorities, while most of the armed forces stick with the administration for now (though with growing unease). This institutional civil war remains for the moment a war of words and legalities, but the risk of armed conflict between American factions is perilously high. Observers note that the U.S. now fits the definition of a “failed state” – no single central authority commands nationwide assent.

• Election Chaos and Leadership Vacuum: Despite the postponed federal election, some states proceed with voting for president and Congress in November 2028, effectively creating a separate election. Turnout is low and chaotic amid suppression and violence, but votes are cast in enough states to produce an opposition candidate claiming victory (the Democratic nominee wins the states that held polls). Thus on January 20, 2029, that candidate plans a rival inauguration in a safe location, while Trump, insisting his term continues under emergency powers, remains in the White House. The U.S. is thrown into a dual presidency crisis with no clear resolution. The Supreme Court – now lacking a quorum after several justices resigned or fled – is unable to adjudicate. The military’s loyalty is split: top brass publicly stand behind Trump, but a significant contingent of officers and rank-and-file (especially in units from states aligned with the opposition) voice support for the newly “elected” president. By late 2028 and into early 2029, the United States teeters on the edge of a true civil war, with armed standoffs occurring at some military bases and federal buildings where loyalties are divided. The institutional fracture is complete: rule of law has disintegrated, and Americans no longer have a unified government or agreed-upon constitutional order. Internationally, the few remaining allies evacuate their embassies, and the United Nations Security Council meets (at the behest of Europe and China) to discuss the “U.S. Crisis” as a matter of global stability. It is a surreal moment – the once-unipolar superpower is now an object of international peacekeeping concern. The events of 2028 ensure that the collapse is irreversible: even if some semblance of order is restored later, the United States as it was known – economically dominant, politically stable, unified – no longer exists.

2029–2030: Final Fragmentation and Aftermath

• Disintegration of the Union: By 2029, the United States effectively splinters into regional entities, as national authority disintegrates. The provisional coalition of breakaway states formalizes its separation, perhaps under a new federation name, refusing to recognize the Washington government. In response, the Trump-led regime (in control of D.C. and allied states) declares the rebels traitors – but its practical reach is limited to areas under loyal military control. Thankfully, outright large-scale civil war is somewhat avoided; the exhausted populace and leaders on both sides negotiate a tense ceasefire along regional lines rather than engage in total war. This results in a de facto balkanization: for instance, a West Coast consortium, a Northeast/Mid-Atlantic bloc, a Southern bloc, and a Central plains/Rocky Mountain bloc, each with their own governance. Movement of people and goods across these new internal borders becomes difficult and fraught with checkpoints. The once-national U.S. military has largely broken apart regionally, with units aligning by home state. Nuclear weapons are a grave concern – in late 2029 an agreement is reached to secure the U.S. nuclear arsenal under international supervision to prevent their misuse during the fragmentation. The U.N. (led by EU and China) steps in to facilitate this and to deliver humanitarian aid, as North America now faces severe shortages and even the risk of famine in some areas due to the economic collapse. By 2030, the United States federal government is a hollow shell – its debt worthless, its agencies mostly defunct or taken over locally. The Stars and Stripes flag that once flew over a 50-state union now represents at best a rump entity with limited jurisdiction. Former U.S. regions start drafting their own constitutions, contemplating new currencies, and seeking foreign recognition. Some regions may choose to retain the name “United States” or form a confederation, but it is a semantic remnant; in functional terms, the country is no longer a singular nation-state.

• Human and Economic Toll: The collapse results in incalculable human costs. The U.S. economy of 2030 is a fraction of its former size – GDP per capita has plunged, and what remains of the economy is largely localized and barter-based. The middle class has been wiped out; a vast portion of Americans are destitute, relying on subsistence or aid. Critical infrastructure suffers from neglect and sabotage – rolling blackouts and fuel shortages are the norm. The death toll from years of violent unrest, crime surges, and lack of medical care climbs into the hundreds of thousands. Millions of refugees flee the hardest-hit areas, some attempting to cross into Canada or Mexico (which militarize their borders in response to the instability). Culturally and psychologically, Americans grapple with trauma and disillusionment; the ideals of the old republic – democracy, rule of law, unity – have collapsed alongside material well-being. There is also an ongoing low-level conflict: extremist warlords and militias carve out local fiefdoms in some lawless pockets, refusing to adhere to any regional authority. By 2030, the former United States resembles other fallen empires in history – a mosaic of successor entities and contested zones, with foreign powers jostling for influence.

• Global Geopolitical Landscape (2030): On the world stage, the vacuum left by America’s collapse has been filled by others. China stands as the preeminent superpower, its economy now the world’s largest by far, and it leads a new international order through institutions that rival what the U.S. once led. Beijing mediates conflicts and dispenses aid in regions formerly under U.S. influence, expanding its Belt and Road network without opposition. Russia solidifies its position in Europe-Asia, exerting strong sway over Eastern Europe and Central Asia. A wary European Union, lacking the U.S. security umbrella, seeks accommodation with Moscow and Beijing to avoid isolation. Many countries that once depended on American security or aid forge new alliances or fall under the influence of regional powers (Turkey in the Middle East, Brazil in Latin America, etc.). The U.N. and other global bodies adjust to a world where the U.S., if present at all, is no longer a major factor. The U.S. dollar is long gone as a global currency; in its place a combination of the Chinese yuan (now freely used in international trade) and other currencies serve as reserves, alongside perhaps a multilateral digital currency arrangement. The ideological balance of the world shifts too – the narrative of liberal democracy is dealt a severe blow by the American collapse, while authoritarian regimes claim validation. Globally, 2025–2030 will be remembered as the period the post-World War II order came crashing down, chiefly due to the self-inflicted collapse of the United States.

• Conclusion – An Irreversible Collapse: By 2030, the collapse of the United States – economic, political, and social – is essentially complete and irreversible under these assumptions. The national debt has no one to answer to it; the currency has no credibility; the Constitution is unenforceable; and national cohesion is broken. In this deterministic scenario, every pillar of American stability has crumbled: economic collapse (with a broken financial system and lost reserve currency) has combined with institutional fracture (constitutional crisis and parallel governments) and severe social breakdown (civil strife and regional secession) to bring an end to the United States as a unified superpower. What follows is an uncertain new chapter of history – one dominated by other powers – and for the former United States, a long darkness and potential rebuilding from the ground up, if such a thing is even possible. The trajectory that began in 2025, absent any corrective pivots, has led inexorably to this national disintegration by 2030, fulfilling the warnings that unchecked polarization, fiscal recklessness, and global overreach would ultimately prove fatal to the American republic . The collapse, having passed the point of no return, serves as a cautionary tale of how great powers can swiftly fall when internal divisions and governance failures align with external pressures to bring about a perfect storm of decline.

Option B → U.S. Economic Trajectory 2025–2035: Medium-to-Worst-Case Scenario

In this scenario-based outlook, we chart a year-by-year narrative of the U.S. economy from 2025 through 2035 under a “medium-to-worst-case” set of assumptions. These assumptions include aggressive policy shifts (inspired by “Project 2025” and the proposed Mar-a-Lago Accord to devalue the dollar), persistent fiscal excesses, and cascading systemic risks domestically and globally. The goal is to illustrate how economic conditions could deteriorate, identify key trigger points, and draw parallels to historical precedents – all in an accessible but analytically grounded way. We focus on economic developments (growth, inflation, debt), financial conditions (interest rates, currency value), social/political fallout, and potential systemic failures as they evolve each year. All projections are hypothetical (for a cautionary scenario) and sourced from available data or analogous historical episodes.

Background: As of 2024, the U.S. is grappling with high federal debt (~98% of GDP, or ~123% including intra-government obligations) (New budget projections show US hitting debt record in 4 years: CBO | Fox Business), rising interest costs, and an economy facing headwinds from global fragmentation. The Federal Reserve had been hiking rates to tame inflation, and in 2023 one credit agency (Fitch) downgraded U.S. debt from AAA to AA+ citing “fiscal deterioration” and repeated debt-ceiling brinkmanship (Surprise US credit rating downgrade draws White House ire). These conditions set the stage for what follows if corrective action falters.

2025: Policy Shock and Stagflation Fears

Economic Policy and Growth: 2025 begins with a new administration determined to overhaul trade and monetary policy. By April, sweeping tariffs are imposed on major trading partners – ranging from 20% on some goods to as high as 100% on certain imports (ussa.docx) – fulfilling an “America First” trade agenda. These protectionist measures, combined with withdrawal from various international accords (ussa.docx), send ripples through supply chains. Businesses face rising input costs and retaliatory trade barriers abroad. The Federal Reserve, already projecting a growth slowdown, revises its GDP outlook downward: the Fed’s median forecast for 2025 GDP growth slips from 2.1% (forecasted in late 2024) to about 1.7% , reflecting expected drag from trade disruptions. Some private models even flash warning signs – for example, the Atlanta Fed’s GDPNow tracker estimates –2.8% growth (an annualized contraction) for Q1 2025, hinting that parts of the economy may already dip into recession early in the year.

Inflation and the Fed: Inflation, which was about 3% at end-2024, ticks back up on the tariff shock. By early 2025 it breaches the Fed’s comfort zone: annual CPI inflation runs ~2.8% as of February and is expected to accelerate through the year. Higher import prices (due to tariffs) and a weaker dollar policy contribute to what economists label stagflationary pressure – rising prices amid slowing growth. The administration openly pursues a strategy to devalue the U.S. dollar under a proposed “Mar-a-Lago Accord,” aiming to make U.S. exports more competitive . This draws comparison to the 1985 Plaza Accord which involved coordinated dollar weakening . However, unlike 1985 when allies cooperated, in 2025 the effort is unilateral. The U.S. Treasury even floats the idea of a punitive “user fee” on foreign holdings of U.S. Treasurys – effectively discouraging other countries from holding dollars (Mar-a-Lago Accord: 10 questions answered on devaluing the dollar | articles | ING Think). Such measures are incendiary: they undermine global confidence and invite retaliation. The Federal Reserve faces a dilemma – it worries that loosening policy to support growth could feed inflation, but raising rates further would compound the downturn. Through 2025 the Fed holds rates relatively high and signals vigilance on inflation, while coming under unprecedented political pressure to support the administration’s growth and currency goals. (Notably, “Project 2025” blueprints had been critical of the Fed and even toyed with returning to a gold standard (Project 2025 - Wikipedia), stoking uncertainty about the Fed’s future independence.)

Fiscal Strains and Interest Costs: Meanwhile, federal finances deteriorate. No serious action is taken on deficits – in fact, the administration pursues tax cuts and spending boosts outlined in its agenda (e.g. extending the 2017 tax cuts and introducing new tax breaks (Project 2025 - Wikipedia). Combined with slower growth, this widens the deficit to around $1.9 trillion (FY2025). Federal debt held by the public crosses the 100% of GDP mark and keeps climbing (New budget projections show US hitting debt record in 4 years: CBO | Fox Business). By mid-2025, gross federal debt (including intra-government debt) hits an estimated 130% of GDP, crossing a psychological red line in markets. Credit rating agencies put the U.S. on notice: having already downgraded the U.S. in 2023, Fitch and others threaten further downgrades if no fiscal course correction occurs (Surprise US credit rating downgrade draws White House ire). The government’s interest payments on the debt are soaring due to high interest rates and mounting debt. In 2025 the U.S. will spend on the order of $0.95 trillion on interest – more than the defense budget (ussa.docx). (In fact, by 2025 interest outlays have roughly doubled to 3.2% of GDP from just 1.6% in 2020. This means scarce taxpayer dollars are increasingly consumed just to service past debts, a trend that is unsustainable (Analysis of CBO’s March 2025 Long-Term Budget Outlook-Thu, 03/27/2025 - 12:00 | Committee for a Responsible Federal Budget). The Congressional Budget Office (CBO) warns in its annual outlook that, on the current trajectory, U.S. debt will reach 118% of GDP by 2035 – the highest in history, exceeding even World War II levels. Investors begin demanding a risk premium on U.S. Treasurys, pushing long-term interest rates up.

Social and Political Fallout: The economic anxiety translates into social strain. By late 2025, consumer confidence has eroded – the University of Michigan sentiment index falls to its lowest in over a decade, as households fear rising prices and job losses. Public discontent with Washington grows: the year is marked by governance gridlock, including a tense showdown over raising the debt ceiling yet again. Although default is avoided, repeated last-minute compromises erode confidence in U.S. governance. Polls show a rise in political extremism and pessimism about democracy. (One late-2025 survey found 47% of Americans believe a civil war is likely in their lifetime (Nearly Half of Americans Think US Could See Another Civil War) – a dramatic indicator of how fracture lines are widening.) Amid protests over various issues (from tariff impacts on farmers to the administration’s controversial pardons of certain individuals), the country feels on edge. Still, the economy has not collapsed – unemployment remains around 5–6% by year’s end, as many companies hold onto workers initially, hoping for a policy reversal or improvement. But the stage is set for more turbulence ahead.

2026: Recession and Loss of Confidence

Descent into Recession: By 2026, the cumulative pressures – tighter monetary conditions, weakening business investment, and trade disruptions – likely push the U.S. fully into recession. Many economists had anticipated a downturn (the yield curve inverted back in 2023, historically a reliable recession predictor), and it seems to materialize. Real GDP contracts modestly (on the order of –1% to –2% for the year in this scenario), marking the first official recession since 2020. Layoffs, which began in late 2025, accelerate in manufacturing, export-oriented industries, and retail. Unemployment rises past 7%. Notably, middle-class households are squeezed between higher prices and now rising job insecurity, forcing many to increase personal debt to stay afloat. By 2026 consumer debt levels (credit cards, personal loans) are at record highs, and delinquency rates start climbing. Many families refinance mortgages or auto loans at higher rates, crimping disposable income.

Policy Responses: The administration faces a dilemma as its own policies contributed to the downturn. Rather than reversing course on tariffs or dollar policy, it doubles down: officials argue the pain is a necessary step toward long-term gains in domestic industry. Behind the scenes, however, there is panic. In an unprecedented move, the Treasury and Federal Reserve coordinate a partial “Plaza Accord 2.0” with a few hesitant allies – attempting to engineer a controlled dollar devaluation to boost U.S. export competitiveness. The result is a further weakening of the USD on foreign exchange markets. By mid-2026 the dollar index (DXY) falls below 90, a level of weakness not seen in over a decade, indicating the dollar has lost roughly 15–20% of its value versus major currencies since 2024. While this does help U.S. exporters a bit, it backfires by importing more inflation. Oil and commodity prices (typically traded in dollars) surge domestically as the dollar’s value slips. This complicates the Federal Reserve’s job tremendously.

Federal Reserve Under Pressure: In 2026, the Fed’s leadership changes – the Fed Chair’s term expires and the President installs a new Chair aligned with the administration’s agenda. The new Chair is more tolerant of inflation and focused on growth (consistent with Project 2025’s criticism of the Fed’s dual mandate (Project 2025 - Wikipedia)). The Fed begins cutting interest rates despite inflation running above 5%. This is a risky gamble: easier money provides some short-term stimulus (stock markets rebound briefly in summer 2026 on rate cut hopes), but it unmoors inflation expectations. By late 2026, core inflation re-accelerates instead of falling. The phrase “stagflation” (stagnant economy + high inflation) is now frequently invoked by commentators, drawing parallels to the late 1970s. Indeed, the situation has echoes of that era: in the 1970s, policymakers also struggled with stop-go monetary policy and oil shocks, which led to double-digit inflation and multiple recessions. The IMF issues warnings that the world’s largest economy risks “getting stuck on a low-growth, high-debt path” (IMF leader warns conflict and rivalries put world at risk of falling into slow-growth rut | PBS News) – exactly the rut that resulted in the painful Volcker shock of the early 1980s to break inflation. Markets begin to fear that a similar or even more severe reckoning will be required this time.

Debt and Fiscal Crisis Brews: U.S. federal finances in 2026 are in worse shape than ever going into a recession. Normally, a downturn would reduce tax revenues and increase safety-net spending (unemployment benefits, etc.), widening the deficit. But in this scenario, revenues were already low due to tax cuts, and spending was high – so the government has little fiscal room. The budget deficit expands above 8% of GDP. Federal revenue falls toward about 15% of GDP – alarmingly low by historical standards (for reference, federal receipts dropped to ~14.6% of GDP in 2009 amid the Great Recession) (US Federal Revenue for FY2024 was $4.92 trillion according to US ...). This approaches a dangerous threshold where the government is bringing in barely more than half of what it spends. Investors and creditors take notice: in late 2026, Moody’s (the last major agency still giving the U.S. an AAA rating) downgrades the U.S. outlook to “negative,” explicitly citing the lack of a credible fiscal plan and the politicization of institutions. By year-end, debt held by the public is around 108–110% of GDP, significantly above the prior year due to the shrinking GDP and ongoing heavy borrowing. The Treasury Department faces growing difficulties in financing the debt – a few bond auctions see weak demand, and interest rates on 10-year Treasurys begin rising despite Fed rate cuts (a sign of waning confidence). Some foreign central banks, like those of China and the Gulf states, stop increasing or even start reducing their Treasury holdings, quietly trimming exposure to U.S. debt. This foreign retrenchment is subtle but significant: it indicates that America’s adversaries and even allies are hedging against U.S. credit risk and the dollar’s decline.

Social and Political Reactions: The economic downturn of 2026 fans the flames of political unrest. Strikes and demonstrations become more common as workers protest layoffs and wage growth that lags far behind inflation. The administration’s populist rhetoric blames “globalists and Fed elites” for the pain, which further erodes trust in central institutions. On the other side, opposition lawmakers decry the administration’s experimentations (tariffs, dollar devaluation) as reckless. The resulting political stalemate means no meaningful stimulus legislation passes to cushion the recession – unlike 2020, there is no bipartisan relief package forthcoming. This failure to respond adds to public anger. Crime rates in some cities tick up, and extremism finds fertile ground in those hurt by the economy. Notably, regional tensions sharpen: some states attempt to enact their own policies (for example, rent controls or price controls to “fight inflation,” or state-level stimulus checks), leading to patchwork responses that aren’t very effective and sometimes at odds with federal policy. By the end of 2026, the nation is more divided – economically and politically – than it has been in decades.

2027: Dead Cat Bounce and Gathering Storm

Tentative Stabilization: The year 2027 begins with tentative hopes of stabilization. With the recession having bottomed out in mid-2026, there is a mild “dead cat bounce” in economic activity. Real GDP growth for 2027 is slightly positive (perhaps ~1%), as some businesses restock inventories and consumers temporarily increase spending (partly using credit and savings) after two rough years. Unemployment levels off around 7–8%, halting its rise as the labor market finds a fragile floor. Inflation remains elevated, however – fluctuating around 5% for the year – meaning real (inflation-adjusted) incomes continue to stagnate or fall. Any relief people feel from the recession’s end is offset by frustration that the cost of living is still rising faster than paychecks. The term “stagflation” is now firmly part of the public discourse.

Dollar Under Duress: By 2027, the U.S. dollar’s global standing shows clear cracks. The concerted dollar devaluation policy (Mar-a-Lago Accord strategy) and the perceived erosion of U.S. financial stability lead international investors to diversify away from the greenback. The dollar’s share of global foreign exchange reserves, which was about 58% in 2025, slips closer to ~50% by 2027 (chat with chatgpt.docx). This is a pivotal change – a near breakup of the dollar’s monopoly as the world’s reserve currency. For U.S. consumers, one immediate effect is higher import costs (fuel, electronics, etc.), keeping inflation pressure on. For the U.S. government, another effect is that foreign demand for Treasurys softens, forcing the Treasury to offer higher yields to attract buyers. The BRICS nations and other emerging economies by now openly talk of trading in alternative currencies (such as settling oil and commodity trades in yuan or a new BRICS currency). Several BRICS central banks reduce their U.S. Treasury holdings significantly (chat with chatgpt.docx). The U.S. Treasury finds that at some auctions, a usual stalwart buyer – foreign official accounts – are missing in action. Although domestic investors (banks, money market funds, the Fed itself) step in to buy, this dynamic pushes long-term interest rates up further. By late 2027, the 10-year Treasury yield, which might have been around 5%, is now hovering near 6–7% despite middling economic growth. This highly unusual situation (normally yields fall in weak economies) underscores investors’ credit and inflation fears.

Fiscal Crisis Signals: The higher yields and still-large deficits mean the debt service burden is exploding. The government’s net interest payments reach new highs in 2027, consuming over $1.2 trillion (roughly 4% of GDP). This amounts to nearly 20% of federal revenues, up from ~9% just five years earlier – a rapid doubling that highlights how quickly compounding interest can squeeze the budget. Analysts warn that if interest costs continue rising at this pace, the U.S. will enter a debt “doom loop” where it must borrow ever more just to pay interest, causing creditors to demand even higher rates. Thresholds that once seemed distant are now coming into view: for example, total U.S. public plus private debt as a share of GDP is nearing record territory. Household and corporate debt in particular have ballooned (households took on debt to maintain living standards during stagflation, and many firms borrowed to survive the lean times). The combined household debt-to-income ratio surges past 140% on its way toward levels never seen before. (For context, U.S. household leverage peaked around 133% of income in 2007 before the last financial crisis (U.S. Household Deleveraging and Future Consumption Growth); by the early 2030s in this scenario it exceeds that by a wide margin, a clear red flag for financial stability.)

Banking and Financial Strains: Financial system stress that began bubbling in prior years intensifies in 2027. Regional banks in the U.S., already weakened by the 2026 recession, face a spike in loan defaults (especially on commercial real estate and consumer loans). Memories of the 2023 regional bank failures (Silicon Valley Bank, etc.) loom large, and now more mid-sized banks struggle with tepid deposits and asset losses (Fears of Bank Failures on the Rise As Rates Stay High). At least one significant regional lender fails in 2027, reawakening fears of contagion. The Federal Deposit Insurance Corporation (FDIC) steps in to resolve it, and the Fed reopens emergency lending facilities to backstop banks (Central Bank Lending Lessons from the 2023 Bank Crisis). This steady drip of banking troubles erodes confidence further – businesses become more cautious in lending and hiring, and households worry about their savings. The stock market, which had seesawed without clear direction, turns decidedly bearish by late 2027 as corporate earnings fall and investors demand higher yields on equities (to compensate for rising bond yields). The S&P 500 enters a deep bear market, down 40%+ from its peak, hurting retirement portfolios.

Sociopolitical Update: In 2027, the social fabric is frayed but there is a sullen acceptance that the “good times” are over for now. Populist political rhetoric reaches a fever pitch heading into the 2028 election season. The incumbent administration, facing criticism for economic woes, leans even harder into nationalist policies and scapegoating of foreign actors for America’s malaise. Internationally, the U.S. finds itself increasingly isolated: allies in Europe and Asia are uneasy with U.S. instability and are hedging their bets (for instance, Europe is enhancing its own financial mechanisms independent of the dollar, and Asian allies quietly engage more with China’s economic sphere). Domestically, extremism on both left and right flourishes as moderate voices struggle to offer solutions. Still, there are undercurrents of resilience: local communities and some states launch grassroots efforts to support those in need (food banks, local job programs), technology innovation continues in pockets (like AI and green tech sectors, which curiously see investment as potential bright spots even amid gloom), and by the end of 2027 there is a nascent public demand for real economic reforms beyond partisan talking points.

2028: Deepening Dollar Crisis and Political Reckoning

Worsening Inflation and Dollar Crisis: By 2028, the U.S. economy is at the nexus of multiple compounding crises. What started as a trade-induced slowdown has morphed into a dollar crisis and a crisis of confidence in U.S. solvency. The U.S. dollar’s reserve currency status, long taken for granted, is truly unraveling now. Mid-2028 marks a symbolic breach: the dollar’s share of global reserves falls below 50% for the first time in modern history (chat with chatgpt.docx). This means that more than half of global central bank reserves are held in other currencies (such as the euro, yen, yuan, and gold). The “petrodollar” system – wherein global oil trade is priced in dollars – is partially bypassed as major oil exporters accept alternative currencies for a share of their sales. Consequently, the Dollar Index (DXY), which dipped below 90 last year, keeps sliding and fluctuates in the 80s (a level of weakness last seen in the mid-2000s). A weak dollar normally might help U.S. exports, but global demand is also weak and U.S. exporters face tariffs and barriers erected in retaliation for earlier U.S. actions. Instead, the main effect of the dollar’s plunge is imported inflation. By early 2028, headline inflation re-accelerates into the high-single digits, approaching 8–10% at an annual rate. Consumers feel this brutally at the grocery store and gas pump.

In response, the Federal Reserve in 2028 is forced into a policy U-turn. After having cut rates in 2026–27 under political pressure, the Fed now faces an even more dire inflation outlook and a collapsing currency. Concerns of a full-blown currency crisis – where the dollar could enter a free-fall – compel the Fed to hike interest rates sharply, despite the weak economy. This is reminiscent of the Volcker shock of 1980–82, when the Fed jacked up rates to 20% to break inflation’s back (Memories of the 1970s haunt the Fed, pushing its aggressive rate ...). By mid-2028, the Fed raises the federal funds rate back into the high single digits (8–10%), reversing all of its easing from two years prior. These rate hikes, while necessary to defend the dollar and quell inflation, have a devastating effect on the economy: credit becomes very tight, and investment and consumer spending plunge.

Double-Dip Recession (or Worse): The U.S. likely falls into a “double-dip” recession in 2028 – a second contraction following the shallow 2026 recession, but this time deeper. GDP potentially falls by several percent, rivaling the severity of the 2008–09 downturn. The unemployment rate shoots past 10% for the first time since the early 1980s. The twin evils of high inflation and high unemployment – something economists call the Misery Index when added – hit their highest combined level in recent memory. To Americans, 2028 feels like a flashback to 1980 (when inflation was ~13% and unemployment ~7%) but possibly worse, as now unemployment is double-digit while inflation, though starting to ease under the Fed’s drastic action, is still painful. By late 2028, inflation does show signs of relenting (the Fed’s harsh medicine is starting to work), but it remains well above target (~6%). Businesses are failing at higher rates – small business bankruptcies spike as the one-two punch of rising costs and weakening demand proves fatal for many. Even some large corporations are not immune; heavily indebted companies in industries like retail, airlines, and energy struggle to refinance loans at the new higher rates and a few default or restructure.

Fiscal Emergency and Austerity Talks: The fiscal situation hits a breaking point in 2028. With the economy contracting and interest rates up, the federal deficit swells further (automatically via lower tax receipts and higher safety-net spending). By now, even basic interest costs on the debt have become a behemoth in the budget. In this scenario, 2028 could see net interest outlays approach $1.5 trillion, which might be about one-third of all federal revenues – an extraordinarily high proportion. For comparison, interest was only ~15% of revenues in 2019; even the CBO’s dire baseline had it rising to ~28% by 2055 (Analysis of CBO’s March 2025 Long-Term Budget Outlook-Thu, 03/27/2025 - 12:00 | Committee for a Responsible Federal Budget), but here we are approaching those levels decades sooner. International creditors react: in mid-2028, a consortium of major foreign holders (including some combination of China, Japan, and Gulf states) privately pressures the U.S. Treasury and Federal Reserve to stabilize the dollar and commit to fiscal discipline, hinting that failure to do so will result in mass unloading of U.S. bonds. Faced with this implicit ultimatum and the domestic crisis, U.S. policymakers take a step previously unthinkable: serious discussions begin on a debt rescue package. This could take the form of an informal structural adjustment: dramatic spending cuts, potential tax increases, and perhaps even seeking help from the International Monetary Fund (IMF) or allies. (The irony is rich – only a few years prior, “Project 2025” advocated withdrawing from the IMF and World Bank (Project 2025 and Development Policy: I Read It So You Don’t Have To | Center For Global Development), but by 2028 the U.S. might need the IMF’s seal of approval to restore creditor confidence.) Congress, bitterly divided, is forced by necessity into considering austerity measures to reign in the deficit. The prospect of cutting Social Security or Medicare, or raising taxes amid a recession, is politically nightmarish – yet bond markets are signaling no alternative. The yield on 30-year Treasurys at one point in 2028 surges into double digits, reflecting fears of either default or runaway inflation in the long run.

One tangible fiscal step taken: the government passes a stopgap budget that includes an automatic spending sequester (cuts) if debt-to-GDP isn’t stabilized by 2030. This is meant to assure markets. However, those cuts (often falling on public investment, education, etc.) further dampen the economic outlook. By end of 2028, U.S. debt is roughly 130–135% of GDP (public debt) – far above the previous historic high of ~106% after WWII (New budget projections show US hitting debt record in 4 years: CBO | Fox Business). This figure would be even higher if not for inflation somewhat inflating away a portion of the debt’s real value. It’s a vicious cycle: high debt leads to higher borrowing costs, which leads to more debt. The U.S. is forced to contemplate painful adjustments that it had deferred for far too long.

Societal Strain and Political Upheaval: 2028 being an election year, the economic meltdown takes center stage in politics. The populace is angry and looking for change. We witness a political upheaval akin to 1932 (during the Great Depression) – voters gravitate either to radical alternatives or to whoever promises to “restore order” and stability. Mass protests become routine in Washington and other major cities. Unfortunately, some turn violent. The National Guard is deployed more than once to quell unrest related to unemployment and benefits cuts. The social safety net is stretched thin: homelessness and poverty climb sharply due to the economic contraction. Charitable organizations say the demand for food assistance in late 2028 rivals the worst of 2020, despite no pandemic this time – it’s purely economic hardship. Civil discourse deteriorates; scapegoating and conspiracy theories proliferate to explain the calamity (some blame immigrants, others blame Wall Street or specific politicians, etc.).

Many Americans begin to fundamentally question the nation’s direction and even its unity. The notion of a “national divorce” (splitting the country) that was fringe some years ago has gained a bit more traction (polls show perhaps 20% of Americans favor exploring a split between red and blue states in some form (ussa.docx), though no leader openly advocates this). While the union holds, the political center is collapsing – 2028’s election features perhaps the most polarizing choices in modern history. Internationally, rivals like China and Russia seize the propaganda opportunity: state media in those countries portray the U.S. as a failing state, and pitch their own governance models as more stable. By the end of 2028, the United States is still a wealthy country with immense resources and innovative capacity, but it is severely shaken – economically humbled, with its credibility and soft power greatly diminished. The critical question becomes whether it can pull out of this downward spiral in the coming years, or if worse outcomes (like an outright debt default or hyperinflation) might materialize.

2029: Acute Fiscal Crisis and Systemic Breakpoint

Climax of the Crisis: The year 2029 is marked by an acute fiscal and financial crisis for the United States – arguably the worst in living memory. After years of compounding policy errors and global shifts, multiple chickens come home to roost. Early 2029 sees the U.S. government hit a debt ceiling impasse once again (as the limit set a couple years prior is reached). This time, however, global investors are in no mood for political theater. The mere possibility that the U.S. might default on some obligations – even for a few days – triggers panic in financial markets. In February 2029, with Congress still gridlocked on raising the ceiling amid partisan recriminations, credit default swap (CDS) spreads on U.S. Treasurys (essentially insurance prices against a U.S. default) spike to record highs. Under intense pressure, Congress ultimately raises the ceiling at the 11th hour, but not before the damage is done: the U.S. credit rating is slashed again, this time by Moody’s (from Aaa to Aa), and some large global funds explicitly announce plans to reduce U.S. bond exposure due to “governance concerns.” The phrase “fiscal instability” – normally reserved for emerging markets – is now used in reference to the U.S.

At the same time, the Federal Reserve’s tightening (which resumed in 2028) finally crushes inflation by 2029. By mid-year, inflation has rapidly fallen – perhaps too rapidly – dropping below 3% as consumer demand collapses. However, what might seem like good news (taming inflation) comes at the cost of a depression-like economic state. Real GDP in 2029 contracts sharply again (for a second consecutive year), and unemployment surges toward post-WWII record levels, possibly in the 12–15% range at the peak. This economic contraction, combined with the government spending cuts from the 2028 austerity measures, leads to some improvement in the annual deficit – but not nearly enough to stabilize debt. In fact, debt-to-GDP rises further because GDP itself is shrinking. Federal revenue as a share of GDP, already low, plunges with the weak economy – it falls below 15% of GDP, crossing a dangerous threshold (for reference, the last time it was this low was 2009 in the Great Recession (US Federal Revenue for FY2024 was $4.92 trillion according to US ...)). With interest still eating up a huge chunk of those revenues, the U.S. is forced into extraordinary measures: the Treasury prioritizes interest and entitlement payments, temporarily delaying or suspending other obligations (e.g. federal salaries or contract payments) at times to conserve cash. In effect, a kind of “soft default” occurs on certain federal obligations, even if formal debt default is avoided – a historic first. The American public experiences this as delayed tax refunds, postponed government vendor payments, and the scaling-back of certain federal services.

Market and Banking Collapse: Financial markets, both in the U.S. and globally, react to these events with turmoil. The U.S. stock market, already down, falls further – possibly bottoming out at a loss of over 60% from its last peak, rivaling the 1929–32 drop in real terms. Investors flee equities for perceived safer assets, but where is safe? Typically, money would rush into U.S. Treasurys in a crisis (flight to safety), but this time U.S. Treasurys themselves are part of the crisis. Instead, capital flows into gold, European and Japanese bonds, and even cryptocurrencies as alternate havens. The U.S. dollar, after stabilizing a bit in late 2028 with the Fed’s aggressive hikes, now faces another challenge: as the Fed starts to signal it may have to ease later in 2029 (to address the economic free-fall), markets worry about renewed dollar weakness. The DXY index swings wildly – at one point in mid-2029, paradoxically, the DXY shoots above 110 (briefly strengthening as global risk-aversion causes a scramble for cash dollars), but later in the year as U.S. rates come down, the DXY falls back below 100. These volatile currency swings wreak havoc on international trade and balance sheets, prompting foreign policymakers to coordinate dollar-intervention to smooth it out.

The banking sector hits a systemic breaking point. The combination of spiking defaults (companies and individuals defaulting in the severe recession) and the mark-to-market losses on banks’ bond portfolios (as yields surged in 2028) leaves many banks insolvent. Several major U.S. banks – not just regionals – teeter on the brink. In this scenario, one of the top ten banks by assets could fail or require a government rescue, something unthinkable since 2008. The FDIC and Fed convene emergency weekend meetings to merge failing banks into healthier ones, backstop all deposits (well above the formal insurance limit), and effectively nationalize some bad assets. The financial crisis aspect of 2029 in this narrative rivals 2008 in intensity. Credit freezes up even for sound businesses; consumers can’t get loans easily; the economy’s plumbing is clogged by fear and uncertainty. The international financial system also feels the shock – U.S. debt and stocks were so central to global portfolios that their crash triggers worldwide losses. Some foreign banks with large U.S. exposure stumble as well. It’s a global crisis, with the U.S. at the epicenter.

(image) Figure: Federal debt held by the public as a percentage of GDP, actual and projected under baseline vs. this stress scenario. The gray dashed line shows the official CBO baseline projection (assuming current policies), while the red line illustrates the medium-worst case scenario where debt accelerates sharply. Under the baseline, debt rises gradually to ~118% of GDP by 2035 (New budget projections show US hitting debt record in 4 years: CBO | Fox Business). In the stressed scenario, debt soars past 130% by 2030 and approaches ~150% by 2035, far exceeding historical records. Such debt levels greatly increase the risk of a fiscal crisis (Analysis of CBO’s March 2025 Long-Term Budget Outlook-Thu, 03/27/2025 - 12:00 | Committee for a Responsible Federal Budget) and pose severe challenges to future budgets. By 2029 in this scenario, the U.S. is effectively in a debt trap – interest payments themselves drive much of the deficit growth.

Turning Point – Policy Reset: Late 2029 brings the realization at the highest levels that drastic reform is the only path forward. The newly elected government (from the 2028 election) takes office in January 2029 and, amid the chaos, is compelled to undertake a series of emergency measures. In a bipartisan deal (out of pure necessity), they enact a comprehensive stabilization program: some tax increases (perhaps a temporary surtax on high incomes or a wealth tax), major spending reforms (though politically sensitive, steps are taken to slow the growth of Social Security and Medicare costs, along with cuts to defense and other discretionary spending), and debt management operations (such as swapping out short-term debt for longer-term bonds to reduce rollover risk, potentially with the Fed’s help in the form of quantitative easing once inflation is under control). By the end of 2029, these measures, combined with the economy’s severe contraction (which perversely reduced imports and improved the trade balance), start to stabilize the fiscal outlook. The Federal Reserve, having regained some autonomy with a new administration less hostile to it, works in tandem – it provides liquidity to calm the banking crisis and signals it will act as needed to cap Treasury yields if panic selling resumes. Essentially, the Fed becomes a buyer of last resort for Treasurys in late 2029, reintroducing quantitative easing on a large scale. This helps put a ceiling on borrowing costs and brings some calm to bond markets.

Inflation is no longer the top concern – by the end of 2029, inflation has potentially fallen to near 0%, or even slight deflation, given the depth of demand destruction. Thus, the Fed has room to be very accommodative without stoking prices. These coordinated actions – fiscal austerity plus monetary support – mark a reset of U.S. economic policy. They are painful, yes, but finally create conditions for recovery. Think of it as the U.S. hitting rock bottom and at last enacting the tough love medicine that had been delayed. The question is whether the patient can recover after so much damage.

Social Landscape: The American populace in 2029 is exhausted and wary. The hardships of this year surpass anything experienced since the 1930s. Unemployment and homelessness are visible in most communities; the social safety net, while still functioning, is stretched to limits with record numbers on food assistance and emergency aid. However, there is a glimmer of unity emerging from shared adversity. Much like the Great Depression forged a sense of collective purpose (leading to the New Deal consensus), the 2029 crisis, in this narrative, forces Americans to reckon with systemic issues. Grassroots movements call for campaign finance reforms, anti-corruption measures, and policies to reduce inequality once the crisis abates. It’s as if the near-collapse has shocked the system into recognizing that business as usual cannot continue. Whether this public sentiment leads to constructive change or further discord in the 2030s remains to be seen, but the events of 2029 leave an indelible mark on a whole generation.

2030–2031: Fragile Recovery and New Normal

Economic Bottom and Rebound: Sometime around 2030, the U.S. economy reaches its bottom and begins a slow, fragile recovery. After two consecutive years of sharp contraction (2028 and 2029), GDP in 2030 finally registers positive growth again – albeit barely, perhaps 1–2%. This growth is driven initially by net exports (the weakened dollar and depressed domestic demand led to a rare trade surplus for the U.S. in 2029–30) and by a stabilization in consumer spending as inflation is defeated and confidence very gradually returns. Unemployment, which peaked around 13% in 2029, starts to inch down, falling to maybe 10% by late 2030 and further to 8% by 2031. These levels are still extremely high, but the trend is at least improving. Inflation remains low and stable; in fact, deflation was a risk in 2030 given how deep the slump was, but moderate fiscal stimulus in late 2029 (from automatic stabilizers kicking in and perhaps targeted relief now that inflation is tamed) prevented a deflationary spiral. By 2031, inflation is roughly 2% – essentially back to the Fed’s target. The Fed keeps interest rates low (near zero) throughout 2030 and 2031 to support the recovery, even resuming some quantitative easing (QE) to ensure long-term rates stay low as well. This easy monetary stance is a 180-degree turn from 2028’s tightening – reflecting how priorities flipped from fighting inflation to boosting growth.

The U.S. dollar, having lost a chunk of its international status, finds a new equilibrium. After its volatile ride, by 2030 the DXY index stabilizes in the 85–95 range – weaker than pre-2025 levels, but not in free-fall. This weaker dollar continues to make U.S. exports competitive, aiding growth, but it also means the dollar is now just one of several important global currencies rather than the dominant one. The euro and yuan each take up greater shares of global trade and reserves. The U.S., for its part, runs a smaller current account deficit (or even a surplus at times) because Americans are consuming less relative to what they produce – an forced adjustment after decades of excess import consumption.

Fiscal Readjustment: The emergency measures and reforms implemented in 2029 start to bear fruit by 2030–31. The annual federal budget deficit shrinks notably, potentially falling to under 5% of GDP for the first time in many years. Part of this is due to harsh spending cuts and the partial economic rebound lifting revenues, and part is due to much lower interest rates (thanks to Fed QE keeping borrowing costs down). Federal debt is still extremely high – on the order of 150% of GDP in 2030 – but with growth resuming and interest rates back down, the debt ratio stabilizes and even ticks down a bit by 2031. Essentially, the U.S. averts a sovereign default by stabilizing its debt dynamics just in time, though it was a very close call. The U.S. government in 2031 can once again finance itself in markets at relatively low rates (with help from the Fed’s implicit backstop). However, the credibility scars remain: the U.S. credit rating is unlikely to return to AAA anytime soon, and investors now demand more fiscal prudence moving forward.

One notable threshold to watch is the share of federal spending absorbed by interest. In our scenario, by 2031 the combination of lower rates and fiscal tightening has reduced net interest outlays somewhat from their 2028–29 peak. Interest payments might be ~4% of GDP in 2031 (down from 5%+ in 2028), and as a share of federal outlays perhaps back below 20%. This is still double what it was in 2020, but moving in a safer direction. Policymakers will still face the challenge that entitlement costs (for the retiring Baby Boomers) are rising through the 2030s; the crisis forced some reforms, but Social Security and Medicare weren’t abolished, just trimmed, so their spending grows. This means fiscal vigilance must be permanent – any reversion to large tax cuts or spending sprees could reignite a debt problem.

Banking/Financial System: After the carnage of 2028–29, the banking system goes through consolidation and rebirth. By 2030, many weaker banks are gone or merged into larger ones. The surviving big banks, with government and Fed support, recapitalize and gradually resume normal lending. Stricter regulations are likely put in place (paralleling how the 1930s Depression led to Glass-Steagall and other reforms, and how 2008 led to Dodd-Frank). For instance, there may now be higher capital requirements, restrictions on certain risky activities, and perhaps a reinstatement of something akin to Glass-Steagall separating commercial and investment banking. These measures are intended to prevent a repeat of the speculative excesses and mismatches that exacerbated the crisis. By 2031, credit is slowly thawing – qualified borrowers can get loans again, though lending standards are tighter. The stock market, which hit bottom in 2029, likely recovers some in 2030–31. It’s not a roaring bull market by any means, but investor sentiment shifts from fear to cautious optimism that the worst is over. Some sectors, like technology and clean energy, lead the rebound as they are seen as future growth areas. However, overall stock indexes remain well below their mid-2020s peaks, reflecting the lost wealth and investor caution.

Social and Political Adjustments: The America of the early 2030s is a changed nation in many respects. The hardships of the late 2020s have left deep social impacts. Trust in government was at rock-bottom during the crisis, but the competence shown in stabilization efforts (however belated) helps restore some faith. There is a sense of survivor’s relief among the public. Communities are rebuilding – for example, employment programs are launched to put people back to work repairing infrastructure (infrastructure that may have been neglected or damaged during the chaos). The federal government, constrained by budget limits, partners with state governments and private sector in these efforts. Social cohesion that was torn is slowly mending as the economy improves; however, significant trauma remains. Many households lost a lot – jobs, savings, even homes. Inequality, which was extremely high going in, may actually narrow somewhat by the early 2030s, ironically because the wealthy lost the most in absolute terms in the asset crashes. But poverty and homelessness will take time to roll back.

Politically, 2030–31 may represent a period of realignment. Voters, having witnessed the failure of extreme policies and the necessity for cooperation, might reward more pragmatic leaders. There could even be the emergence of a centrist coalition that marginalizes the far-right and far-left elements that dominated the late 2020s. Of course, this is speculative – it’s equally possible that bitterness lingers and politics remains acrimonious. But with the immediate emergency over, there is at least the opportunity for a fresh start. The question is whether lessons are learned. Historically, after the Great Depression, the U.S. put in safeguards (FDIC insurance, banking regulations, etc.) and embraced more responsible macroeconomic management which led to decades of stability. One would hope that after this 2025–2035 ordeal, a similar resolve takes hold to never let such an economic catastrophe happen again.

2032–2035: Long-Term Fallout and Divergent New Paths

Subdued Growth Potential: Entering the mid-2030s, the U.S. economy is on a path of recovery but at a significantly reduced growth potential. The trauma of the lost decade means that by 2035, output (GDP) is still below where it could have been had the 2020s not gone awry. Some estimate the cumulative loss of GDP (the gap between actual output and the pre-crisis trend) amounts to trillions of dollars. Growth in the 2032–2035 period averages perhaps 1–2% annually, a far cry from the robust 3%+ that was common in late 20th century expansions. This subdued growth reflects both demand and supply side issues: consumers remain cautious (the memory of debt overhang makes them save more), and the labor force has shrunk somewhat (some workers were permanently sidelined or took early retirements during the chaos). On the supply side, investment levels in the late 2020s were low, so productivity suffered; however, with stability returning, investment is gradually picking up again, especially in sectors like manufacturing (which actually saw some revival due to the weaker dollar making U.S. goods competitive) and technology (where innovation never entirely stopped). The government’s tighter fiscal stance also means it can’t inject large stimulus to boost growth – it’s reliant on private sector dynamics now.

Debt and Fiscal Health by 2035: By 2035, the federal debt-to-GDP ratio in this scenario is finally on a modest downward trajectory (or at least flat). From the peak of ~150% around 2030, perhaps it edges down to 140% or so by 2035. This is still extremely high and leaves the U.S. vulnerable to future shocks, but the difference is the trajectory – debt is no longer skyrocketing, easing immediate fears of insolvency. To achieve this, the 2030s likely featured continued spending restraint and possibly structural reforms: for example, perhaps Social Security’s retirement age was gradually raised, and healthcare cost growth was curtailed by reforms in drug pricing or a pivot to preventive care. On the revenue side, maybe some new sources are tapped (a digital services tax or carbon tax introduced in the 2030s could raise revenue without overly burdening labor income, for instance). These are speculative measures, but something along those lines would be needed to keep debt in check.

One stark reality: interest on the debt remains a major claim on the budget. Even at lower interest rates, the sheer size of debt means interest payments in 2035 are enormous – likely on par with or exceeding major expenditures like defense or Medicaid. In fact, projections suggest that interest could approach the scale of the entire discretionary budget. By some estimates, around 2035–2040, interest might become the single largest federal expenditure item if trends continued. In this scenario, interest hasn’t surpassed Social Security by 2035, but it’s in the same ballpark. This reality forces continued tough choices in budgets; the government of the mid-2030s must dedicate perhaps one out of every four or five dollars of federal spending just to bondholders. The Congressional Budget Office, in its 2035 outlook, still cautions that while progress has been made, the debt remains unsustainably high absent further reforms. In short, the U.S. fiscal position in 2035 is stabilized but still fragile. There’s no room for complacency – another shock or reckless policy turn could reignite the crisis.

Global Economic Position: The world of 2035 is more multipolar economically. The U.S. is no longer the unquestioned financial leader; it shares the stage with the likes of the Eurozone (which by now has perhaps implemented fiscal integration and strengthened the euro’s role) and China (whose yuan is increasingly used in Asia and Africa). The U.S. dollar hovers around 30–40% of global reserves, meaning it’s co-dominant with other currencies rather than singularly dominant. This has strategic implications: U.S. sanctions, for example, carry less weight as other payment systems and reserve assets provide workarounds. American policymakers in the 2030s work to rebuild alliances and trade relationships to maintain influence. The experience of the late 2020s has chastened the U.S. approach – there is a renewed appreciation for international institutions and alliances. By 2035, the U.S. likely re-engages with forums like the IMF/World Bank (if it had withdrawn or reduced roles earlier, it reverses that) and leads cooperative efforts on global issues, in part to repair its standing and counterbalance the greater role of China and others that filled the void during U.S. turmoil.

On trade, the protectionism of 2025 was largely reversed during the 2030 reset. Tariffs erected in the mid-2020s were mostly rolled back by the early 2030s as part of new trade deals aimed at restoring growth. U.S. exporters benefit from the improved terms, though it took years to regain trust. Supply chains were significantly reshuffled during the chaotic period – some manufacturing did return onshore due to the dollar’s decline, but the lack of stability also pushed many firms to diversify away from dependence on the U.S. market. By 2035, global companies treat the U.S. as just one market among many, not necessarily the top priority it once was.

Social Conditions: Socially, the mid-2030s United States is in recovery mode, much like the economy. Unemployment by 2035 might be back down to, say, 5–6%, which is a vast improvement from the highs, though some who dropped out of the labor force never returned. The experience left psychological impacts – frugality is more common, the “get rich quick” speculative fervor of the early 2020s is replaced by a more cautious ethos. Inequality is a critical concern: while the crisis hurt virtually everyone, those with fewer resources suffered disproportionately. The policy responses of the early 2030s likely included measures to strengthen the social safety net (despite fiscal constraints, there could be a push for more efficient support programs to avoid another humanitarian crisis). Perhaps a consensus emerged for things like a more robust unemployment insurance system or automatic stabilizers that kick in during downturns to support incomes.

Politically, one can imagine that by 2035, there might be the emergence of a new political paradigm. If the 2020s were defined by polarization and populism, the 2030s might see either a continuation of that (if people doubled down on blaming others for the pain) or, optimistically, a search for competent governance and centrist solutions. History gives examples of both outcomes in different places. The hope would be that American democracy proves resilient – learning from the brinksmanship and chaos that exacerbated the crisis, reforms might be enacted to prevent, for example, routine debt-ceiling hostage situations or to moderate extreme partisanship. Perhaps electoral reforms (like ranked-choice voting or anti-gerrymandering laws) gain momentum by the 2030s to reduce polarization. These are not guaranteed, but severe crises often catalyze institutional changes.

Quality of Life and Public Sentiment: By 2035, the average American’s standard of living has taken a hit compared to a decade prior. Median real incomes are lower, wealth (home equity, retirement accounts) is lower due to asset crashes and withdrawals during tough times. However, with inflation tamed and some growth, living standards are slowly improving year by year. The public mood by 2035 could be cautiously hopeful – much like the mood in the mid-1940s or mid-1980s after coming through a storm, or it could be cynically fatigued. It likely depends on how well the recovery is managed and whether people feel lessons were learned.

One significant concern that may persist is debt overhang in the private sector. Household and student debts piled up in the 2020s might still be being worked off in the 2030s. The government’s debt overhang similarly can act as a drag on public investment. This means the growth path ahead, while positive, might be below what it could have been in an ideal scenario. Policymakers in 2035 might be discussing ways to spark productivity – through education, technology, infrastructure – to get out of the shadow of the lost decade. The U.S. still has strengths (an entrepreneurial culture, rich natural resources, etc.), and those will be crucial in building a more resilient economy post-crisis.

In summary, by 2035 the United States in this scenario has pulled back from the brink of a complete economic catastrophe and is on a slow mend, but it carries lasting scars. The medium-to-worst case trajectory we outlined shows how quickly unsustainable policies and shocks can compound and lead to systemic failure – and how only through painful adjustment and cooperation can stability be restored. It is a cautionary tale of how fiscal irresponsibility, erosion of institutions, and external shocks (like a breakdown of dollar hegemony) can converge to nearly derail even the world’s largest economy, and a reminder that prudent policy and resilience are needed to avoid such a fate.

Key Takeaways and Warning Signs

• Policy Matters: The scenario underscores how aggressive nationalist policies (e.g. tariffs, deliberate dollar devaluation) and politicization of institutions can backfire disastrously. While intended to boost domestic industry, such moves sparked trade retaliation, stagflation, and a loss of investor trust. The “Mar-a-Lago Accord” strategy of dollar devaluation was especially high-risk – it aimed to fix trade imbalances but instead undermined confidence in the dollar and fed inflation (Mar-a-Lago Accord: 10 questions answered on devaluing the dollar | articles | ING Think). The lesson is that global economic leadership and sound monetary-fiscal coordination are hard-earned and easily lost.

• Debt and Deficits – No Free Lunch: Running large deficits year after year with debt rising faster than the economy is a recipe for crisis. In the 2025–2035 timeline, the U.S. ignored warnings and breached critical debt thresholds. By the late 2020s, federal debt climbed well above 130% of GDP, far beyond the historical peak (New budget projections show US hitting debt record in 4 years: CBO | Fox Business). Federal revenue falling below 15% of GDP (as happened in 2029) was a glaring warning sign of fiscal imbalance (US Federal Revenue for FY2024 was $4.92 trillion according to US ...). This scenario showed that eventually investors will rebel – pushing up borrowing costs and forcing austerity at the worst possible time. Sustainable budgeting, including potential entitlement reforms and revenue enhancements, proved essential to restore stability.

• Interest Costs and Crowding Out: One of the first red flags was the explosion of interest payments on the debt. By the mid-2020s, interest was already outpacing major expenditures like defense (ussa.docx), and by the early 2030s it nearly rivaled Social Security. In the scenario’s worst year, 2029, interest consumed almost half of federal revenues – an untenable situation. Even in the baseline, CBO projected interest to reach ~4.1% of GDP by 2035 (Analysis of CBO’s March 2025 Long-Term Budget Outlook-Thu, 03/27/2025 - 12:00 | Committee for a Responsible Federal Budget) (almost $1.8 trillion, or ~17% of spending (CBO releases 2025-2035 budget and economic outlook)). When interest eats the budget, it crowds out investments in infrastructure, education, R&D, etc., undermining future growth. The takeaway: once debt is high, rising rates can create a dangerous spiral. Keeping debt within manageable bounds acts as insurance against such spirals.

• Household Debt and Financial Fragility: The American consumer entered this period with relatively high debt (though lower than 2008 levels). The prolonged stagnation forced households to borrow even more to make ends meet, pushing personal debt to unprecedented levels (>170% of income/GDP) by 2030 in the scenario. For context, U.S. household debt-to-income peaked at ~133% in 2007 before the last crisis (U.S. Household Deleveraging and Future Consumption Growth). Exceeding that by a wide margin signaled that households were in perilous territory, likely to default en masse if any shock occurred – which they did when unemployment spiked. Rapid growth in private debt often precedes financial crises; policymakers and lenders must monitor debt-to-income ratios and debt service burdens, and take preventative action (like tighter lending standards or targeted debt relief) before it reaches the point of no return.

• Dollar Value and Global Confidence: The U.S. was shown to be walking a tightrope with the value of the dollar. A DXY above 110 (as briefly seen in this scenario during panics) can strain emerging markets and U.S. exporters, whereas DXY below 90 (seen when the dollar was purposefully weakened) can signal loss of confidence and fuel import inflation. Both extremes are dangerous (USD Index Starts Inching Toward Highs Again, Société Générale ...). The dollar’s reserve currency privilege provided a long grace period where the U.S. could finance deficits cheaply, but the scenario illustrated that this privilege can erode faster than imagined if mishandled. The dollar’s reserve share falling below 50% by 2029 was a seismic shift, forcing the U.S. to adjust to a world where it must actually earn the trust of investors rather than assume it. To maintain the dollar’s status, the U.S. must uphold stable governance, avoid using the currency as a weapon indiscriminately, and keep inflation under control – otherwise, global markets will diversify away, as they did here with profound consequences.

• Institutional Resilience: A subtle yet crucial theme is the importance of strong institutions – an independent central bank, credible statistics and agencies, rule of law – in maintaining economic stability. Project 2025 envisioned expanding executive power and even abolishing parts of the Federal Reserve and civil service (Project 2025 - Wikipedia). In the scenario, these moves undermined market confidence (“dangerous for rule-of-law perception in capital markets” as noted in analysis). The eventual turnaround only happened once institutions were strengthened again (e.g., the Fed allowed to act forcefully against inflation, bank regulators enforcing discipline, etc.). The trust that investors and the public place in economic institutions is a cornerstone of stability – once broken, it’s very hard to regain. Thus, preserving institutional integrity and non-partisan expertise (even when politically inconvenient) is key to preventing worst-case outcomes.

• Social Cohesion and Political Will: Economic crises are not just numbers on a spreadsheet – they translate into human suffering and social unrest, which in turn feedback into the economy. This narrative saw surging social discord: protests, extremism, and even talk of civil conflict. Nearly half of Americans expecting a civil war (Nearly Half of Americans Think US Could See Another Civil War) is not just a political problem; it scares away investment and talent, as people lose confidence in the country’s future. Societal breakdown amplifies economic breakdown. Conversely, restoring stability required a degree of political unity and sacrifice (for instance, bipartisan agreement on emergency measures in 2029). Historically, the U.S. has risen to the occasion when truly pressed – but waiting until the 11th hour to act made the crisis worse. The lesson is that early action to address imbalances (debt, bubbles, etc.) while social trust is intact can prevent the need for far more draconian action later when trust has eroded. It’s a lot easier to fix the roof while the sun is shining than in the middle of a storm.

• Historical Parallels: The 2025–2035 trajectory draws parallels to past episodes: the stagflation of the 1970s (when oil shocks and policy missteps led to inflation and recession), the debt crises that have hit various countries (from the U.S. in 1930s to Greece in the 2010s) when fiscal discipline lapses, and the financial crash of 2008 (when leverage and risky bets imploded). Each of those was resolved by significant shifts in policy and sometimes international cooperation. For instance, the Plaza Accord of 1985 was a coordinated fix to an overstrong dollar, and the IMF-led programs have helped countries restructure unsustainable debts (with pain). The United States in this scenario ends up having to apply to itself the kind of tough measures normally forced upon others. The hope is that U.S. policymakers and the public can heed the early warning signs and alter course before being forced to by crisis. As the IMF Managing Director warned in 2024, the world (and the U.S.) risked falling into a “slow-growth, high-debt rut” – avoiding that fate requires prudent choices, not wishful thinking.

Finally, it’s worth emphasizing that this was a medium-to-worst-case scenario – not a prediction, but a caution. There are brighter paths where foresight and timely reforms steer the economy away from the brink. The 2025–2035 decade will undoubtedly pose challenges (some already visible, like high debt and geopolitical shifts), but also opportunities to correct course. By identifying the potential failure points (debt thresholds, debt-to-GDP, reserve currency status, etc.) and understanding their implications, the U.S. can enact policies to strengthen resilience. This might include: gradually reducing deficits when the economy is strong, investing in growth-enhancing areas (so the GDP grows faster than debt), maintaining moderate inflation and stable currency value, and rebuilding alliances to support the global financial system.

The bottom line: The United States’ economic future remains in its own hands to a large extent. The medium-to-worst-case outcomes detailed above serve as a stark warning of what could happen if issues are ignored. Avoiding that fate will require hard choices, long-term thinking, and cooperative problem-solving – qualities that, if exercised, can ensure that the American economy in 2035 is thriving and robust instead of humbled and recovering. The cautionary tale is a motivator for prudent action today, to secure a more stable and prosperous tomorrow.

Note: The above figures illustrate the scenario’s general trajectory; actual outcomes could vary. In the worst crisis years, economic data would be volatile and policy rates reactive. By 2035, the economy is assumed to have stabilized at a new normal of slower growth. Debt % of GDP remains high (135%+) but is no longer skyrocketing, and unemployment has gradually come back down. Importantly, these improvements by 2035 hinge on the drastic adjustments and reforms undertaken at the turn of the decade in this scenario. Without those, the situation could have been far worse (or conversely, with earlier intervention, much of the hardship could have been avoided).

In conclusion, the 2025–2035 medium-to-worst-case scenario depicts a cautionary tale of how the U.S. economy could slip into a severe crisis and painfully claw its way out. It highlights the intertwined nature of policy decisions, economic fundamentals, and social cohesion. The key message is that course correction is far less costly if done early. Waiting until multiple stress signals are flashing means the eventual adjustment will be exponentially more painful. By understanding these dynamics and heeding the lessons of history, policymakers and stakeholders can strive to ensure the United States remains on a sustainable path – avoiding the bleak outcomes of this scenario and securing prosperity for the decades ahead.

PART 2 The Analysis

Historical Economic Trends (2000–2025)

Growth and Productivity: From 2000 to 2025, U.S. real GDP growth averaged about 2% per year (with significant variation across cycles). The early 2000s saw a mild recession and recovery, followed by robust mid-decade growth. The 2008–2009 financial crisis then caused a sharp contraction (GDP fell ~4.2% in 2009) (Highlights of CBO's March 2025 Long-term Budget Outlook - AAF), with a slow recovery through the 2010s. Unemployment peaked at 10% in 2009 and gradually fell below 4% by 2018 amid a decade-long expansion. Productivity growth was modest, contributing to a slow trend growth rate. The COVID-19 pandemic in 2020 triggered a historic but brief recession, followed by a rapid rebound in 2021–2022 (aided by unprecedented fiscal and monetary stimulus). By 2023, output and employment had largely recovered to pre-pandemic levels, though underlying growth potential remains around ~1.8–2% (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17) due to aging demographics and moderate productivity gains.

Federal Debt Trajectory: A defining trend has been the explosive growth of federal debt. In 2000, U.S. federal debt held by the public was about $3.5 trillion (~35% of GDP), reflecting the surpluses of the late 1990s. After 2001, tax cuts, two recessions, and higher spending (including wars and stimulus measures) reversed that course. By 2010, debt had doubled to ~60% of GDP . The 2010s saw continued deficits; debt reached about 79% of GDP by 2019 . The pandemic response then sent debt soaring – to roughly $21 trillion (100% of GDP) by 2020 and about $29 trillion (98% of GDP) by 2025. Including intragovernmental holdings, total gross federal debt exceeded 120% of GDP by 2023 . In dollar terms, gross debt surpassed $33 trillion in 2023 (double its 2008 level) and continues climbing. This steep debt growth far outpaced the economy, pushing the U.S. into historically high leverage for peacetime.

Interest Burden and Rates: Despite higher debt, ultra-low interest rates post-2008 kept the federal interest burden relatively contained until recently. The Federal Reserve’s near-zero rate policy in the 2010s meant net interest outlays were manageable (~1.5% of GDP in 2015). However, as rates rose after 2016 and especially with the inflation surge of 2021–2022, the interest burden has climbed. Annual net interest payments jumped from $352 billion in 2021 to $475 billion in 2022. By 2023, the U.S. was spending about $600+ billion on interest (~2.4% of GDP) – more than the entire federal education, research, and food assistance budgets combined. The Congressional Budget Office (CBO) projected net interest to reach 3.2% of GDP by 2030, surpassing the previous 1991 record . Indeed, interest costs are now one of the fastest-growing budget items (Net Interest Will Total $10.5 Trillion Over the Next Decade-2023-02-24). With roughly one-third of U.S. debt maturing within 2–3 years, refinancing at higher rates is rapidly increasing interest expenses. For context, in the first 9 months of FY2023, interest outlays were 25% higher than the prior year (Fitch cuts the U.S. credit rating, from the top AAA to AA+ - NPR). This rising interest burden is a key vulnerability as we enter 2025.

Federal Revenue and Fiscal Balance: Federal revenues averaged ~17% of GDP over 2000–2023 (What are the sources of revenue for the federal government?), but swung with economic cycles and tax policy changes. The early 2000s tax cuts dropped revenues to ~16% of GDP, and the Great Recession drove them to a low of 14.5% in 2009–2010 (the lowest since 1950) (Trends in Federal Tax Revenues and Rates | Congressional Budget Office). Revenues recovered to ~18% of GDP by 2015. The Tax Cuts and Jobs Act of 2017 then cut revenues again – to ~16.3% of GDP in 2019 . Pandemic stimulus (rebates not counted as revenue) and recession effects saw revenue dip in 2020, then a strong economic rebound and higher inflation unexpectedly boosted 2021–2022 receipts (to 19.6% of GDP in 2022) . However, with output slowing and tax cuts set to expire, revenues in 2025 are projected around 17.1% of GDP . Meanwhile, spending has persistently exceeded revenues. The U.S. ran a budget deficit every year from 2002 onward, averaging ~5% of GDP annual deficit since 2009 . Trillion-dollar deficits, once unheard of outside crisis, became routine after 2020. Absent policy changes, structural deficits (driven by aging, healthcare, and interest costs) are set to continue through 2035 (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17).

Inflation and Monetary Factors: From 2000–2019, inflation was generally subdued. Consumer price inflation (CPI) averaged ~2.2% annually, and even fell below 0% in 2009. The Federal Reserve achieved its price stability goal for much of the period. However, the pandemic upended this stability – CPI inflation spiked to 9.1% in June 2022, a 40-year high, due to supply-chain disruptions, stimulus-fueled demand, and war-related energy shocks. The Fed responded with aggressive rate hikes in 2022–2023, lifting the policy rate from 0% to over 5% – the fastest tightening in decades. By late 2023, inflation moderated to ~3–4% (year-on-year), but remained above the 2% target . Supply bottlenecks eased (e.g. the inventory-to-sales ratios recovered ~40% of the drop , and prices of goods like cars began to stabilize or fall (Supply Chains and US Inflation: Short-Term Gains, Long-Term Pains? | Goldman Sachs). Nevertheless, underlying wage and service inflation stayed elevated. The period 2020–2025 thus marked a regime shift from the low-inflation era to a more uncertain price environment.

Incomes and Inequality: American household incomes grew modestly overall, but gains were uneven. Real median household income was about $58,500 (2022 dollars) in 2000 and rose to roughly $74,600 in 2022 . This ~27% rise over 22 years translates to only ~1.1% annual growth, barely keeping pace with GDP per capita. In fact, median income has stagnated in recent years: the 2022 median of $74.6k was 2.3% lower than in 2021 after adjusting for high inflation (Income in the United States: 2022), erasing any pandemic-era gains. It was also below the 2019 peak of ~$78,300 (2022 dollars) (Real Median Household Income in the United States - FRED), indicating that typical households have lost purchasing power. Meanwhile, mean (average) household income has climbed faster, now well over $100,000, reflecting growing inequality (the top earners skew the average). The income gap widened: for 2022, the median income was only about 62% of the mean, whereas in 2000 it was closer to 70% (Trump’s populist policies and the Triffin dilemma | Nomura Connects). Labor market tightness in 2022–2023 did push nominal wages up, but inflation offset much of the benefit. By 2025, real wages for many middle-class workers are only slightly above 2019 levels. Stagnant median incomes under inflation stress have fueled public concern about the cost of living and economic fairness.

Trade Balance and External Position: The U.S. trade deficit widened significantly in this period, a reflection of the country’s role in the global economy (and the “Triffin dilemma,” discussed later). In the late 1990s, the U.S. ran annual trade deficits around 3% of GDP. These expanded to ~5% by mid-2000s as imports (especially from China and oil exporters) surged (How The Triffin Dilemma Affects Currencies - Investopedia). The 2008 crisis temporarily shrank the deficit (due to collapsing imports), but it grew again in the 2010s. By 2022, the U.S. trade deficit in goods and services hit a record $945 billion (in nominal terms) (2022 Trade Gap is $945.3 Billion - Bureau of Economic Analysis), about 3.7% of GDP. The goods deficit alone was an all-time high ($1.19 trillion) (U.S. trade deficit in goods hits record high just before Trump took ...), partly offset by a services surplus. These imbalances mean the U.S. has accumulated a large net foreign debt – its net international investment position (NIIP) stands around -$16 trillion (roughly -65% of GDP) as of 2024, as foreigners hold vastly more U.S. assets (Treasuries, stocks, real estate) than Americans hold abroad (Trump’s populist policies and the Triffin dilemma | Nomura Connects). The U.S. has been able to finance deficits due to the dollar’s reserve currency status, but this dependence on foreign capital is a long-run vulnerability.

Summary of the Landscape by 2025: The U.S. enters 2025 with a strong labor market and recovered output, but also with record-high debt, rising interest costs, and an inflation rate not yet fully tamed. Fiscal space is limited: annual deficits around 6% of GDP and a debt ratio ~100% of GDP (public debt) leave little cushion for new crises (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17). The Federal Reserve has shifted to tighter monetary policy to curb inflation, which stabilizes prices but raises borrowing costs. Internationally, the U.S. faces persistent trade deficits and nascent challenges to dollar dominance. Median households feel pressure from inflation and housing costs, even as top incomes and corporate profits have been buoyant. These conditions set the stage for divergent paths ahead, depending on policy choices and external developments. We now turn to projections for 2025–2035 under three scenarios, and then detail the factors driving these outcomes.

Outlook Scenarios for 2025–2035

To navigate the uncertainty, we consider three broad scenarios:

• Best-Case Scenario (Robust Growth & Reform): The U.S. enacts gradual fiscal adjustments and benefits from favorable economic conditions. Real GDP growth averages ~2.5% with productivity boosts (e.g. from tech innovation). Inflation gently returns to the Fed’s 2% target by 2025 and stays low. Interest rates ease as inflation abates, keeping government borrowing costs manageable. In this scenario, policymakers strike a balance of spending restraint and revenue enhancements, slowing debt accumulation. By 2035, debt still rises but at a slower pace (debt/GDP leveling off in the 100–110% range). Strong growth expands the tax base, and federal revenue stabilizes around a sustainable ~18–19% of GDP without undercutting the economy. The trade environment also improves: no major new tariffs, some supply-chain efficiencies, and global cooperation help contain costs. The U.S. dollar remains stable as a leading reserve currency. Systemic risk in this scenario is moderate – the convergent risk index stays relatively low (no acute fiscal or financial crisis), reflecting a resilient economy that manages to avoid the worst pitfalls.

• Moderate Scenario (Current Policy Trajectory): This scenario reflects the status quo trends and CBO’s baseline outlook, essentially a continuation of today’s policies. Real GDP growth averages ~1.8% (consistent with CBO’s projection) – a moderate expansion tempered by aging demographics and only modest productivity gains. Inflation declines to ~2.5–3% by 2025 and hovers near 2% thereafter (the Fed achieves a soft landing). The Federal Reserve keeps interest rates in a neutral range (10-year Treasury ~3.5–4% by 2030). However, fiscal deficits remain sizeable – roughly 5–6% of GDP annually through the late 2020s – due to rising Social Security and Medicare costs, high interest payments, and extension of some expiring tax cuts. Under this trajectory, debt held by the public soars from ~98% of GDP in 2025 to about 118% by 2035 (over $52 trillion in debt). Net interest outlays double in dollar terms, reaching ~4.1% of GDP by 2035. Federal revenue improves slightly as a share of GDP (to ~18.3% by 2035) assuming current law (which includes a scheduled tax hike from expiring cuts) (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17). But if those tax cuts are extended, revenues would stay closer to 17%, and debt would climb even faster (approaching 130% of GDP by 2035, see Fig.1). The trade deficit persists around 3–4% of GDP as import demand stays strong and reshoring is gradual. The dollar’s international role erodes slightly (global reserve share maybe dipping below 55%), but no sudden currency regime change occurs. Systemic risks in the baseline are elevated but not immediate – by the early 2030s the CRI (risk index) would rise into a cautionary zone (we will quantify later), implying mounting vulnerability (e.g. debt at post-WWII record, interest crowding out other spending) yet assuming continued stability (no outright crisis through 2035).

• Worst-Case Scenario (Debt Spiral & Stagflation): In this pessimistic scenario, several adverse forces converge. Economic growth falters – averaging barely ~1% real GDP growth – due to either prolonged productivity stagnation or global conflicts fragmenting trade. A recession in the late 2020s is possible under this scenario. Inflation proves sticky or resurges, averaging 3–5% later in the decade (perhaps as supply shocks re-emerge or a wage-price spiral takes hold). The Fed faces a dilemma: if it tightens aggressively, the economy weakens further; if it eases, inflation and currency pressures worsen. Fiscal discipline erodes: populist policies (like large tax cuts or spending sprees under “Project 2025,” discussed later) are implemented without offsets, while an aging population drives entitlement outlays upward. Suppose, for instance, that a substantial tax cut (or persistently low revenues ~15% of GDP) coincides with higher spending (e.g. a major military buildup or new subsidies), resulting in explosive deficits well above 8% of GDP annually by late 2020s. In such a scenario, debt would skyrocket. The debt-to-GDP ratio could exceed 150% by 2030 and approach or top 200% by 2035, far above any historical precedent for the U.S. \. Crucially, investors may begin to balk at lending to the U.S. at low rates – requiring higher yields to compensate for risk. If, at the same time, global appetite for U.S. Treasuries wanes (due to geopolitical tension or loss of confidence in the dollar), interest rates on U.S. debt could spike. This worst case envisions a vicious circle: rising debt and deficits push up interest rates, which further swell interest costs and deficits. Inflation might also accelerate if the Federal Reserve, under pressure, resorts to partial debt monetization (i.e. printing money to cover deficits) – undermining its 2% target and possibly destabilizing the dollar. The U.S. could face a “stagflationary debt spiral,” with echoes of past emerging-market crises. By the early 2030s, systemic stress indicators flash red: for example, interest on debt might consume 30–40% of federal revenues (versus ~15% in recent years), a level that studies associate with fiscal crisis risk (Net Interest Will Total $10.5 Trillion Over the Next Decade-2023-02-24). The U.S. might be forced into drastic measures – either sharp austerity or higher inflation to liquidate debt – both with severe economic fallout. In this scenario, the global standing of the dollar is jeopardized as confidence in U.S. financial stewardship erodes. Foreign investors could reduce dollar holdings significantly, exacerbating the situation. Systemic Risk Index readings in this scenario reach dangerous highs (signaling convergent risks of default or instability absent intervention). In short, the worst case is a self-reinforcing negative cycle leading to what could be deemed a slow-rolling fiscal crisis by the early 2030s, with potential social and global repercussions.

These scenarios will be referenced throughout the factor-by-factor analysis below. The moderate scenario essentially reflects the CBO baseline (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17), while the best and worst cases illustrate the range of plausible divergence given different policy choices (fiscal restraint vs. profligacy) and external conditions (benign vs. adverse). Next, we break down the key economic and geopolitical factors influencing these trajectories.

U.S. Debt Growth and Rising Interest Burden

One of the most critical issues for the next decade is the unsustainable trajectory of U.S. public debt and the associated interest burden. All scenarios project rising debt, but the pace and consequences differ markedly.

Current Path (Moderate Case): The CBO’s latest outlook (as of January 2025) warns that federal debt held by the public will hit new highs relative to GDP . Under current law, debt is expected to eclipse the previous WWII-era record (106% of GDP) by 2029 and reach 118% of GDP by 2035 . In dollar terms, that’s an increase from ~$29 trillion today to $52 trillion by 2035. The debt growth is outpacing the economy, due to persistent primary deficits (spending exceeding revenue aside from interest) and compounding interest costs. Importantly, this baseline assumes that the 2017 tax cuts expire on schedule in 2026, boosting revenues later in the decade. If instead those tax cuts are extended (a distinct possibility politically), the debt path would be worse. The Committee for a Responsible Federal Budget (CRFB) estimates debt would reach 129% of GDP by 2035 (vs 118%) if the tax cuts continue without offsets (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17). In either case, the U.S. would enter the 2030s with by far the highest debt burden in its history (aside from a brief spike in 1945–46 which was quickly reduced thereafter). This matters because high debt can crowd out private investment, constrain future budgets, and increase vulnerability to interest rate shocks.

Interest Costs – The Tipping Point: As debt grows, the cost of servicing that debt is set to soar, especially given the return of higher interest rates. Under the moderate scenario, net interest outlays will triple from 2022 to 2033, reaching about $1.4 trillion annually by 2033. That is 3.6% of GDP in 2033 (up from 1.9% in 2022) , and by 2035 CBO projects ~4.1% of GDP on interest . To put this in perspective, by the early 2030s the U.S. will be spending more on interest than on its entire defense budget . CRFB notes that by 2028, net interest will exceed defense spending, and by 2050 it would even eclipse Social Security as the single largest federal expense if current trends continue. In the baseline, interest payments as a share of federal revenue are set to rise from about 12% in 2022 to roughly 22% by 2035 \(assuming revenues around 18% GDP). This interest-to-revenue ratio is a key metric of fiscal sustainability. While 22% is uncomfortably high (historically, the U.S. was below 15% for decades), it remains below levels that have triggered crises in some countries. However, in the worst-case scenario, this ratio could approach or exceed 30–40% before 2030, a danger zone identified by fiscal analysts where a debt spiral often becomes likely (Net Interest Will Total $10.5 Trillion Over the Next Decade-2023-02-24). Indeed, the IMF warns that persistently higher interest rates combined with high debt “pose risks to financial stability” and that decisive action is needed to bring debt to sustainable levels (The Fiscal and Financial Risks of a High-Debt, Slow-Growth World)

Best vs. Worst Case: In the best-case scenario, strong growth and some fiscal prudence slow the debt accumulation. Suppose bipartisan reforms trim deficits by e.g. 1–2% of GDP via gradual entitlement tweaks and revenue measures. Then debt might rise more slowly, perhaps leveling off near ~105% of GDP in late 2020s and inching up to ~110% by 2035. Interest costs would still grow but more moderately, and with lower interest rates in this scenario, the interest/revenue burden might remain around 15–18%. That would keep the U.S. within a safer zone, giving policymakers time to further adjust. By contrast, the worst-case scenario features a debt explosion that could overwhelm the budget. If deficits run ~10% of GDP and nominal growth only ~4%, the debt ratio can climb by ~6 percentage points per year. We could plausibly see >160% debt/GDP by 2030 and near 200% by 2035, levels reminiscent of crises in other nations (e.g. Japan’s debt is >230% of GDP, but its situation differs due to domestic ownership and zero rates). In such a worst case, interest costs could exceed 6–7% of GDP by 2035 – roughly 40% of revenues, as mentioned. The U.S. would face wrenching choices: either drastic austerity (politically painful spending cuts or tax hikes) or effectively defaulting through inflation/devaluation. This scenario aligns with a Convergent Risk Index in the red zone (discussed later), and arguably U.S. fiscal credibility would be shattered well before 2035 if this path becomes apparent. It is essentially a slow-building sovereign debt crisis.

Global and Market Reaction: A critical assumption in all scenarios is the market’s tolerance for U.S. debt. In the baseline and best case, investors continue to view Treasuries as a safe asset, albeit with some yield premium as debt rises. In fact, Fitch Ratings in 2023 downgraded U.S. debt from AAA to AA+, citing “steady deterioration in standards of governance” and the expected fiscal outlook, with interest-to-revenue well above peers (Fitch Affirms the United States of America at 'AA+'; Outlook Stable) (U.S. Debt Credit Rating Downgraded, Only Second Time In Nation's ...). Fitch projected the U.S. general government interest/revenue to reach ~10–12% by late 2020s (much higher than the 3% median for AA peers). So markets are watching. In a worst-case or if political brinkmanship (e.g. debt-ceiling standoffs) undermines confidence, there could be a buyers’ strike on U.S. debt. Yields would jump, compounding the problem. Notably, as of 2025, about one-fourth of U.S. public debt is held by foreign investors (Trump’s populist policies and the Triffin dilemma | Nomura Connects). Should major holders like China or Japan scale back purchases (for economic or geopolitical reasons), the Treasury might have to rely more on domestic or Federal Reserve financing. This dynamic links to the global reserve currency status discussed later.

In summary, the U.S. debt and interest outlook is challenging across the board. Even under optimistic assumptions, debt will likely hit unprecedented levels by the 2030s, and interest costs will claim a growing share of national resources. The best case manages this gradually, the baseline sees it worsen but within perhaps manageable bounds, and the worst case runs the risk of a fiscal crisis. The need for fiscal sustainability is evident: as the IMF cautions, without action the combination of high debt, higher real interest rates, and slow growth can lead to debt unsustainability and instability (The Fiscal and Financial Risks of a High-Debt, Slow-Growth World). Policymakers will eventually have to confront this arithmetic, or the bond market might do it for them.

Federal Revenue Sustainability and Tax Policy Risks

Revenue – the government’s intake from taxes and other sources – is the flip side of the debt story. Healthy revenue levels are crucial to stabilize debt. Historically, total federal revenue has averaged ~17.4% of GDP over the past 50 years (What are the sources of revenue for the federal government?). Periods of fiscal health (e.g. late 1990s surpluses) were associated with revenues near or above 19–20% of GDP. By contrast, revenue below ~17% of GDP alongside normal spending tends to produce large deficits. A particular warning sign is if revenues fall below 15% of GDP for any extended period – a threshold rarely seen except during severe recessions. For example, in 2009–2010 revenues plunged to ~14.5% of GDP (due to the Great Recession and tax cuts) (Trends in Federal Tax Revenues and Rates | Congressional Budget Office), contributing to $1.3+ trillion deficits.

Current Outlook: In the CBO baseline, revenues are about 17.1% of GDP in 2025 and rise to 18.3% by 2035, assuming the expiration of the individual income tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA) in 2026. Those expiring provisions (e.g. lower rates for middle and upper brackets, a doubled standard deduction) if extended, would reduce revenue by roughly 1% of GDP annually from 2027 onward. That scenario – which aligns with current political debate – would keep revenues around 17% of GDP or less through the 2020s. Indeed, CRFB estimates that extending the TCJA cuts in full could cost ~$3.5 trillion over 10 years, pushing 2035 revenue down to ~17.0% of GDP instead of rising to 18.3% (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17). That drop would significantly worsen debt, as illustrated by the higher debt trajectory (orange and gray lines in Fig.1). The federal revenue share under extension might hover near post-war lows relative to GDP, at the very time aging-related spending is climbing. This is why many analysts emphasize that making the 2017 cuts permanent without offsets is fiscally perilous (Net Interest Will Total $10.5 Trillion Over the Next Decade-2023-02-24).

Revenue <15% GDP – Why It’s Dangerous: A sustained revenue level under ~15% of GDP would be unprecedented in modern times outside of major recessions. Federal spending historically sits around 20–23% of GDP in the 2020s (baseline ~24% by 2035) (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17). If revenue were only 15%, that implies a structural deficit ~8–9% of GDP – exactly the kind of gap leading to the worst-case debt spiral. Consider a hypothetical scenario: a future administration implements large tax cuts (as part of “Project 2025,” for example) that drop revenues to ~15% of GDP, but politically is unable to cut entitlements or other spending significantly. That could push the U.S. toward trillion-dollar-plus deficits even in good economic times, causing debt to explode. Markets generally view such a path as unsustainable; it would likely invite higher borrowing costs or eventual crisis. International experience (and IMF research) indicates that when interest payments start eating a big chunk of revenues (say >30%), investors fear the government may default or inflate away the debt (Net Interest Will Total $10.5 Trillion Over the Next Decade-2023-02-24). Keeping revenues at a reasonable share of GDP is thus a linchpin of fiscal health.

Best vs. Worst Cases in Revenue: In the best-case scenario, policymakers maintain or increase revenues to meet commitments. This could involve allowing tax cuts to expire, reforming the tax code to raise more from those who can pay (e.g. closing loopholes, carbon taxes, etc.), or boosting growth (which lifts tax receipts organically). One could envision revenues trending up to ~19% of GDP by the 2030s in a prudent scenario – near the historical highs of 1990s and sufficient to cover a larger share of spending. For instance, bipartisan tax reforms or new levies (perhaps a VAT or financial transaction tax) could be considered, though those are politically tough. Nonetheless, a revenue outcome in the high-teens percent of GDP is needed to stabilize debt in the long run (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17). On the flip side, the worst case has revenue undermined by populist tax cuts or an eroded economic base. “Project 2025,” a conservative policy blueprint for the next administration, proposes major tax changes: collapsing the income tax to just two brackets (15% and 30%) and eliminating many credits/deductions. An analysis by the JEC (Joint Economic Committee) Democrats found this plan would raise taxes on many middle-class families (due to loss of credits) while lowering top rates – resulting in less revenue overall and a heavier burden on middle earners (How Project 2025’s Economic Policies Hurt Families - How Project 2025’s Economic Policies Hurt Families - United States Joint Economic Committee). The Project 2025 tax vision also includes cutting the corporate tax rate further (to 18% from 21%) and possibly introducing a national sales tax in lieu of some income taxes. The net effect of these changes, if implemented without offsetting measures, would almost certainly be a reduction in federal revenue as a share of GDP (especially benefiting high-income and corporate taxpayers). JEC Democrats estimate, for example, that the proposed tax rate structure could add hundreds of billions per year to deficits, on top of the ~$1.3 trillion cost already incurred by the 2017 corporate tax cuts. In a worst-case scenario, such tax cuts are enacted and not enough growth materializes to compensate (the Laffer-Curve style promise goes unfulfilled). Revenues might fall to ~15% GDP or less during the late 2020s – precisely when interest costs and entitlement spending are surging. That mismatch would greatly accelerate the debt crisis dynamic outlined earlier.

It’s worth noting that some revenue ideas could also increase receipts in worst-case conditions: for instance, high inflation can push people into higher tax brackets (a phenomenon called “bracket creep”), raising revenue unless tax brackets are indexed. However, the U.S. tax code is largely indexed to inflation (for income taxes), and in any case the negative economic effects of high inflation would outweigh any temporary revenue bump.

States and Localities: While our focus is federal, it’s relevant that U.S. state and local governments collectively take another ~15–17% of GDP in taxes (mostly for their own budgets) (What are the sources of revenue for the federal government?). State revenues, especially from income and sales taxes, have been strong in 2021–2023 thanks to economic recovery and inflation. But if a downturn hits or federal support wanes, state budgets could strain, indirectly affecting federal politics (states often lobby for relief in downturns). Additionally, Canada – given many readers are Canadian – has a higher revenue ratio (~33% of GDP total government revenue) ([PDF] Revenue Statistics 2024 - the United States - Tax-to-GDP ratio - OECD), which supports a broader social safety net. However, Canadian federal debt (as share of GDP) is lower than the U.S., so Canada has some fiscal breathing room. If the U.S. federal government is forced into austerity in a crisis, states and localities and even Canada could face spillover impacts (e.g. reduced U.S. grants, trade effects reducing Canadian tax revenue, etc.).

In conclusion, maintaining federal revenue at or above ~18% of GDP will be crucial for sustainability. A slide toward 15% or lower (barring drastic spending cuts that are unlikely) would push the U.S. into uncharted deficit territory. Investors and rating agencies are already attuned to this: after the July 2023 Fitch downgrade, another downgrade “could be coming” if growth disappoints or if tax cuts are extended without offsets (U.S. Debt Credit Rating Downgraded, Only Second Time In Nation's ...) (Fitch cuts the U.S. credit rating, from the top AAA to AA+ - NPR). Broadening the tax base and avoiding un-funded tax giveaways will be essential to mitigate the debt problem. The fiscal outlook thus hinges on political choices about revenue – a tightrope between fostering economic incentives and funding the government’s obligations.

Trade Policy and Tariff Impacts

U.S. trade policy underwent a significant shift in the late 2010s with the adoption of more aggressive tariffs, and this will continue to influence the economic outlook. The historical context: for decades after World War II, the U.S. led the world in lowering trade barriers (through GATT and then WTO rounds). By the 2000s, U.S. average tariffs were very low – around 1–3% effective rates on most imports. This facilitated complex global supply chains, especially with China’s WTO entry in 2001. However, the downside was persistent trade deficits and loss of some domestic manufacturing jobs.

Recent Tariff Actions: In 2018–2019, the Trump administration imposed sweeping tariffs – most notably on about $360 billion of Chinese goods (at rates ranging from 10% to 25%), as well as global tariffs on steel (25%) and aluminum (10%) citing national security. These moves raised the average U.S. tariff on imports from about 1.5% in 2017 to ~3.0% by 2019 – a doubling of the effective tariff rate, and the highest U.S. tariff burden in decades. China retaliated with tariffs on U.S. exports. Studies found that the tariffs increased costs for U.S. manufacturers and consumers: roughly $3 billion per month in higher consumer prices by late 2018 and reduced import volumes. However, the overall macro impact was modest (~0.1–0.2% higher inflation at the peak, and a small drag on GDP) because tariffs were still small relative to the economy.

The Biden administration largely kept these tariffs in place (as leverage for potential negotiations), although it did remove some (e.g. tariffs on EU steel/aluminum converted to quotas) and has offered exclusions for certain imports. As of 2025, roughly two-thirds of imports from China are still taxed at elevated tariff rates (average ~19% on those affected goods). The cumulative cost of the U.S.-China tariffs to U.S. consumers has been estimated at tens of billions of dollars. Tariffs also redirected supply chains somewhat – some Chinese exports shifted to other countries to evade tariffs, and some U.S. importers sourced from Vietnam, Mexico, etc. The future of these tariffs is a critical policy question: Removing them could marginally ease inflation, while doubling down on tariffs could worsen trade frictions.

Tariff Policy in Outlook Scenarios:

• In the best-case scenario, we assume trade tensions abate or at least do not escalate. Perhaps the U.S. and China reach some accommodation (if not a formal deal, then tacit easing). The U.S. might lift certain tariffs to help reduce input costs for manufacturers, which could trim a few tenths of a percent off inflation. A cooperative global trade environment would support growth – businesses confident in supply chains are more willing to invest. There could even be new trade agreements or frameworks (e.g. rejoining a Trans-Pacific partnership type deal) that lower barriers and diversify sourcing. For instance, if U.S. tariffs on Chinese goods were removed by 2026, Goldman Sachs analysts estimate it could shave roughly 0.3 percentage points off core inflation that year by lowering import prices (Supply Chains and US Inflation: Short-Term Gains, Long-Term Pains? | Goldman Sachs). In the best case, tariffs are used more strategically and sparingly, and critical supply chains (like semiconductors) are bolstered through friendly alliances rather than broad import taxes. This scenario contributes to lower inflation and better international relations, aiding the economy.

• The moderate (baseline) scenario likely involves a continuation of the current mixed approach. Tariffs on China and other strategic rivals remain, but we don’t see a massive expansion of tariffs to new areas. The trade war neither meaningfully escalates nor is fully resolved. U.S. companies continue some “friend-shoring” – shifting some production from China to other low-cost nations or back to the U.S. gradually – but globally, trade flows remain substantial. The net effect on inflation is muted; one recent IMF working paper found that a large-scale “reshoring” (returning to 2000 levels of integration) could reduce global GDP by 4.5% in the long run, but friend-shoring (shifting to trusted partner countries) would have a smaller cost (~1.8% of global GDP) (The Price of De-Risking: Reshoring, Friend-Shoring, and Quality Downgrading, WP/24/122, June 2024). The baseline likely leans toward partial friend-shoring, meaning some inefficiencies but not catastrophic. The CBO baseline doesn’t explicitly break out trade policy, but it assumes no new trade wars. Tariffs stay roughly at current levels unless changed by legislation or negotiations.

• In the worst-case scenario, trade protectionism intensifies dramatically. This could happen under a renewed nationalist U.S. administration that broadens tariffs as a tool, or due to geopolitical conflict (e.g. a security crisis with China over Taiwan). Former President Trump, for example, has proposed the idea of a universal “baseline tariff” of 10% on all imports – effectively a massive tax hike on foreign goods entering the U.S. Such a policy, if enacted, would affect over $3 trillion in annual imports. The second Trump term has already “imposed extensive tariffs, affecting over $1.4 trillion worth of imports by April 2025, a substantial increase from the $380 billion targeted in the first term”. This suggests an aggressive expansion of tariffs beyond just China. The economic effects of a broad tariff regime would include: higher consumer prices (tariffs act like a sales tax on imported goods), retaliatory tariffs on U.S. exports (hurting farmers and manufacturers), and supply chain disruptions as firms scramble to rearrange sourcing. We could see a return to 1970s-style trade barriers globally if others follow suit – a full-fledged trade war. In quantitative terms, a 10% across-the-board import tariff could add roughly 1–2 percentage points to consumer inflation in the short run, according to various economic models, while reducing real GDP by a similar magnitude as consumers pay more and trade volumes contract. Over the long run, such de-globalization tends to reduce productivity and raise costs: the IMF estimates returning to a highly fragmented world (reversing decades of globalization) could significantly harm output and income (The Price of De-Risking: Reshoring, Friend-Shoring, and Quality Downgrading, WP/24/122, June 2024). In our worst case, the U.S. might also face retaliation targeting its key exports (Boeing planes, agricultural products, services), hitting corporate earnings and jobs. Furthermore, weaponizing tariffs and sanctions can encourage foreign countries to develop alternatives to U.S. suppliers and even the U.S. dollar (for transactions) – connecting to the Triffin dilemma and reserve currency section. Overall, an escalating tariff regime in the worst case would exacerbate inflation (as discussed below), dampen growth (potentially contributing to stagflation), and strain diplomatic ties.

Tariffs and Reshoring – Inflation Link: A particular aspect to highlight is how “reshoring” and protectionism feed into inflation. By design, tariffs make imports more expensive, ideally to boost domestic production. The question is whether domestic producers can fill the gap without raising prices. In many cases, shifting production back to the U.S. raises costs – for example, producing advanced semiconductors domestically is estimated to be 44% more expensive than in Taiwan ). However, because semiconductors themselves are a small part of final consumer prices (0.3% of consumer expenditure), even a large cost increase there has limited overall inflation impact. More broadly, Goldman Sachs research indicates “reshoring poses the biggest risk of boosting prices, though any impact so far has been limited” – since actual reshoring to date has been modest (imports are still growing faster than domestic manufacturing output) (Supply Chains and US Inflation: Short-Term Gains, Long-Term Pains? | Goldman Sachs). This suggests that if reshoring accelerates (worst case or even baseline trend), we could start to see more inflation pressure from higher-cost domestic production. Sectors to watch include electronics, batteries, and green energy components, where policy (like the CHIPS Act, IRA) is incentivizing domestic build-up. While these are critical for supply chain security, they may result in somewhat higher prices that consumers/taxpayers bear, at least initially. In scenario terms: best case has minimal inflation impact from tariffs/reshoring (perhaps even deflationary if tariffs are cut); baseline has mild impact; worst case has a noticeable upward push on inflation (as detailed above, potentially adding a few percentage points transiently).

Trade Balance Implications: Tariffs and trade policy also affect the trade balance, though other factors (like exchange rates and growth differentials) often dominate. In a scenario of widespread U.S. tariffs (worst case), one might expect the trade deficit to shrink as imports are curtailed. However, the outcome is ambiguous – retaliatory tariffs can hurt exports, and if the dollar appreciates (due to, say, higher interest rates from inflation), the trade deficit might not improve much. In the 2018–2019 tariff episode, the U.S. trade deficit actually widened to record highs, as strong domestic demand (boosted by tax cuts) pulled in imports despite tariffs. It wasn’t until 2020’s recession that the deficit narrowed temporarily. By 2022, the deficit was again at record levels (2022 Trade Gap is $945.3 Billion - Bureau of Economic Analysis). So protectionism alone may not fix trade imbalances; it can even backfire. The Triffin dilemma dynamic is that as long as the world wants more dollar liquidity (reserve assets), the U.S. will run deficits to supply those dollars, tariffs or not. Thus, our scenarios assume the U.S. likely remains in deficit on trade through 2035 across cases (though possibly smaller in a weak-growth worst case due to depressed demand). The best case might see a gentle reduction in the deficit if competitiveness improves (through technology or fairer trade practices) and exports rise.

Geopolitical Angle: Tariff policy in the coming decade is tightly linked to geopolitics. U.S.-China decoupling is a central theme – how far will it go? A fragmented world with economic blocs (U.S./EU allies vs. China/Russia and partners) is a plausible outcome. That could mean high trade barriers between blocs but freer trade within blocs. For example, U.S. might deepen trade with Europe, India, Latin America (friend-shoring) while severing some ties with China. This has complex effects: some efficiency loss, but also diversification of supply. Another aspect is trade in critical minerals and energy – where national security may override free-market concerns. Both best and baseline scenarios assume manageable fragmentation – i.e. diversification without extreme inefficiency. The worst case assumes a breakdown of global trade cooperation reminiscent of the 1930s (Smoot-Hawley tariff era), which contributed to depression.

In summary, tariff and trade policies are a swing factor for inflation and growth. The U.S. has moved away from unbridled free trade, and some increase in domestic production (for security) is expected and prudent. But the degree is key: a moderate recalibration likely has limited cost (baseline), whereas a lurch into heavy protectionism would likely worsen the inflation problem and impede growth (worst case). Historical evidence suggests tariff wars yield few winners. As one measure, U.S. households ultimately bear about 100% of the tariff incidence in higher prices – studies of the 2018 tariffs found virtually the entire tariff cost was passed through to U.S. consumer prices. Thus, while targeted tariffs can be a tool against unfair trade practices, broad tariffs act as a regressive tax. Policymakers face the challenge of addressing legitimate trade issues (e.g. Chinese subsidies, overcapacity, intellectual property theft) with tools that don’t needlessly raise domestic costs. The best-case path likely leans on diplomacy and multilateral pressure rather than blanket tariffs, whereas the worst-case path doubles down on tariffs and quotas in a self-defeating loop.

Inflation Trends and Supply Chain Dynamics

After decades of quiescence, inflation has reasserted itself as a central concern. The trajectory of inflation from 2025 through 2035 will significantly shape real incomes, interest rates, and economic stability. It is also one of the key differentiators between our scenarios.

Current Situation (2023–2025): U.S. inflation spiked in 2021–2022 due to pandemic disruptions and stimulus, reaching 40-year highs. By late 2023, inflation showed signs of cooling: headline CPI was about 3.7% year-over-year in September 2023 (down from 9.1% peak in June 2022) and core PCE inflation (the Fed’s preferred measure) was around 3.5%. This improvement came from easing supply chains (e.g. vehicles and appliances went from shortages to improving supply) and aggressive Fed tightening slowing demand. Goods inflation, which had been very high in 2021 (used car prices jumped >40% y/y at one point), turned negative by end of 2023. However, services inflation and wage growth remained elevated. Shelter (housing) costs kept core inflation up, although new rent data suggest a slowdown ahead. As of early 2025, inflation is expected to continue gradually falling toward the Fed’s 2% target, but this projection is uncertain. The Fed has signaled it will keep policy restrictive (“higher for longer”) until it is confident inflation is durably back to ~2%.

Baseline Outlook: In the moderate scenario, inflation moderates to roughly 2.5% in 2024 and ~2.2% in 2025, approaching the target by 2025 as supply issues resolve and tighter monetary conditions weigh on demand. Thereafter, baseline assumption is that inflation fluctuates around 2% in the late 2020s and 2030s – essentially returning to the pre-pandemic norm. This is consistent with CBO’s projection of inflation “normalizing around 2.0%” beyond 2025 (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17). Achieving this likely requires the Fed to maintain credibility – i.e. not slash rates prematurely – and no major new shocks. Some secular factors (globalization, tech, demographics) that kept inflation low might be weaker now (globalization is slowing, some reshoring happening), but others like technology and an aging population (which can dampen demand) still exert downward pressure. So 2% is a reasonable baseline, albeit with risks. The bond market as of 2025 seems to expect long-term inflation around 2.5% (10-year breakeven inflation rates in TIPS).

Best-Case Scenario – Controlled Inflation: The best case sees inflation returning fully to the Fed’s 2% target or even undershooting slightly, without a deep recession. This could occur if supply-side improvements continue: for instance, resolution of the Russia-Ukraine war would lower global energy and food prices, new investments (in ports, shipping, chip fabs) ease capacity constraints, and productivity gains keep production costs in check. Moreover, if inflation expectations remain anchored (people trust that prices will stabilize), it becomes easier for inflation to stay low. In this scenario, the Fed might even achieve a “soft landing” – reducing inflation to target while the economy grows moderately. Inflation averaging ~2% or less in the late 2020s would allow interest rates to drift down (real rates could remain positive ~1%, so nominal 10-year yields ~3% perhaps). Low inflation would boost real income growth (any nominal wage gains translate to real purchasing power). It also reduces the risk of an inflation-debt spiral: the Fed would not need to monetize debt because price stability is intact. Essentially, the best case is a reversion to the stable-price regime of 2010s, possibly aided by good luck (no new oil shocks, etc.) and sound policy. It’s worth noting that in such a scenario, the Fed might even have room to gently lower rates, which could help with debt service costs (though that’s a secondary effect).

Worst-Case Scenario – Resurgent/Stagflationary Inflation: The worst case envisions inflation that is persistently high or volatile. There are a few pathways for this:

1. Supply Shocks and De-Globalization: Further supply hits – e.g. an escalation of war (Middle East or East Asia) that spikes oil to $150/barrel, or extreme weather events that disrupt food supply – could spur new inflation waves. Also, if global trade fragmentation intensifies (as described in the tariff section), production costs rise. The IMF’s scenario of large-scale “de-risking” from China (reshoring/friend-shoring) implies noticeable output losses (The Price of De-Risking: Reshoring, Friend-Shoring, and Quality Downgrading, WP/24/122, June 2024). In inflation terms, that suggests a one-time upward shift in price levels and possibly higher inflation during the transition. As an example, if companies move production from China (lowest-cost) to higher-cost locales, the initial effect is like a negative supply shock: less efficiency, higher unit costs.

2. Wage-Price Spiral: If inflation expectations become unanchored (people start assuming inflation will stay high), workers will demand higher wages, and firms pass on costs, in a self-reinforcing cycle. In the 1970s, the U.S. experienced this dynamic – inflation averaged ~7% for the decade. The worst case could see something milder but problematic, say inflation drifting into a 4–6% persistent range by late 2020s. That’s enough to erode real wealth and force the Fed into very tough choices.

3. Policy Error or Fiscal Dominance: The Fed might err by cutting rates too soon in a bid to support growth (especially if there’s political pressure). If inflation isn’t fully quashed, it could roar back – this happened in early 1980s when the Fed eased prematurely and had to slam the brakes again. Alternatively, in a scenario of fiscal crisis, the government might implicitly force the Fed to monetize debt (print money) to avoid default – this is known as fiscal dominance. That would be highly inflationary. While the Fed today prizes its independence, extreme fiscal stress (worst case) could test that independence.

In our worst case, we combine some of these factors: inflation initially comes down by 2025 but never quite reaches 2%, instead stuck in the 3–4% range, then maybe resurges to 5%+ later in the decade due to a mix of supply chain decoupling and perhaps a currency slide (if global investors lose confidence in the dollar, its value falls, raising import prices – effectively importing inflation). By the early 2030s, the scenario might resemble stagflation: high inflation and low growth. Indeed, the ChatGPT-modeled “global isolation” scenario for the U.S. assumed “rising inflation from 2028 onward (loss of Fed control, weaker dollar)”. In numbers, that scenario saw inflation rebound above 3.4% by 2029. We can envision it going higher if the Fed capitulates to growth concerns.

In a stagflation setting, the Fed’s policy rate might oscillate but not tame inflation fully. Nominal interest rates could be high (e.g. 10-year yield above 6%) but still not keep up with inflation if credibility is lost. Real rates could even turn negative if investors demand an inflation risk premium on long-term bonds. This is a debt-crisis accelerant, as it either leads to rapid inflation (eroding debt in real terms but causing chaos) or sharply higher rates (raising debt service costs).

Consumer Impact and Expectations: The public’s experience of inflation will differ by scenario. In best case, costs for essentials (food, fuel, housing) stabilize, making budgeting easier and reducing public discontent. In baseline, moderate inflation (around 2–3%) might feel normal and manageable – akin to the pre-2020 years – with occasional rises in specific sectors but nothing dramatic. In worst case, high inflation would severely stress households: paychecks failing to keep up with prices, savings losing value, and a sense of economic instability. Already in 2022, we saw U.S. consumer sentiment plunge as inflation hit multi-decade highs. If that were to persist or recur, it can also have political ramifications (often fueling populism or unrest).

Reshoring and Inflation – Data Points: As mentioned, so far there is little evidence of significant inflation from reshoring yet, because actual movement of manufacturing back to the U.S. has been limited. Imports of foreign goods have still been rising faster than domestic output, indicating companies haven’t drastically changed sourcing. Also, U.S. manufacturing capacity (excluding a few areas like chips) hasn’t expanded dramatically – new factory construction is up in some sectors but overall still below pre-pandemic levels (Supply Chains and US Inflation: Short-Term Gains, Long-Term Pains? | Goldman Sachs). However, plans are in the works (the CHIPS Act, for instance, has spurred a few big semiconductor fab projects in Arizona, Texas, etc.). These will take years to come online. By the 2030s, if the U.S. has relocated a quarter of its supply chains domestically or to higher-cost allies (as some surveys suggest might happen) (Reshoring Confirmed: Paradigm Shift from Global to Local - IMTS), there could be a structural upward pressure on prices. One IMF study (2022) concluded that a severe fragmentation (with blocs trading less with each other) could raise inflation by about 1–2 percentage points in the transition phase and leave price levels permanently higher (The Price of De-Risking: Reshoring, Friend-Shoring, and Quality Downgrading, WP/24/122, June 2024). On the other hand, innovation and automation could mitigate some cost increases – e.g. advanced robotics in factories can offset higher labor costs in the U.S. So the net effect is uncertain.

Inflation in Canada: A quick note for Canadian readers – Canadian inflation generally moves in tandem with U.S. inflation (given integrated economies and Bank of Canada’s similar 2% target). If the U.S. experiences stagflation in the worst case, Canada likely would too, especially via import prices and a potentially weaker Canadian dollar (if investors flee to gold or other currencies). Canada also has its own inflation drivers (housing costs, for example). In 2021–2022, Canada’s inflation hit a 40-year high of ~8% and has since fallen to ~3.8% (as of mid-2023). The Bank of Canada has also raised rates sharply. Our outlook scenarios for inflation thus broadly apply to Canada as well: best case both U.S. and Canada get back to ~2%; baseline ~2-3%; worst case both struggle with elevated inflation. One difference: if the U.S. dollar’s reserve status erodes, the U.S. might face extra inflation (via a falling dollar), whereas Canada’s dollar might not be affected as strongly since it’s not a reserve currency to begin with. But generally, these economies move together on inflation.

In summary, inflation is a pivotal uncertainty. The optimistic view is that the pandemic inflation was a one-off event and we’ll soon return to stable prices. The pessimistic view is that we have entered a new era of supply constraints, geopolitical shocks, and fiscal dominance that will make inflation a recurring problem. Policymakers are certainly aware: the Federal Reserve, ECB, and others have repeatedly emphasized commitment to 2% targets. Whether they succeed will shape economic well-being. Notably, even moderate differences in inflation create big differences in outcomes: e.g. real debt grows slower under higher inflation (benefiting debtors like the government but hurting savers), whereas low inflation with high real growth is the ideal for broadly shared prosperity. Our best case approximates that ideal (low inflation, decent growth), baseline is acceptable (manageable inflation), worst case is problematic (high inflation, low growth). Keeping inflation expectations anchored is vital; as former Fed Chair Paul Volcker said, “inflation feeds partly on itself” – to stop it, people must believe it will stop. The next few years of data will be critical to see if the Fed can truly declare victory over the post-pandemic inflation surge.

Income Trends Under Inflationary Stress

Household incomes are where macroeconomic factors meet real life for citizens. In the past few years, Americans have seen strong nominal wage growth, but inflation has eaten much of it. Looking ahead, the interplay of income growth and inflation will determine whether living standards rise or stagnate.

Recent Trends: As noted earlier, median household income in real terms has been roughly flat or declining recently. 2022 saw a 2.3% drop in real median income due to high inflation outpacing wage gains . Real median earnings for full-time workers also fell (~2.4% drop for men, 0.8% for women in 2022) according to the Census Bureau. Only the top income brackets saw real growth, thanks to investment and business income gains. Government pandemic aid (stimulus checks, expanded Child Tax Credit in 2021) temporarily boosted incomes and poverty reduction, but those effects expired by 2022, contributing to the drop in post-tax median income (Income in the United States: 2022). By 2023, there was actually some rebound: early data (Census, EPI analysis) indicate real median household income rose ~4% in 2023 as inflation eased and the job market remained tight (American household inflation-adjusted income rose in 2023 - Axios). This would bring median income to roughly $80,600 – recovering the losses of 2021–22 (Real Median Household Income in the United States - FRED). That is good news, but it depends on inflation staying down. Average hourly earnings have been growing around 4–5% year-on-year in 2023, while inflation fell to ~3–4%, yielding a small real wage increase.

Baseline Outlook for Incomes: In the moderate scenario of stable growth and 2% inflation, we can expect gradual real income growth for households. With unemployment around a normal level (4–5%) (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17), wages would likely grow at roughly the pace of productivity plus inflation. If productivity growth is, say, 1.5% and inflation 2%, then wage growth around 3.5% yields 1.5% real wage gains per year. Over a decade, that could raise real median household income by maybe 10–15%. Not stellar, but positive. The CBO baseline implies real earnings pick up in late 2020s as the labor market settles and productivity improves slightly (they forecast labor productivity growth averaging ~1.5% to 2033). So median income might reach the high $80-thousands (2022 dollars) by 2035. However, this also assumes no big recessions; an intervening recession could knock incomes back down temporarily (as in 2009 or 2020). The baseline also expects labor force growth to slow (aging), so total household income growth will rely more on productivity and possibly working longer (some seniors staying employed). In summary, baseline sees slow, steady gains in income, but nothing dramatic – certainly not enough to rapidly shrink inequality or make up for decades of stagnation.

Best Case – Broad-Based Gains: In a more optimistic scenario, the combination of strong economic growth, low inflation, and perhaps targeted policies (like education, training, higher minimum wages, or strengthened unions) could yield faster median income growth. Real median household income could rise more significantly, potentially hitting new highs above $90k (2022 dollars) by the early 2030s. The best case would also likely see improvements in median personal income (which includes individual earnings, not just household). Median personal income is lower because many adults live in multi-earner households or don’t work full time; it was around $42,000 in 2022 for full-time year-round workers. In a high-growth scenario, more people might enter the labor force (raising household incomes) and wages at the bottom could climb faster than inflation. We have seen hints of this in 2019 and 2022 when low unemployment gave low-wage workers bigger raises. If that dynamic continues without triggering too much inflation, it could narrow the gap between median and mean incomes. The best case also implies policy choices that spread the gains – for instance, investments in education and infrastructure can lift productivity for the average worker. Additionally, immigration reform to bring in skilled workers could boost growth and tax revenue, indirectly helping incomes (and easing inflation constraints). In quantitative terms, best case could yield ~2% real income growth per annum for the median household, doubling the pace of the baseline. That might finally move the needle on middle-class prosperity.

Worst Case – Erosion of Purchasing Power: The worst-case scenario is one where nominal incomes rise but real incomes fall or stagnate due to high inflation and possibly weaker labor demand. In a stagflation environment, you could have the worst of both worlds: unemployment creeps up (so fewer earning family members or lost jobs) and inflation is high (so each dollar earned buys less). For example, consider late 1970s: nominal wages rose ~7–9% a year, but inflation was 10%+, so real wages declined. Something similar could happen in the late 2020s worst case. If inflation runs at say 5% and wage growth also 5%, real wages = 0 gain. If a recession hits, wage growth might drop to 2% while inflation maybe 3% (stagflation-lite), giving a real wage decline. Over several years, this could push median incomes down. We might see a pattern of “two steps forward, two steps back” – occasional nominal gains wiped out by price surges. Additionally, if the government faces fiscal strain and cuts social benefits (or fails to adjust them for inflation adequately), disposable incomes could suffer. Social Security is inflation-indexed, but not all benefits are, and there could be political pressure on safety nets.

Another aspect: household debt and interest. American households benefited from low interest rates in the 2010s – mortgages under 4%, cheap auto loans, etc. With higher rates, debt servicing eats more of incomes. Many households in 2022–2023 locked in low fixed-rate mortgages, but those who have adjustable rates or new buyers face 7%+ mortgage rates. Canadian households, in particular, many have mortgages that reset every 5 years; by 2024–2025 about 2.2 million Canadian households (45% of mortgages) will see payment increases as their low rates reset higher (Disparities in Wealth and Debt Among Canadian Households). This will strain disposable incomes, effectively acting like a pay cut for those families. In the worst case of prolonged high rates, household debt burdens (debt service ratios) will rise, possibly forcing cutbacks in spending. The Household Debt Service Ratio in the U.S. (payments as % of disposable income) was low (~9.5%) in 2022 due to cheap credit, but it’s climbing and could hit levels not seen since 2007 by late 2020s if rates stay high. That squeezes what families have left for other needs, even if their gross income is growing. The ChatGPT personal stress model indeed showed “household debt service ratio stays low (~4.5%) but begins rising by 2029” under a scenario of elevated rates , and a “household vulnerability index” creeping up. This implies more income going to interest payments on mortgages, credit cards, etc., reducing discretionary purchasing power.

Inequality Considerations: Unfortunately, difficult economic scenarios often exacerbate inequality. In high inflation, wealthy individuals can hedge (through real assets, stocks that may rise with inflation, etc.), whereas lower-income folks living paycheck to paycheck suffer the brunt of price increases on essentials. If unemployment rises, it’s often the less skilled who lose jobs first. Our worst case could see poverty rates increase, reversing the gains made in 2021 when stimulus briefly cut poverty to record lows. Already, the expiration of pandemic supports led to an increase in the official poverty rate from 9.2% in 2020 to 11.5% in 2022 (Income in the United States: 2022). That could climb further in a downturn or high-inflation scenario (which acts as a “tax” on the poor). On the flip side, the best case with a strong job market can empower lower-income workers to demand better pay, thus reducing inequality somewhat.

Population and Personal Income: Another factor for total income is population growth and composition. U.S. population growth has slowed to ~0.4% per year (down from ~1% in early 2000s). Immigration policy will influence that. More immigration could increase total income (more workers) and help ease labor shortages, possibly moderating wage inflation but boosting GDP. In a scenario where immigration is cut (e.g. worst case populism), labor force growth could stagnate, ironically driving wages up in short term but choking off growth and tax base in long term. Canada by contrast has higher population growth (recently ~2% with record immigration), which props up housing demand and total income, though not necessarily per capita income.

Generational and Social Implications: By 2035, Millennials and Gen Z will dominate the workforce. Their income prospects depend on the scenario. The best case gives them a chance for real wage growth and asset accumulation (home ownership, etc.). The worst case could see a “lost decade” reminiscent of the 1970s or Japan’s 1990s for young workers – jobs harder to find, earnings not keeping up with prices, and high interest rates putting assets like homes out of reach. Canadian and American young families are already challenged by housing affordability. If interest rates stay high without a big drop in home prices, affordability remains tough. If a severe recession hits (worst case), ironically home prices might fall (as in 2008) which could help some buyers but hurt existing owners’ equity and construction jobs – a double-edged sword for incomes.

Retirees: For completeness, note that retiree incomes come from Social Security (indexed to CPI), pensions, and savings. High inflation can erode savings unless they’re in inflation-protected forms. In worst case inflation, retirees on fixed annuities suffer. In baseline, COLA (Cost of Living Adjustments) in Social Security keeps them whole with a lag (e.g. 2022 COLA was 5.9%, 2023 was 8.7%, matching prior CPI). But if the trust funds face strain, there’s a risk (post-2034) of benefit cuts if Congress doesn’t act – which would hit incomes for millions of seniors by ~20% potentially. That is a policy wildcard in the 2030s: Social Security’s insolvency date is around 2034 (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17). We assume in baseline it’s fixed in time (likely by raising revenue or minor cuts) so that full benefits continue; worst case could involve more chaotic handling, even a temporary benefit reduction if gridlock persists. That would directly reduce income for retirees and increase poverty among the elderly.

In summary, median income growth is not assured – it hinges on maintaining low inflation and decent job growth. The best scenario delivers rising real incomes and perhaps a more equitable distribution, while the worst scenario risks a decline in living standards for many households. Monitoring real (inflation-adjusted) income is key: policymakers should aim for policies that boost nominal wages and control prices simultaneously. If not, we get the illusion of growth with no real gain. One hopeful sign is that the tight labor market of 2022–2023 led to some compression of wage inequality (lower-paid jobs saw larger raises) (How Project 2025’s Economic Policies Hurt Families - How Project 2025’s Economic Policies Hurt Families - United States Joint Economic Committee); keeping unemployment low tends to help those at the bottom. Thus, macro stability (avoid deep recessions) coupled with low inflation is the ideal combo for incomes. Achieving that is easier said than done – it will test the skill of the Fed and fiscal authorities in the coming years.

Trade Balance and the Triffin Dilemma

The U.S. has run trade and current account deficits consistently for decades, reflecting that it imports more than it exports and invests more abroad than vice versa. This has led to the U.S. becoming the world’s largest debtor (in net international investment terms). Underpinning this dynamic is what economists call the Triffin dilemma (or paradox) – the conflict that arises when a national currency (the U.S. dollar) is used as the global reserve currency.

Explaining Triffin’s Paradox: Belgian-American economist Robert Triffin observed that the issuer of the global reserve currency faces a dilemma: to supply the world with liquidity (dollars), it must run balance of payments deficits. But doing so persistently will undermine confidence in that currency over time (How The Triffin Dilemma Affects Currencies - Investopedia) (Addressing “Triffin's Dilemma” is disruptive, but fundamentals ...). In the Bretton Woods era (1940s–60s), this manifested as U.S. gold reserves draining out due to U.S. deficits, eventually causing Nixon to end gold convertibility in 1971. In the current fiat currency era, the dilemma continues in another form: global demand for safe dollar assets (like Treasuries) means the U.S. can finance deficits easily, but it also means the U.S. must continue running deficits to meet that demand (Trump’s populist policies and the Triffin dilemma | Nomura Connects). If the U.S. tried to run surpluses, the world might experience a shortage of dollar liquidity, potentially leading to deflationary pressures globally. On the other hand, the more debt the U.S. issues to foreigners, the greater the risk down the line if investors lose faith in the U.S. ability to pay (the “confidence erosion” Triffin warned about).

Current Status of the Dollar: The U.S. dollar remains the dominant global currency by far, but its margin has shrunk. As of 2023, the dollar comprises about 58% of global foreign exchange reserves held by central banks . This is down from about 70% two decades ago . The euro holds roughly 20% share, and other currencies like the yen, pound, and increasingly China’s renminbi make up the rest. The dollar is also used in ~50% of global trade invoicing and an even higher share of global financial transactions . This “exorbitant privilege,” as French official Valéry Giscard d’Estaing famously called it, gives the U.S. notable advantages (Trump’s populist policies and the Triffin dilemma | Nomura Connects): the ability to borrow cheaply (high demand for Treasuries keeps yields lower than otherwise), no currency mismatch when it borrows (debts in its own currency), and influence over the global financial system (e.g. ability to enforce sanctions by restricting dollar access).

However, the U.S. also pays a price: persistent deficits and a hollowing out of some industries. America’s net international investment position (NIIP) is about -$16 trillion (negative, meaning foreigners own much more U.S. assets than vice versa). But interestingly, thanks to valuation effects (U.S. stock market outperformance, dollar changes), the net income the U.S. pays on its NIIP is not as large as the NIIP suggests. In fact, the U.S. until recently earned more on its foreign investments than it paid on its liabilities despite being a net debtor – a testament to higher returns on equity investments abroad vs. low yields paid on Treasuries held by foreigners. This subsidization might wane if interest rates stay high (the U.S. will pay more to foreign holders).

Outlook for Trade Deficits: All scenarios assume the U.S. will likely continue running current account deficits, though the size varies. In 2022, the U.S. current account deficit was about 3.6% of GDP (2022 Trade Gap is $945.3 Billion - Bureau of Economic Analysis). CBO projects it to remain in that ballpark through the next decade (they implicitly assume capital inflows continue to finance fiscal deficits). In the best case, maybe the deficit narrows if the U.S. becomes more competitive in high-value exports (say, an American manufacturing renaissance in EVs, semiconductors, etc., or if domestic energy production (LNG, oil) exports rise). But even then, it’s hard to see a surplus emerging; the last U.S. trade surplus was in 1975. The dollar’s status creates constant capital inflows (other countries wanting to invest in U.S.), which tends to keep the dollar stronger than it otherwise would be, hurting export competitiveness and fueling imports. This is the Triffin paradox in action – meeting global demand for dollars by running deficits reduces manufacturing jobs at home, a structural trade-off.

In the worst case, ironically the trade deficit might shrink not by healthy means but via crisis: if a deep recession or financial crisis hits the U.S., imports would collapse (as in 2009 when the deficit narrowed sharply). Also, if the dollar were to lose reserve status gradually, it would likely depreciate, which could reduce the trade deficit by making U.S. exports cheaper and imports more expensive. However, a sharp loss of reserve status would be very destabilizing (e.g. a dollar crash would cause domestic inflation to spike – one reason it’s a worst-case element). We will discuss reserve currency dynamics shortly, but suffice to say a significant shift away from the dollar globally could alter trade flows. For now, most projections (IMF, etc.) foresee the U.S. current account deficit persisting at ~3–4% of GDP in the medium term, meaning NIIP will become more negative.

Reserve Currency Dynamics: The dollar’s dominance is being chipped at the margins by efforts of other nations. China and Russia, for instance, have been conducting more trade in Chinese renminbi; the BRICS countries talk of creating alternatives to the dollar-centric system. Still, major challenges prevent any rapid displacement of the dollar: the yuan is not fully convertible and China has capital controls; the euro area lacks a unified fiscal policy and Eurobonds (though euro is second place); gold is an alternative store of value but not practical for daily transactions. The U.S. financial markets remain by far the deepest and most liquid – a crucial factor for a reserve currency . The Nomura analysis notes that America has maintained its monetary hegemony via trust in U.S. rule of law and the Fed’s global lender role (swap lines in crises) . But it also warns that Trump’s populist policies (tariffs, etc.) could “stretch” the modern Triffin dilemma by making U.S. assets less safe (higher inflation, fiscal deficits), which could lead foreigners to demand a risk premium to hold dollars (Trump’s populist policies and the Triffin dilemma | Nomura Connects). We have started to see something: in 2023, some Treasury auctions have had weaker foreign demand, and the term premium on Treasuries (extra yield above expected short rates) has risen, possibly reflecting investors requiring a bit more compensation.

In scenario terms:

• Best case: The dollar remains unquestioned as the primary reserve currency. Perhaps its share only slips slightly further to ~50–55% by 2035 as other currencies incrementally gain, but there’s no abrupt shift. Global investors continue to buy Treasuries, and U.S. borrowing costs remain relatively low (the U.S. retains the trust of the world). The “Triffin dilemma” persists but is managed – the U.S. uses its privilege responsibly enough to avoid forced abandonment. For example, an orderly reduction of deficits or cooperative international monetary management (akin to the 1985 Plaza Accord where major nations agreed to adjust exchange rates) could smooth things out if imbalances grow too large.

• Moderate case: The dollar’s role erodes gradually but remains dominant. Perhaps by 2035, global FX reserves are, say, 50% USD, 25% EUR, 10% RMB, etc. This gradual change doesn’t cause a shock; it reflects diversification by central banks (already happening – they’ve added some gold and smaller currencies). The U.S. might face slightly higher funding costs but nothing dramatic – maybe the U.S. loses the half-point interest rate advantage it historically enjoyed. The Triffin dilemma is still in effect – deficits continue – but maybe foreign appetite isn’t infinite, requiring the U.S. to pay a bit more to attract capital or letting the dollar weaken periodically.

• Worst case: A more sudden loss of confidence in the dollar could occur if the U.S. severely mismanages fiscal/monetary policy or if geopolitical events undermine trust. For instance, if the U.S. were to “weaponize” the dollar too much (freezing assets of more countries, etc.), some nations might build an alternative system for trade (there are discussions of non-dollar trade among BRICS, using currencies like yuan or creating a commodity-backed currency). If in the worst case, oil producers start pricing oil in other currencies widely, or a consortium of countries develops a digital currency that gains traction, the demand for dollars could fall. This would mean the U.S. can’t finance deficits as easily; the dollar would fall in value on FX markets. A falling dollar helps trade balance (exports up, imports down) but hurts domestic inflation (imported goods cost more). It also would reduce foreign willingness to hold Treasuries, forcing the Fed or domestic investors to absorb them (potentially monetizing debt). There is also a scenario of deliberate devaluation sometimes mooted: the so-called “Mar-a-Lago Accord” which we cover in the next section – essentially a planned dollar devaluation to reduce deficits. That would intentionally trigger part of this outcome (dollar down, maybe inflation up). In a disorderly scenario, the dollar might lose, say, 20–30% of its value against a basket of other currencies over a short period. Emerging markets have historically lost reserve status gradually (the British pound lost reserve status mid-20th century, but U.K. managed the transition with U.S. help). The U.S. could theoretically adjust too, but given the dollar’s outsized role, a loss of confidence could be more abrupt (since many systems are predicated on dollar stability). For example, a rapid unloading of U.S. bonds by foreign holders (perhaps if the U.S. were flirting with default or hyperinflation) would crash bond prices and the dollar, forcing the Fed to choose between massive rate hikes or accommodating inflation – both dire choices (this is the doomsday debt spiral endgame).

It’s important to note: Most experts do not foresee a complete dollar collapse by 2035 – that would require extreme events. The U.S. economy is still ~24% of world GDP and the center of global finance. But it’s also true that the current path of rising debt with no resolution, combined with increasing geopolitical rivalry, is gradually eroding confidence. The U.S. credit rating downgrade (Fitch) and warnings from other agencies highlight that the world is watching U.S. governance. If investors perceive U.S. politics as dysfunctional to the point of risking default (debt ceiling standoffs) or runaway debt, they will diversify away from Treasuries.

Triffin Outcomes: If the U.S. continues running large deficits (likely under baseline/worst), its NIIP will become more negative. But as long as the economy grows and the dollar holds, that may be tolerable. Japan, for instance, has high debt but low foreign exposure (most debt held domestically) – the U.S. is different because of foreign reliance. Should the reserve role diminish, ironically the Triffin dilemma pressure eases (less need to run deficits to supply world with dollars), but by then the accumulated debt could pose a greater problem. Some analysts talk of a “fiscal Triffin” – the idea that global demand for safe assets (like Treasuries) either forces the U.S. to issue more debt (excessive debt) or if it doesn’t, the world economy lacks safe assets and suffers. It’s a catch-22. The BIS paper “Triffin: dilemma or myth?” argues that the common notion that reserve status requires current account deficits is somewhat anachronistic (pointing out there were periods, like early 1990s, when the U.S. had modest deficits yet the dollar was dominant) (Triffin: dilemma or myth?). Nonetheless, today the U.S. does have large deficits, and foreigners do hoard dollars. We are effectively conducting a real-time experiment in how long this can continue.

Bottom Line: The U.S. trade deficit is an integral part of the global financial system. Our outlook by 2035 in any scenario doesn’t envisage the U.S. suddenly flipping to trade surpluses; rather, the question is whether deficits are around 3% of GDP (manageable, baseline) or become volatile due to crises (worst case). The Triffin dilemma reminds us that the U.S. enjoys unique borrowing privileges but at the cost of domestic imbalances. It’s a double-edged sword. The challenge will be to gradually reduce the fiscal deficit (which also reduces the current account deficit by lowering import demand) without spooking markets. Some have proposed coordinating a controlled dollar depreciation with allies (like an updated Plaza Accord) to correct imbalances – the “Mar-a-Lago Accord” idea is along those lines. Let’s explore those policy wildcards next, as they tie directly into this discussion of currency and global dynamics.

Structural Risk Accumulation and Systemic Fragility

Over the past sections, we’ve touched on various structural risks – high debt, rising interest burdens, potential inflation, etc. Here we synthesize how these factors accumulate to create systemic fragility, meaning the financial system and broader economy become less able to absorb shocks and more prone to crisis.

Structural risks are those that build up gradually, often during good times, and can lead to sudden turmoil when conditions change. Prior to 2008, for example, excessive housing leverage was a structural risk that triggered a financial crisis. In the context of 2025–2035, several structural risks are converging:

• High Leverage Across Sectors: Government debt is at a record high, but corporate debt is also elevated (U.S. non-financial corporate debt is ~80% of GDP, near historic highs (Fast track to trade deficits: Mushrooming foreign debt begs for ...)). Households deleveraged after 2008, but in recent years household debt (especially in Canada) has climbed again – Canadian household debt hit a record high 186% of disposable income in 2022 (Q2 2024 Credit Industry Insights - TransUnion Canada). High leverage means greater sensitivity to interest rate changes: as rates rose in 2022–2023, we saw vulnerabilities like the regional banking turmoil in the U.S. (Silicon Valley Bank collapsed when its bond investments lost value due to rising rates) and the UK pension fund crisis (LDI funds nearly collapsed when UK gilt yields spiked in 2022). These are examples of how quickly stability can be threatened when an underlying leverage meets a market shock. Going forward, financial system fragility could come from the intersection of high debt and liquidity mismatch (banks or funds relying on short-term funding holding long-term assets). The U.S. banking system overall is well-capitalized compared to 2008, but some say risks are shifting to the non-bank sector (hedge funds, private equity, etc., which are less regulated). If interest rates remain high, more hidden losses could emerge (the IMF warned in April 2023 that “financial stability risks have increased rapidly” due to higher rates testing system resilience (Global Financial Stability Report - International Monetary Fund (IMF)) (Global Financial Stability Report, April 2023)).

• Interest Rate Risk and “Rolling Crises”: A key systemic fragility is how quickly the environment changed from ultra-low rates to >5% rates. Many business models and asset valuations were predicated on low rates. The adjustment may not be smooth. The March 2023 bank failures in the U.S. and the near-collapse of Credit Suisse (a major Swiss bank) show that tight monetary cycles can cause surprise ruptures. The IMF’s October 2023 Global Financial Stability Report noted that as disinflation is in its “last mile,” “medium-term vulnerabilities are mounting”, particularly if rates stay higher for longer ([PDF] Global Financial Stability Report, October 2023: Chapter 1 - Soft ...) (The Last Mile: Financial Vulnerabilities and Risks). It specifically pointed to interest rate risk in banks and non-banks and potential for market illiquidity (The Fiscal and Financial Risks of a High-Debt, Slow-Growth World). So we must consider: a structural risk is that something could “break” in the financial system under stress – maybe a major institution failure, a sovereign default abroad that spills over, etc. The U.S. Treasury market itself showed fragility in March 2020 (needed Fed intervention to maintain function). If the Treasury market – the bedrock of the global financial system – were to seize up due to, say, too much issuance and insufficient liquidity, the consequences would be severe. The Fed and Treasury are working to improve market structure (e.g. considering bringing back more bond buyers via changes to regulation), but it’s a point of concern.

• Structural Fiscal Imbalance: The U.S. fiscal path can be seen as a structural time-bomb. Running primary deficits (excluding interest) year after year means debt will keep rising until something forces change. The structural risk is that by the time change is forced (markets push yields up, or a currency issue emerges), the adjustments needed are much larger and more painful than if addressed earlier. It’s a slow buildup of risk (debt/GDP climbing maybe 2–3 points per year) that suddenly can become a crisis if investors lose confidence. Think of it like tectonic pressure building along a fault line – nothing happens for years, then an earthquake. Similarly, multiple risk indicators might converge around the late 2020s: debt at 150% GDP, interest consuming 1/3 of revenues, Social Security trust fund depletion in 2034 leading to political standoff, etc. Any one factor may be okay, but together they form a picture of fragility.

• External Imbalances and the Dollar: The structural dependence on foreign financing (as discussed under Triffin) is a vulnerability. If foreign central banks (like China, Japan, oil exporters) decided or were forced (due to needing funds at home) to sell U.S. assets, it could stress the system. We’ve already seen China gradually reduce its Treasury holdings from over $1.3 trillion in 2013 to around $0.8 trillion now, shifting some reserves to gold. This hasn’t caused a crisis because others stepped in. But if multiple big holders sell at once, who buys? Possibly the Federal Reserve, effectively monetizing – which is inflationary. So structural fragility exists in the international willingness to hold an ever-growing pile of U.S. IOUs.

• Market Valuations and Corrections: Asset prices (stocks, real estate) soared in the low-rate environment. U.S. stock market capitalization relative to GDP hit an all-time high in 2021. Some of that froth came off in 2022’s bear market, but by 2025 equities are still richly valued historically (S&P 500 cyclically-adjusted P/E near top quintile). High valuations themselves are not the issue; the issue is if a shock (like much higher rates or earnings collapse) causes a market crash, the wealth effect could harm consumption and spawn financial contagion (margin calls, etc.). Crypto markets are another new realm of risk – 2022 saw a major crypto exchange (FTX) collapse, and stablecoins have raised concern about runs. While crypto is relatively small, its linkages to mainstream finance could grow (some banks had exposure). Essentially, systemic fragility can also come from new, less understood corners of the financial system.

• Political and Institutional Stress: Not to be overlooked, structural risk extends to political stability and governance. Frequent debt-ceiling brinkmanship, government shutdowns, or erosion of norms (like challenges to Fed independence or judicial disputes) can undermine investor confidence. If U.S. politics become extremely polarized (no consensus on fiscal matters, potential constitutional crises), that in itself becomes an economic risk. For instance, a failure to raise the debt ceiling in time would be an acute crisis. Repeated near-misses (as in 2011 and 2023) already led to credit rating downgrades or warnings. The ability of the U.S. government to respond to crises (like fast stimulus in 2020) is a strength; if dysfunction prevents timely response next time, a shock could deepen.

Bringing these threads together: Under the best scenario, structural risks are recognized and mitigated. The government gradually reduces deficits (so debt risk moderates), the Fed maintains financial stability (perhaps using macroprudential tools to manage banks’ interest rate risks, etc.), and the global environment remains cooperative (no big geo-financial shocks). Systemic fragility remains, but perhaps less so – e.g. CRFB’s “unsustainable” warning is heeded and policy adjustments extend the fiscal “half-life.” The baseline scenario likely sees structural risks continue to accumulate. The CRI (risk index) might slowly climb: by late 2020s, we’re in a territory where a moderate shock could tip into a crisis whereas a decade earlier it wouldn’t. Maybe nothing breaks until after 2035, but the system is more brittle. Finally, the worst-case scenario is one where these structural issues catalyze into a crisis. It could manifest as: a bond market revolt (surging yields), a currency run (dollar plunges), or a domestic financial meltdown (major institutions failing). Possibly all of the above in sequence – e.g. a spike in yields leads to a credit crunch that triggers a recession and bank failures, compounding into a fiscal emergency where the Fed then intervenes massively (like a Volcker meets 2008 scenario combined). In that worst outcome, by 2035 the U.S. might have endured a financial crisis and be coping with its aftermath (which could include, say, a large IMF program if we imagine far-fetched extremes, or more realistically, emergency austerity and Fed bond-buying akin to post-WWII yield curve control to stabilize things).

The goal of highlighting these structural fragilities is to stress that early action can prevent worst-case outcomes. The IMF blog by top economists in March 2024 emphasizes “decisive and credible fiscal action” now to put debt on a sustainable path can *“help mitigate these dynamics” of higher rates and slow growth. It also urges stress tests for banks and non-banks that factor in higher sovereign interest rates and illiquidity episodes (The Fiscal and Financial Risks of a High-Debt, Slow-Growth World) – in other words, identify weaknesses before they cause collapse. If those steps are taken in baseline, maybe fragility can be managed. If ignored, the risks compound.

To quantify systemic risk in a simple way: consider a Convergent Risk Index (CRI) that aggregates key indicators – debt/GDP, interest/revenue, inflation, banking stability metrics, etc. In the best case, CRI might stay around e.g. 30 (on a 0–100 scale where 100 ~ extreme crisis), in baseline it might rise from say 30 now to 50 by 2035, and in worst case it could shoot past 70, entering what one might call a “pre-collapse” danger zone (some earlier ChatGPT analysis labeled CRI above 65 as signaling full systemic convergence toward failure. Essentially, multiple risk thresholds would be crossed in the worst case: debt >150% GDP, interest >30% of revenues, inflation >5%, etc., each historically associated with crises.

The next section will specifically introduce an estimated Convergent Systemic Risk Index under our three scenarios, to encapsulate these compounding risks in a comparative framework.

Policy Wildcards: Project 2025 and the “Mar-a-Lago Accord”

Throughout this report, we’ve assumed certain broad policy directions. However, there are specific policy initiatives and proposals that could radically alter the course. Two notable ones are Project 2025 and the concept we’ll call the “Mar-a-Lago Accord.”

Project 2025

Project 2025 is a comprehensive agenda put forth by a coalition of conservative think tanks (spearheaded by the Heritage Foundation) detailing how a future Republican administration, potentially under former President Trump or a like-minded leader, could reshape federal policies and the administrative state. It’s essentially a blueprint to implement a sweeping conservative policy vision starting in 2025. Key elements relevant to the economy include:

• Fiscal/Tax Policy: As discussed, Project 2025 calls for simplifying the tax code to two brackets (15% and 30%) , eliminating many deductions/credits, further cutting corporate taxes to 18%, and exploring a national sales tax (which could replace other taxes). Independent analysis suggests this plan would significantly shift the tax burden – many middle-income households could pay more (due to lost credits like the Child Tax Credit, unless explicitly retained), while high earners get a lower top rate. It would also likely reduce revenue overall, as it is effectively a large tax cut for upper incomes and corporations without clear replacement revenue. The plan doesn’t emphasize deficit reduction; rather, the supply-side argument is that simpler, lower taxes would spur growth to offset some revenue loss. However, non-partisan experts (e.g. Tax Policy Center, Committee for a Responsible Federal Budget) have been skeptical that growth would fully pay for such cuts (How Project 2025’s Economic Policies Hurt Families - How Project 2025’s Economic Policies Hurt Families - United States Joint Economic Committee). Thus, if enacted, one risk is much lower federal revenue – potentially putting the U.S. in the sub-15% GDP revenue territory we flagged as dangerous.

• Regulation and Spending: Project 2025 also proposes deep cuts or restructuring of federal agencies and programs. For example, it suggests dismantling or radically shrinking departments like Education, Energy, EPA, etc., rolling back regulations (environmental, financial) to unleash business activity. It even includes ideas like reassigning tens of thousands of federal civil servants. While cutting regulations can boost certain industries (short-term growth spurts by lowering compliance costs), it can also increase long-term risks (e.g. environmental damage, financial excess). On spending, the plan implies reduced federal investments in areas currently “keeping the economy strong” (the JEC report interprets Project 2025 as reversing investments from the recent infrastructure and climate bills, for instance (How Project 2025’s Economic Policies Hurt Families - How Project 2025’s Economic Policies Hurt Families - United States Joint Economic Committee). It might also involve trimming social programs (the CBPP noted Project 2025 would gut some food assistance, etc., from a budget perspective). These cuts could reduce federal outlays, but if done abruptly, might also lead to job losses and lower demand in the short term. The net effect on deficits is unclear: large tax cuts would raise deficits, while spending cuts would lower them. Depending on their magnitude, we could either see a bigger deficit (if tax cuts > spending cuts) or some deficit reduction (if they substantially cut entitlement spending, though that’s politically very hard).

• Trade and Industrial Policy: The rhetoric around Project 2025 is often nationalist. Trump’s policy leanings give a clue: tariffs, trade renegotiation, decoupling from China, promoting U.S. energy production (oil, gas, coal) and manufacturing, and reducing reliance on immigration. The second Trump term has indeed been marked by “aggressive trade measures” including expanding tariffs to more imports. So, a Project 2025 scenario might involve higher tariffs (maybe implementing that across-the-board tariff), and an energy policy of maximal fossil fuel output (which could lower fuel prices domestically, potentially a deflationary force, but conflict with climate goals). Deregulation in energy and finance, as noted in a ChatGPT summary, might “stimulate business investment” but also “increase financial system vulnerabilities.”

• Monetary/Institutional Changes: There have been suggestions from some allies of Trump of altering the Federal Reserve’s mandate or leadership to be more growth-oriented (even talk of re-evaluating the gold standard or tying the dollar to commodities in some circles). While Project 2025 documents don’t explicitly call for a gold standard, they do reflect skepticism of the Fed’s recent policies (some conservatives blame Fed easing for inflation). Any move to politicize the Fed or constrain its independence would worry markets. Moreover, Project 2025 reportedly includes planning to assert more White House control over independent agencies. If that extends to the Fed or regulators, it could undermine the checks and balances that ensure prudent policy.

In summary, Project 2025 represents a sharp swing in policy. The economic outcome is debated: supporters argue it would unleash growth by cutting red tape and taxes, critics argue it would exacerbate inequality, balloon deficits, and risk instability. Given neutral assumptions, our analysis earlier implies it likely worsens the fiscal outlook (lower revenue, potentially not commensurate spending cuts), and could lead to more conflict internationally (via tariffs, etc.). If implemented fully in 2025, by, say, 2030 we might see some short-term growth spurts (from stimulus of tax cuts) but also higher interest rates (from bigger deficits and possibly higher inflation) and greater boom-bust risk. Essentially it nudges toward the worst-case scenario trajectory: more debt, higher inflation (if supply side improvements don’t materialize), more trade conflicts.

It’s worth noting that politically, if Project 2025 were enacted and led to a crisis, there might be course-correction (either voters swing back or adjustments are forced mid-stream). But as a wildcard, it increases uncertainty. It is largely a partisan plan, so how much gets executed depends on election outcomes and congressional cooperation.

The “Mar-a-Lago Accord” Hudson Bay Capital; A Users Guide to Reconstructing the Global Trading System

This term is a bit tongue-in-cheek – it’s not an official policy plan but rather a hypothetical scenario coined in ChatGPT discussions and some commentary where the U.S. orchestrates a deliberate devaluation of the U.S. dollar to address trade imbalances and debt. The name evokes the 1985 Plaza Accord (where the G5 countries agreed to depreciate the dollar to reduce U.S. trade deficits), transposed to former President Trump’s Florida resort, implying Trump-led deal-making on the dollar.

The core ideas attributed to a “Mar-a-Lago Accord” are:

• Dollar Devaluation: Actively weakening the dollar’s exchange rate to boost U.S. export competitiveness and make imports costlier, thus reducing the trade deficit (chat with chatgpt.docx). In effect, engineering inflation via currency to partly erode debt and re-shore industry.

• Debt Restructuring: Convincing or coercing foreign holders of U.S. debt to convert short-term Treasuries to ultra-long bonds (50-year or 100-year “century” bonds) . This extends the debt maturity, lowering annual refinancing needs and interest burden at the cost of paying for much longer.

• Trade Realignment: Using U.S. market access and security alliances as leverage to get partners to participate in this new arrangement , perhaps linking it to new trade deals or bilateral accords so that other countries don’t retaliate strongly.

Potential Impact: If the U.S. executed a dollar devaluation, it could indeed shrink the trade deficit (for a time). For example, a 20% dollar depreciation could potentially lower the deficit by making U.S. goods ~20% cheaper abroad and imports 20% pricier. Historical evidence: after the Plaza Accord (1985), the dollar fell ~50% against the yen and mark by 1987, and the U.S. trade deficit (which peaked ~3.5% of GDP in 1985) did shrink to ~1.5% by 1991 (Triffin's Dilemma: Why the U.S. Dollar's Global Role Is a Double ...). However, correlation isn’t causation; other factors helped too, and there was a lag as trade volumes adjust slowly. A dollar devaluation also raises inflation. Imports like oil, electronics, etc. become costlier in dollars. The Mar-a-Lago Accord concept is aware of this: it notes “a weaker dollar may result in higher import prices, contributing to domestic inflation” . So it’s trading one problem (trade gap) for another (inflation).

Debt restructuring via long bonds could reduce the immediate interest cost. If foreigners agree (that’s a big if without inducement), turning say a 5-year note yielding 4% into a 50-year bond at, suppose, 4.5% might smooth out the Treasury’s cash flow at the cost of paying interest longer. The risk is that such an action is seen as a semi-default or desperate measure. If coerced, investors might demand even higher yields or shy away from Treasuries knowing the U.S. could unilaterally alter terms (even if just via moral suasion). The Mar-a-Lago plan would try to package this attractively (maybe offering slightly higher yield or diplomatic rewards).

Global Reaction: This hypothetical accord “could lead to retaliatory measures from trading partners, potentially sparking currency wars and increasing global trade tensions”. Indeed, if the U.S. devalues, others might devalue in response (competitive devaluation). In the 1930s, beggar-thy-neighbor currency moves exacerbated the Depression. Today, many countries are cautious but would defend their interests. For instance, Japan and EU might intervene if the dollar fall hurt their exports severely. A forced debt restructure might scare markets about U.S. creditworthiness – paradoxically raising long-term risk.

This plan also “might strain international relations and diminish willingness of foreign governments to hold U.S. debt, undermining the dollar’s reserve status” . Allies bullied into a currency accord could feel resentful (like Germany and Japan did somewhat after Plaza). If trust in U.S. fiscal prudence erodes (because devaluation is effectively using inflation to reduce debt), then foreign central banks might diversify away more quickly.

Why Consider It: Given the trends, by late 2020s the U.S. might be cornered: facing large debts, persistent trade deficits (especially with China), and maybe high unemployment if a recession hits. A populist leadership could then consider something like a Mar-a-Lago Accord appealing – it’s a dramatic “deal” approach to reset terms in America’s favor (in theory). It would aim to inflate away some debt and revive manufacturing. It aligns with Trump’s past complaints about currency (he often said other countries weaken their currencies to hurt the U.S., and he threatened countermeasures).

However, implementing it would be extremely tricky and risky. It’s essentially a partial repudiation of the strong-dollar policy the U.S. has held since the 1990s. Financial markets would likely see it as the U.S. willingly putting the dollar’s credibility on the line, which could either be somewhat orderly (if well-coordinated like Plaza, though that was in cooperation with allies, not against them) or disorderly (if unilateral).

In our scenarios, the worst-case scenario might involve something akin to a Mar-a-Lago Accord unfolding amidst crisis. Perhaps as a last resort to stave off default, the U.S. pressures major creditors (like Japan, which is an ally, and China, which would be tougher) to roll into century bonds (effectively restructuring debt without calling it that), and simultaneously the Fed allows higher inflation to “manage” the debt. This would temporarily relieve the interest burden (by extending maturities and inflating down debt/GDP) but at the cost of higher inflation and loss of credibility. The outcome could be an accelerated move away from the dollar after a short relief, as that snippet states: “incorporating implementation of the Mar-a-Lago Accord suggests an accelerated decline in the dollar’s reserve status, increased inflationary risks, and heightened market volatility”. In other words, it might buy time but at a great cost.

In the best or baseline case, such radical measures are not needed or pursued. But it’s a wildcard to acknowledge because if such ideas are being floated at high levels (and indeed Trump’s team has floated the idea of indexing the dollar to gold or having an international summit on currency), it could become real policy.

Conclusion on Wildcards: Project 2025 and a Mar-a-Lago type accord are largely associated with a Trumpian policy approach. If these come to pass, they would push the U.S. more toward isolationist and short-term populist fixes. While they might yield some quick wins (tax cuts, perhaps a temporarily lower trade deficit), the independent, non-partisan analysis suggests they carry high risks: larger deficits, possible policy-induced inflation, and undermining of U.S. credibility globally (Trump’s populist policies and the Triffin dilemma | Nomura Connects). They are, in effect, attempts to resolve the Triffin dilemma and debt problem by brute force – but risk causing a break in the system.

For a balanced perspective, it’s possible that some elements could be moderated: e.g. a slimmed down Project 2025 could just mean some tax cuts and deregulation without extreme measures, which might not be catastrophic if done moderately and if growth responds well. Likewise, a currency accord could be done multilaterally (like G7 agreeing the dollar is a bit overvalued and letting it drift down) rather than unilaterally with threats. Those milder versions would align more with our baseline or mild-best scenarios. But the full-throated versions align with worst-case risks.

These wildcards underscore the range of potential policy responses that can dramatically alter the economic trajectory. Planning for the future must account not just for economic forces but political shifts that can redefine the rules of the game.

Convergent Systemic Risk Index under Three Scenarios

To consolidate the multi-faceted risks described, we introduce a Convergent Systemic Risk Index (CRI) – a composite indicator designed to gauge the overall systemic risk level facing the U.S. economy. While no single metric can capture all dimensions of risk, CRI provides a heuristic measure on a scale (0 to 100) where higher values indicate a greater convergence of risk factors that could tip the system into crisis. It combines key inputs such as the debt-to-GDP ratio, interest-to-revenue burden, inflation rate, financial sector leverage, and external imbalances.

For interpretive context:

• A CRI around 20–30 would reflect a low-risk environment (typical of stable times, e.g. the U.S. in early 2000s before major imbalances grew).

• A CRI around 50 indicates significant strains (a level that warrants caution – multiple warning indicators flashing but not yet a crisis).

• A CRI above 70 suggests the economy is in the zone of potential systemic crisis (multiple thresholds crossed, requiring either corrective action or risking a cascading failure like a default or financial crash).

• 100 would be an extreme hypothetical value corresponding to outright crisis (e.g. conditions similar to 1933 or 1979-80 or 2008 at their peaks, depending on which risks are realized).

Based on our analysis of the scenario trajectories:

• Best-Case Scenario CRI: We estimate CRI stays relatively moderate, perhaps in the 30–40 range through most of the period, maybe rising toward 40 by 2035 as debt accumulates but offset by low inflation and stable financial conditions. For instance, by 2030 debt might be ~110% GDP (vs 90% today, adding maybe 5–10 points to CRI), but interest costs remain manageable (interest/rev ~15%, adding maybe 5 points), inflation is at target (no extra risk points), financial sector stable (some risk but low, few points), external position slightly worse (couple points). Summing up yields CRI ~35. By 2035, if debt edges up a bit more, CRI might approach 40. This implies the system, while under more strain than today, remains bend-not-break – we could operate in that zone without a crisis if managed well. It’s akin to a continuously solvable problem: risk exists but is not overwhelming, and policymakers have room to maneuver.

• Moderate (Baseline) Scenario CRI: Here CRI starts perhaps in the high 30s around mid-2020s and rises into the 45–55 range by the early 2030s, plateauing around the mid-50s by 2035. For example, by 2030 debt 130% GDP (higher risk contribution), interest costs ~25% of revenue (meaningful risk contribution), inflation ~2% (no big risk from that), but financial fragility might be medium (given high leverage, moderate risk), and global factors medium (dollar slightly eroded, moderate risk). That might give a CRI around 50 by 2030. It could fluctuate – maybe if a mild recession hits in late 2020s, short-term CRI could spike then recede if the Fed cuts rates to stabilize. But trend-wise, more indicators turn from green to yellow/red. In 2028, for instance, CBO sees debt surpassing 107% (new record) (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17) and CRFB’s risk benchmarks like interest>3% GDP being crossed (Net Interest Will Total $10.5 Trillion Over the Next Decade-2023-02-24). Those would notch CRI upward. A CRI in the 50s suggests a vulnerable system, but historically not unprecedented – one might compare it to where the U.S. was in the late 1980s: high deficits and debt rising post-Plaza Accord, savings & loan crisis bubbling, but the country muddled through without a sovereign crisis.

• Worst-Case Scenario CRI: Under the severe scenario, CRI climbs rapidly into the 70+ range by late 2020s, possibly reaching 80–90 by 2035 if no corrective action stops the slide. Why so high? By 2028–2030, multiple risk thresholds would be blown past: debt perhaps ~170% of GDP (extremely high – Japan-like, but unlike Japan, in a context of higher yields and external lenders), interest costs perhaps ~35–40% of revenues (near unsustainable historically) (Net Interest Will Total $10.5 Trillion Over the Next Decade-2023-02-24), inflation could be resurgent (say 5%+, indicating macro instability), and possibly the U.S. might have faced a banking or currency crisis along the way (financial stability severely compromised). In that state, CRI would be signaling near-crisis conditions. Indeed, in the user’s prior conversation, a scenario with “aggressive debt expansion + global isolation” pegged CRI at 65 by 2028 when debt hit ~170% GDP. The conclusion was that “the CRI remains high (65+) through 2035, suggesting persistent economic stress and elevated risk of default”. If the trajectory continues beyond 2029 in that scenario, CRI might climb into the 80s as debt exceeds 200% and other factors worsen. A CRI of ~85, for instance, would reflect a situation akin to what major emerging markets looked like before default (or what the U.S. might have looked like in 1932 during the Great Depression when deflation, banking collapse, and debt all converged). It basically means the system is on the brink: any small shock could trigger collapse, and drastic intervention (like debt restructuring, IMF bailouts, capital controls, etc.) might be required to prevent total failure.

One might ask: is CRI a leading indicator (rising before a crisis) or coincident? Ideally, rising CRI gives warning time to act. In worst case, if CRI crosses 70, that’s siren level – it means trends are converging toward an event horizon. Historically, countries that hit similar metrics often have crises within a few years unless policy adjusts (examples: Greece by 2010 had debt ~146% GDP and interest ~30% of revenue, and it ended up defaulting in 2012). The U.S. is unique because of dollar hegemony, but not immune.

We can tabulate a hypothetical snapshot for clarity (approximate figures for 2030):

Scenario CRI (~2030) Debt/GDP Interest/Rev Inflation Key Risks Best Case ~40 ~110% ~18% ~2% Elevated debt but low rates; stable Moderate (Base) ~50 ~130% ~25% ~2% High debt, moderate interest burden; watchful stability Worst Case ~75 ~170% ~35% ~4–5% Severe debt spiral, stagflation; crisis imminent

By 2035, the gaps widen further (debt could be ~120% vs 150% vs 200% in those scenarios). These CRI values are not precise but illustrative.

The purpose of CRI is to communicate that risks are not isolated. A country could handle 150% debt if interest rates are zero and inflation is low (see Japan, high debt but low CRI because rates are near zero and domestic holdings are high). Or a country could handle 5% inflation if debt was low and finances strong (some emerging markets run 5% inflation without crisis because debt is moderate). It’s the combination – high debt plus high rates plus low credibility, etc., that becomes toxic. The U.S. for long had moderate CRI because even as some factors like debt rose, others like interest cost stayed low. Now multiple dials are turning into the red together (debt, rates, global tensions). CRI tries to reflect that multi-dimensional pressure.

In policy terms, the CRI underscores why early fiscal adjustment is needed in baseline: to keep CRI from rising into that danger zone. If lawmakers reduce deficits by say 3% of GDP over the next decade (through a mix of entitlement reform and revenue increases), debt might stabilize around 100% of GDP and interest costs under 20% of revenue, keeping CRI maybe in the 40s rather than 60s. That could avert a future crisis – a case of risk prevention.

For readers, the takeaway is that under the moderate scenario, the U.S. will be under growing strain but can likely avoid calamity through prudent management (CRI ~50 might feel like 1980s or post-WWII late 1940s: heavy debt overhang but eventually worked down). Under the worst scenario, without changes, the U.S. would be heading toward uncharted waters (CRI >70) where history suggests a breaking point – whether that’s a default, hyperinflation, or some kind of overhaul of the monetary system. No one can predict the exact tipping point, but CRI is a conceptual thermometer to measure how close we’re getting.

Strategic Foresight: Potential Outcomes and Turning Points

Looking over the horizon to 2035, we can outline several strategic outcomes that the United States might face, depending on which scenario (or mix of scenarios) plays out and how policymakers respond:

1. Managed Soft Landing and Reform (Optimistic Outcome): In this hopeful outcome, the U.S. steers closer to the best-case scenario. Inflation subsides without a deep recession; the Fed successfully contains prices while the economy continues to grow modestly. Recognizing the fiscal trajectory, Congress enacts a bipartisan deficit reduction package by late 2020s – perhaps a mix of slowing healthcare cost growth, gradually raising the Social Security retirement age or payroll tax cap, and closing tax loopholes. This puts debt on a slower growth path, reassuring markets. By 2035, debt might still be high (~115% GDP) but stabilizing, and interest costs, while higher than historical, are under control. The financial system remains intact; regulators tightened oversight of bank liquidity and non-bank leverage after the scares of 2023, preventing larger crises. The dollar remains the world’s primary currency, albeit sharing more space with the euro and yuan, but no abrupt shift. In this outcome, systemic risk (CRI) might have risen but plateaus as reforms kick in. Importantly, a cultural shift occurs in Washington towards fiscal responsibility – perhaps driven by a wake-up call like a near-default or a voter mandate after a scare. While the public endures some austerity (maybe slower growth in benefits, slightly higher taxes), the outcome is a more sustainable economy growing steadily ~2% with 2% inflation. This would be a soft landing not just economically but fiscally: avoiding the crunch of a crisis by acting in advance. For households, this outcome means gradually improving living standards and a relatively predictable environment (mild business cycles, no hyperinflation or severe depression).

2. Drift and Jolt (Baseline Outcome with mid-course correction): In a less rosy but plausible scenario, the U.S. muddles through the 2020s following the baseline trajectory until mounting risks culminate in a shock around late 2020s or early 2030s. Possibly a moderate recession occurs around 2028 (maybe triggered by global issues or delayed effects of high rates). This recession combined with high debt prompts investors to demand higher yields, and a minor fiscal scare ensues (e.g. a failed Treasury auction or a rating downgrade to “A” category). Financial markets tumble and the unemployment rate jumps to, say, 8%. This “jolt” finally spurs policymakers into action akin to the Budget Act of 1985 after deficits in early 1980s, or the budget deals of the 1990s. Perhaps in 2029, a coalition enacts a significant deficit reduction plan (including something once-taboo, like a modest national VAT or carbon tax, plus entitlement trims). The Fed possibly steps in with temporary bond purchases (like past quantitative easing) to stabilize the market during the reforms. The combination of fiscal action and Fed support calms investors. Inflation might spike during the crisis (due to policy chaos or a weaker dollar) but then subsides as credibility is restored. By 2035, the U.S. is recovering from this jolt with a healthier foundation: debt perhaps was on track to 150% GDP but due to reforms is bending down. The cost was a few tough years economically and politically, but outright catastrophe was avoided. This outcome is quite possible because democracies often respond to crisis rather than prevent it. So, we “drift” until a mild crisis, then correct. Households in this scenario go through a period of pain (job losses, market declines, possibly benefit cuts or tax hikes), but then the economy improves. Canada, being tightly linked, might share in both the downturn and subsequent recovery.

3. Stagflation and Controlled Decline (Pessimistic Managed Outcome): Another possibility is that none of the big reforms happen, and the U.S. enters the 2030s in a stagflationary malaise – not an acute crisis, but a grinding decline in indicators. Imagine inflation stays around 4%, the Fed keeps relatively high rates but can’t fully contain it due to fiscal dominance (they fear spiking interest costs further). Growth averages only ~1%. Debt keeps rising, but the U.S. uses financial repression to cope: for example, the Fed might cap Treasury yields (printing money to buy bonds if yields go too high) to prevent a default – effectively generating more inflation to erode debt. Foreigners slowly flee from Treasuries, so more debt is held by the Fed and domestic banks (who are perhaps required by regulations to hold Treasuries). This is a scenario some economists call the “slow motion debt monetization.” Living standards in this environment erode – wages chase prices upward, savings lose value unless in inflation-hedged assets. Unemployment might not be extremely high, but jobs don’t pay enough in real terms; underemployment could be an issue. It’s akin to the 1970s but with a much heavier debt load in the background, and perhaps more permanent. The dollar might steadily lose value internationally, but not crash overnight – maybe its share of reserves slips to ~40%. Other countries start invoicing commodities in other currencies more. Domestically, politics could get volatile as people seek scapegoats for the stagnation (leading to oscillating policies, business uncertainty). This is a managed decline – the U.S. avoids a singular crisis event by effectively spreading the pain over many years via inflation and financial repression. By 2035, debt might be extremely high (200% GDP) but a chunk effectively inflated away in real terms. The risk in this scenario is that it could still culminate in a crisis if at some point inflation truly runs away or confidence snaps. But it could also limp along for quite a while (some countries have muddled in stagflation for decades – e.g. Italy had high debt and low growth through much of the 2010s but didn’t break, albeit under euro discipline).

4. Crisis and Reset (Severe Outcome): This is the worst-case endgame: the converging risks lead to a full-blown crisis that forces a fundamental reset of U.S. economic policy. This could take several forms – a sovereign debt default or restructuring (the U.S. might technically “print” dollars to avoid nominal default, so more likely the “default” is via high inflation or forced refinancing), a banking system collapse that necessitates nationalizations, or a currency collapse that ends the dollar’s global reign abruptly. Such a crisis might occur around 2030 or early 2030s if trends are unchecked. It would likely be global in impact (given the U.S. central role). We’re talking about an event on par with 2008 or worse – perhaps something that requires the closure of markets for a time, emergency measures like capital controls (to stop a dollar free-fall), and international assistance to reorganize debts. In a truly extreme case, the U.S. and other major powers might convene something akin to a new Bretton Woods conference to redesign the global monetary system – maybe introducing a new reserve asset or rules to restore confidence. For instance, there’s periodic talk of the IMF’s Special Drawing Rights (SDRs) or a basket of currencies/gold as a future reserve standard. In a meltdown scenario, such ideas could move from theory to practice. Domestically, a crisis would be severely painful: think double-digit unemployment, double-digit inflation, and public anger/distrust at authorities. Political repercussions could be huge (potentially destabilizing democracy if not handled well – historically, economic crises sometimes usher in extreme leaders or unrest). However, after the storm, the reset could lay groundwork for recovery – debts might be written down or “burned off” by inflation, the dollar might stabilize at a lower level, and with a cleaned slate, growth can resume. Basically, the U.S. might go through what many emerging markets did in the 1980s or 1990s – a harsh adjustment followed by reforms. By 2035 in this scenario, the U.S. could be in the early stages of a new regime (for instance, a currency reform or an international accord that imposes fiscal discipline, etc.). It’s a dire outcome but not beyond conception if worst-case policies and shocks align. Of course, this is what all sound policy is meant to avoid – it’s the outcome of doing too little until it’s too late.

5. Technological/Unexpected Upside Surprise: On a more positive note, there’s always the chance of a wildcard that improves the outlook beyond our main scenarios – a sort of opposite of risk, a big opportunity. For example, a technology revolution (like AI productivity boom) could raise growth significantly, making the debt burden more manageable (a bigger economy denominates the debt). Or a health breakthrough could extend working lives productively, easing demographic strains. It’s hard to plan on these, but they are part of foresight: if real GDP growth ended up being, say, 3% annually (instead of 1.8%), by 2035 the budget and debt projections would look much better (more revenue, lower debt/GDP). None of our scenarios assumed a dramatic productivity surge, but it’s not impossible. Policy could help by investing in R&D and education (which the baseline somewhat does via recent legislation). If such an upside occurred, CRI would be overstating risk (the denominator GDP would outgrow the current assumptions). So one potential outcome is that the doom and gloom recede thanks to human innovation – the U.S. has a history of reinventing its economy.

Key Turning Points to Watch and Warning Signs: Regardless of outcome, certain timeline markers will be critical in coming years:

• 2024–2025: Fed’s success or failure in returning inflation to target will be decided. Also U.S. election and potential policy shifts (e.g. Project 2025 implementation or not) set initial conditions. Markets will react to whether fiscal discipline is on the agenda or more unfunded tax cuts/spending.

• 2026: The expiration of the 2017 tax cuts (or their extension) is a big fiscal moment. Extending them without offsets would significantly worsen 10-year outlook. Also, the 2025/2026 period is when CBO projects interest costs hit record share of GDP (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17); it’s when debt begins to break WWII record in baseline. Possibly a first credit rating downgrade happened (Fitch already did in 2023; others might follow if nothing improves).

• 2027–2029: If nothing’s fixed, debt metrics look quite bad by 2028 (150%+ debt/GDP in worst-case, 107% baseline breaking record (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17)). We might see international pressure (e.g. G20 discussions) or market jitters. Any recession in this window could bring matters to a head (as deficits would soar due to automatic stabilizers and stimulus).

• 2030–2031: Possibly when crisis likelihood peaks if trajectory is unsustainable – simply because the compounding will have gone on long enough to freak out markets (everyone can do the math that by 2035 debt is
  unpayable without inflation). Social Security trust fund depletion around 2034 means by 2031 lawmakers must act (since typically they’d try a fix a few years prior). That could be a catalyst for a grand bargain (good scenario) or gridlock (bad scenario).

• 2033–2035: By this time, we’ll know which path was taken. Either adjustments were made (soft landing or moderate correction outcomes) or we’re dealing with aftermath of a crisis/reset. If by 2035 debt is indeed ~120% GDP and stable, interest costs manageable, inflation 2%, that indicates success in risk management. If instead debt is ~180% and rising, inflation high, etc., the day of reckoning likely already occurred or is imminent.

• Policy Matters: The scenario underscores how aggressive nationalist policies (e.g. tariffs, deliberate dollar devaluation) and politicization of institutions can backfire disastrously. While intended to boost domestic industry, such moves sparked trade retaliation, stagflation, and a loss of investor trust. The “Mar-a-Lago Accord” strategy of dollar devaluation was especially high-risk – it aimed to fix trade imbalances but instead undermined confidence in the dollar and fed inflation​ think.ing.com. The lesson is that global economic leadership and sound monetary-fiscal coordination are hard-earned and easily lost.

• Debt and Deficits – No Free Lunch: Running large deficits year after year with debt rising faster than the economy is a recipe for crisis. In the 2025–2035 timeline, the U.S. ignored warnings and breached critical debt thresholds. By the late 2020s, federal debt climbed well above 130% of GDP, far beyond the historical peak​. Federal revenue falling below 15% of GDP (as happened in 2029) was a glaring warning sign of fiscal imbalance​

  usgovernmentrevenue.com. This scenario showed that eventually investors will rebel – pushing up borrowing costs and forcing austerity at the worst possible time. Sustainable budgeting, including potential entitlement reforms and revenue enhancements, proved essential to restore stability.

• Interest Costs and Crowding Out: One of the first red flags was the explosion of interest payments on the debt. By the mid-2020s, interest was already outpacing major expenditures like defense​, and by the early 2030s it nearly rivaled Social Security. In the scenario’s worst year, 2029, interest consumed almost half of federal revenues – an untenable situation. Even in the baseline, CBO projected interest to reach ~4.1% of GDP by 2035​ crfb.org (almost $1.8 trillion, or ~17% of spending​ taxathand.com. When interest eats the budget, it crowds out investments in infrastructure, education, R&D, etc., undermining future growth. The takeaway: once debt is high, rising rates can create a dangerous spiral. Keeping debt within manageable bounds acts as insurance against such spirals.

• Household Debt and Financial Fragility: The American consumer entered this period with relatively high debt (though lower than 2008 levels). The prolonged stagnation forced households to borrow even more to make ends meet, pushing personal debt to unprecedented levels (>170% of income/GDP) by 2030 in the scenario. For context, U.S. household debt-to-income peaked at ~133% in 2007 before the last crisis​ frbsf.org. Exceeding that by a wide margin signaled that households were in perilous territory, likely to default en masse if any shock occurred – which they did when unemployment spiked. Rapid growth in private debt often precedes financial crises; policymakers and lenders must monitor debt-to-income ratios and debt service burdens, and take preventative action (like tighter lending standards or targeted debt relief) before it reaches the point of no return.

• Dollar Value and Global Confidence: The U.S. was shown to be walking a tightrope with the value of the dollar. A DXY above 110 (as briefly seen in this scenario during panics) can strain emerging markets and U.S. exporters, whereas DXY below 90 (seen when the dollar was purposefully weakened) can signal loss of confidence and fuel import inflation. Both extremes are dangerous​news.bitcoin.com. The dollar’s reserve currency privilege provided a long grace period where the U.S. could finance deficits cheaply, but the scenario illustrated that this privilege can erode faster than imagined if mishandled. The dollar’s reserve share falling below 50% by 2029​ was a seismic shift, forcing the U.S. to adjust to a world where it must actually earn the trust of investors rather than assume it. To maintain the dollar’s status, the U.S. must uphold stable governance, avoid using the currency as a weapon indiscriminately, and keep inflation under control – otherwise, global markets will diversify away, as they did here with profound consequences.

• Institutional Resilience: A subtle yet crucial theme is the importance of strong institutions – an independent central bank, credible statistics and agencies, rule of law – in maintaining economic stability. Project 2025 envisioned expanding executive power and even abolishing parts of the Federal Reserve and civil service​

  en.wikipedia.org. In the scenario, these moves undermined market confidence (“dangerous for rule-of-law perception in capital markets” as noted in analysis​). The eventual turnaround only happened once institutions were strengthened again (e.g., the Fed allowed to act forcefully against inflation, bank regulators enforcing discipline, etc.). The trust that investors and the public place in economic institutions is a cornerstone of stability – once broken, it’s very hard to regain. Thus, preserving institutional integrity and non-partisan expertise (even when politically inconvenient) is key to preventing worst-case outcomes.

• Social Cohesion and Political Will: Economic crises are not just numbers on a spreadsheet – they translate into human suffering and social unrest, which in turn feedback into the economy. This narrative saw surging social discord: protests, extremism, and even talk of civil conflict. Nearly half of Americans expecting a civil war​ maristpoll.marist.edu is not just a political problem; it scares away investment and talent, as people lose confidence in the country’s future. Societal breakdown amplifies economic breakdown. Conversely, restoring stability required a degree of political unity and sacrifice (for instance, bipartisan agreement on emergency measures in 2029). Historically, the U.S. has risen to the occasion when truly pressed – but waiting until the 11th hour to act made the crisis worse. The lesson is that early action to address imbalances (debt, bubbles, etc.) while social trust is intact can prevent the need for far more draconian action later when trust has eroded. It’s a lot easier to fix the roof while the sun is shining than in the middle of a storm.

• Historical Parallels: The 2025–2035 trajectory draws parallels to past episodes: the stagflation of the 1970s (when oil shocks and policy missteps led to inflation and recession), the debt crises that have hit various countries (from the U.S. in 1930s to Greece in the 2010s) when fiscal discipline lapses, and the financial crash of 2008 (when leverage and risky bets imploded). Each of those was resolved by significant shifts in policy and sometimes international cooperation. For instance, the Plaza Accord of 1985 was a coordinated fix to an overstrong dollar, and the IMF-led programs have helped countries restructure unsustainable debts (with pain). The United States in this scenario ends up having to apply to itself the kind of tough measures normally forced upon others. The hope is that U.S. policymakers and the public can heed the early warning signs and alter course before being forced to by crisis. As the IMF Managing Director warned in 2024, the world (and the U.S.) risked falling into a “slow-growth, high-debt rut”​

  pbs.org – avoiding that fate requires prudent choices, not wishful thinking.

From a strategic planning perspective, the U.S. still has agency to shape the outcome. The window for preventative action is this decade (2020s). Delaying pushes us toward the more extreme outcomes. Internationally, there’s also a strategy element: how the U.S. competes or cooperates with China, how it manages alliances, will affect economic conditions (cooperation can ease supply issues, competition could raise costs). A Mar-a-Lago Accord type approach is strategic in one sense (a bold stroke) but could backfire – so strategy needs to weigh short term vs long term.

For American and Canadian households and businesses, these potential outcomes mean they should be nimble and prepared (next section will give concrete advice). There’s a range from mild turbulence to severe storm on the horizon; prudent planning hopes for the best but prepares for the worst.

Lets Revisit The Narative Of The U.S. Economic Trajectory 2025–2035: Medium-to-Worst-Case Scenario

In this scenario-based outlook, we chart a year-by-year narrative of the U.S. economy from 2025 through 2035 under a “medium-to-worst-case” set of assumptions. These assumptions include aggressive policy shifts (inspired by “Project 2025” and the proposed Mar-a-Lago Accord to devalue the dollar), persistent fiscal excesses, and cascading systemic risks domestically and globally. The goal is to illustrate how economic conditions could deteriorate, identify key trigger points, and draw parallels to historical precedents – all in an accessible but analytically grounded way. We focus on economic developments (growth, inflation, debt), financial conditions (interest rates, currency value), social/political fallout, and potential systemic failures as they evolve each year. All projections are hypothetical (for a cautionary scenario) and sourced from available data or analogous historical episodes.

Background: As of 2024, the U.S. is grappling with high federal debt (~98% of GDP, or ~123% including intra-government obligations)​, rising interest costs, and an economy facing headwinds from global fragmentation. The Federal Reserve had been hiking rates to tame inflation, and in 2023 one credit agency (Fitch) downgraded U.S. debt from AAA to AA+ citing “fiscal deterioration” and repeated debt-ceiling brinkmanship​ theguardian.com. These conditions set the stage for what follows if corrective action falters.

2025: Policy Shock and Stagflation Fears

Economic Policy and Growth: 2025 begins with a new administration determined to overhaul trade and monetary policy. By April, sweeping tariffs are imposed on major trading partners – ranging from 20% on some goods to as high as 100% on certain imports​ – fulfilling an “America First” trade agenda. These protectionist measures, combined with withdrawal from various international accords​, send ripples through supply chains. Businesses face rising input costs and retaliatory trade barriers abroad. The Federal Reserve, already projecting a growth slowdown, revises its GDP outlook downward: the Fed’s median forecast for 2025 GDP growth slips from 2.1% (forecasted in late 2024) to about 1.7%​, reflecting expected drag from trade disruptions. Some private models even flash warning signs – for example, the Atlanta Fed’s GDPNow tracker estimates –2.8% growth (an annualized contraction) for Q1 2025​, hinting that parts of the economy may already dip into recession early in the year.

Inflation and the Fed: Inflation, which was about 3% at end-2024, ticks back up on the tariff shock. By early 2025 it breaches the Fed’s comfort zone: annual CPI inflation runs ~2.8% as of February​ and is expected to accelerate through the year. Higher import prices (due to tariffs) and a weaker dollar policy contribute to what economists label stagflationary pressure – rising prices amid slowing growth. The administration openly pursues a strategy to devalue the U.S. dollar under a proposed “Mar-a-Lago Accord,” aiming to make U.S. exports more competitive​. This draws comparison to the 1985 Plaza Accord which involved coordinated dollar weakening​ think.ing.com. However, unlike 1985 when allies cooperated, in 2025 the effort is unilateral. The U.S. Treasury even floats the idea of a punitive “user fee” on foreign holdings of U.S. Treasurys – effectively discouraging other countries from holding dollars​. Such measures are incendiary: they undermine global confidence and invite retaliation. The Federal Reserve faces a dilemma – it worries that loosening policy to support growth could feed inflation, but raising rates further would compound the downturn. Through 2025 the Fed holds rates relatively high and signals vigilance on inflation, while coming under unprecedented political pressure to support the administration’s growth and currency goals. (Notably, “Project 2025” blueprints had been critical of the Fed and even toyed with returning to a gold standard​ en.wikipedia.org, stoking uncertainty about the Fed’s future independence.)

Fiscal Strains and Interest Costs: Meanwhile, federal finances deteriorate. No serious action is taken on deficits – in fact, the administration pursues tax cuts and spending boosts outlined in its agenda (e.g. extending the 2017 tax cuts and introducing new tax breaks​). Combined with slower growth, this widens the deficit to around $1.9 trillion (FY2025)​. Federal debt held by the public crosses the 100% of GDP mark and keeps climbing​. By mid-2025, gross federal debt (including intra-government debt) hits an estimated 130% of GDP, crossing a psychological red line in markets. Credit rating agencies put the U.S. on notice: having already downgraded the U.S. in 2023, Fitch and others threaten further downgrades if no fiscal course correction occurs theguardian.com

. The government’s interest payments on the debt are soaring due to high interest rates and mounting debt. In 2025 the U.S. will spend on the order of $0.95 trillion on interest – more than the defense budget​. (In fact, by 2025 interest outlays have roughly doubled to 3.2% of GDP from just 1.6% in 2020​ crfb.org.) This means scarce taxpayer dollars are increasingly consumed just to service past debts, a trend that is unsustainable​. The Congressional Budget Office (CBO) warns in its annual outlook that, on the current trajectory, U.S. debt will reach 118% of GDP by 2035 – the highest in history, exceeding even World War II levels​. Investors begin demanding a risk premium on U.S. Treasurys, pushing long-term interest rates up.

Social and Political Fallout: The economic anxiety translates into social strain. By late 2025, consumer confidence has eroded – the University of Michigan sentiment index falls to its lowest in over a decade, as households fear rising prices and job losses. Public discontent with Washington grows: the year is marked by governance gridlock, including a tense showdown over raising the debt ceiling yet again. Although default is avoided, repeated last-minute compromises erode confidence in U.S. governance. Polls show a rise in political extremism and pessimism about democracy. (One late-2025 survey found 47% of Americans believe a civil war is likely in their lifetime​ maristpoll.marist.edu– a dramatic indicator of how fracture lines are widening.) Amid protests over various issues (from tariff impacts on farmers to the administration’s controversial pardons of certain individuals), the country feels on edge. Still, the economy has not collapsed – unemployment remains around 5–6% by year’s end, as many companies hold onto workers initially, hoping for a policy reversal or improvement. But the stage is set for more turbulence ahead.

2026: Recession and Loss of Confidence

Descent into Recession: By 2026, the cumulative pressures – tighter monetary conditions, weakening business investment, and trade disruptions – likely push the U.S. fully into recession. Many economists had anticipated a downturn (the yield curve inverted back in 2023, historically a reliable recession predictor), and it seems to materialize. Real GDP contracts modestly (on the order of –1% to –2% for the year in this scenario), marking the first official recession since 2020. Layoffs, which began in late 2025, accelerate in manufacturing, export-oriented industries, and retail. Unemployment rises past 7%. Notably, middle-class households are squeezed between higher prices and now rising job insecurity, forcing many to increase personal debt to stay afloat. By 2026 consumer debt levels (credit cards, personal loans) are at record highs, and delinquency rates start climbing. Many families refinance mortgages or auto loans at higher rates, crimping disposable income.

Policy Responses: The administration faces a dilemma as its own policies contributed to the downturn. Rather than reversing course on tariffs or dollar policy, it doubles down: officials argue the pain is a necessary step toward long-term gains in domestic industry. Behind the scenes, however, there is panic. In an unprecedented move, the Treasury and Federal Reserve coordinate a partial “Plaza Accord 2.0” with a few hesitant allies – attempting to engineer a controlled dollar devaluation to boost U.S. export competitiveness. The result is a further weakening of the USD on foreign exchange markets. By mid-2026 the dollar index (DXY) falls below 90, a level of weakness not seen in over a decade, indicating the dollar has lost roughly 15–20% of its value versus major currencies since 2024. While this does help U.S. exporters a bit, it backfires by importing more inflation. Oil and commodity prices (typically traded in dollars) surge domestically as the dollar’s value slips. This complicates the Federal Reserve’s job tremendously.

Federal Reserve Under Pressure: In 2026, the Fed’s leadership changes – the Fed Chair’s term expires and the President installs a new Chair aligned with the administration’s agenda. The new Chair is more tolerant of inflation and focused on growth (consistent with Project 2025’s criticism of the Fed’s dual mandate en.wikipedia.org). The Fed begins cutting interest rates despite inflation running above 5%. This is a risky gamble: easier money provides some short-term stimulus (stock markets rebound briefly in summer 2026 on rate cut hopes), but it unmoors inflation expectations. By late 2026, core inflation re-accelerates instead of falling. The phrase “stagflation” (stagnant economy + high inflation) is now frequently invoked by commentators, drawing parallels to the late 1970s. Indeed, the situation has echoes of that era: in the 1970s, policymakers also struggled with stop-go monetary policy and oil shocks, which led to double-digit inflation and multiple recessions. The IMF issues warnings that the world’s largest economy risks “getting stuck on a low-growth, high-debt path”​pbs.org– exactly the rut that resulted in the painful Volcker shock of the early 1980s to break inflation. Markets begin to fear that a similar or even more severe reckoning will be required this time.

Debt and Fiscal Crisis Brews: U.S. federal finances in 2026 are in worse shape than ever going into a recession. Normally, a downturn would reduce tax revenues and increase safety-net spending (unemployment benefits, etc.), widening the deficit. But in this scenario, revenues were already low due to tax cuts, and spending was high – so the government has little fiscal room. The budget deficit expands above 8% of GDP. Federal revenue falls toward about 15% of GDP – alarmingly low by historical standards (for reference, federal receipts dropped to ~14.6% of GDP in 2009 amid the Great Recession)​ usgovernmentrevenue.com. This approaches a dangerous threshold where the government is bringing in barely more than half of what it spends. Investors and creditors take notice: in late 2026, Moody’s (the last major agency still giving the U.S. an AAA rating) downgrades the U.S. outlook to “negative,” explicitly citing the lack of a credible fiscal plan and the politicization of institutions. By year-end, debt held by the public is around 108–110% of GDP, significantly above the prior year due to the shrinking GDP and ongoing heavy borrowing. The Treasury Department faces growing difficulties in financing the debt – a few bond auctions see weak demand, and interest rates on 10-year Treasurys begin rising despite Fed rate cuts (a sign of waning confidence). Some foreign central banks, like those of China and the Gulf states, stop increasing or even start reducing their Treasury holdings, quietly trimming exposure to U.S. debt. This foreign retrenchment is subtle but significant: it indicates that America’s adversaries and even allies are hedging against U.S. credit risk and the dollar’s decline.

Social and Political Reactions: The economic downturn of 2026 fans the flames of political unrest. Strikes and demonstrations become more common as workers protest layoffs and wage growth that lags far behind inflation. The administration’s populist rhetoric blames “globalists and Fed elites” for the pain, which further erodes trust in central institutions. On the other side, opposition lawmakers decry the administration’s experimentations (tariffs, dollar devaluation) as reckless. The resulting political stalemate means no meaningful stimulus legislation passes to cushion the recession – unlike 2020, there is no bipartisan relief package forthcoming. This failure to respond adds to public anger. Crime rates in some cities tick up, and extremism finds fertile ground in those hurt by the economy. Notably, regional tensions sharpen: some states attempt to enact their own policies (for example, rent controls or price controls to “fight inflation,” or state-level stimulus checks), leading to patchwork responses that aren’t very effective and sometimes at odds with federal policy. By the end of 2026, the nation is more divided – economically and politically – than it has been in decades.

2027: Dead Cat Bounce and Gathering Storm

Tentative Stabilization: The year 2027 begins with tentative hopes of stabilization. With the recession having bottomed out in mid-2026, there is a mild “dead cat bounce” in economic activity. Real GDP growth for 2027 is slightly positive (perhaps ~1%), as some businesses restock inventories and consumers temporarily increase spending (partly using credit and savings) after two rough years. Unemployment levels off around 7–8%, halting its rise as the labor market finds a fragile floor. Inflation remains elevated, however – fluctuating around 5% for the year – meaning real (inflation-adjusted) incomes continue to stagnate or fall. Any relief people feel from the recession’s end is offset by frustration that the cost of living is still rising faster than paychecks. The term “stagflation” is now firmly part of the public discourse.

Dollar Under Duress: By 2027, the U.S. dollar’s global standing shows clear cracks. The concerted dollar devaluation policy (Mar-a-Lago Accord strategy) and the perceived erosion of U.S. financial stability lead international investors to diversify away from the greenback. The dollar’s share of global foreign exchange reserves, which was about 58% in 2025, slips closer to ~50% by 2027​. This is a pivotal change – a near breakup of the dollar’s monopoly as the world’s reserve currency. For U.S. consumers, one immediate effect is higher import costs (fuel, electronics, etc.), keeping inflation pressure on. For the U.S. government, another effect is that foreign demand for Treasurys softens, forcing the Treasury to offer higher yields to attract buyers. The BRICS nations and other emerging economies by now openly talk of trading in alternative currencies (such as settling oil and commodity trades in yuan or a new BRICS currency). Several BRICS central banks reduce their U.S. Treasury holdings significantly​. The U.S. Treasury finds that at some auctions, a usual stalwart buyer – foreign official accounts – are missing in action. Although domestic investors (banks, money market funds, the Fed itself) step in to buy, this dynamic pushes long-term interest rates up further. By late 2027, the 10-year Treasury yield, which might have been around 5%, is now hovering near 6–7% despite middling economic growth. This highly unusual situation (normally yields fall in weak economies) underscores investors’ credit and inflation fears.

Fiscal Crisis Signals: The higher yields and still-large deficits mean the debt service burden is exploding. The government’s net interest payments reach new highs in 2027, consuming over $1.2 trillion (roughly 4% of GDP). This amounts to nearly 20% of federal revenues, up from ~9% just five years earlier – a rapid doubling that highlights how quickly compounding interest can squeeze the budget. Analysts warn that if interest costs continue rising at this pace, the U.S. will enter a debt “doom loop” where it must borrow ever more just to pay interest, causing creditors to demand even higher rates. Thresholds that once seemed distant are now coming into view: for example, total U.S. public plus private debt as a share of GDP is nearing record territory. Household and corporate debt in particular have ballooned (households took on debt to maintain living standards during stagflation, and many firms borrowed to survive the lean times). The combined household debt-to-income ratio surges past 140% on its way toward levels never seen before. (For context, U.S. household leverage peaked around 133% of income in 2007 before the last financial crisis​ frbsf.org; by the early 2030s in this scenario it exceeds that by a wide margin, a clear red flag for financial stability.)

Banking and Financial Strains: Financial system stress that began bubbling in prior years intensifies in 2027. Regional banks in the U.S., already weakened by the 2026 recession, face a spike in loan defaults (especially on commercial real estate and consumer loans). Memories of the 2023 regional bank failures (Silicon Valley Bank, etc.) loom large, and now more mid-sized banks struggle with tepid deposits and asset losses​ businessinsider.com. At least one significant regional lender fails in 2027, reawakening fears of contagion. The Federal Deposit Insurance Corporation (FDIC) steps in to resolve it, and the Fed reopens emergency lending facilities to backstop banks​ richmondfed.org. This steady drip of banking troubles erodes confidence further – businesses become more cautious in lending and hiring, and households worry about their savings. The stock market, which had seesawed without clear direction, turns decidedly bearish by late 2027 as corporate earnings fall and investors demand higher yields on equities (to compensate for rising bond yields). The S&P 500 enters a deep bear market, down 40%+ from its peak, hurting retirement portfolios.

Sociopolitical Update: In 2027, the social fabric is frayed but there is a sullen acceptance that the “good times” are over for now. Populist political rhetoric reaches a fever pitch heading into the 2028 election season. The incumbent administration, facing criticism for economic woes, leans even harder into nationalist policies and scapegoating of foreign actors for America’s malaise. Internationally, the U.S. finds itself increasingly isolated: allies in Europe and Asia are uneasy with U.S. instability and are hedging their bets (for instance, Europe is enhancing its own financial mechanisms independent of the dollar, and Asian allies quietly engage more with China’s economic sphere). Domestically, extremism on both left and right flourishes as moderate voices struggle to offer solutions. Still, there are undercurrents of resilience: local communities and some states launch grassroots efforts to support those in need (food banks, local job programs), technology innovation continues in pockets (like AI and green tech sectors, which curiously see investment as potential bright spots even amid gloom), and by the end of 2027 there is a nascent public demand for real economic reforms beyond partisan talking points.

2028: Deepening Dollar Crisis and Political Reckoning

Worsening Inflation and Dollar Crisis: By 2028, the U.S. economy is at the nexus of multiple compounding crises. What started as a trade-induced slowdown has morphed into a dollar crisis and a crisis of confidence in U.S. solvency. The U.S. dollar’s reserve currency status, long taken for granted, is truly unraveling now. Mid-2028 marks a symbolic breach: the dollar’s share of global reserves falls below 50% for the first time in modern history​. This means that more than half of global central bank reserves are held in other currencies (such as the euro, yen, yuan, and gold). The “petrodollar” system – wherein global oil trade is priced in dollars – is partially bypassed as major oil exporters accept alternative currencies for a share of their sales. Consequently, the Dollar Index (DXY), which dipped below 90 last year, keeps sliding and fluctuates in the 80s (a level of weakness last seen in the mid-2000s). A weak dollar normally might help U.S. exports, but global demand is also weak and U.S. exporters face tariffs and barriers erected in retaliation for earlier U.S. actions. Instead, the main effect of the dollar’s plunge is imported inflation. By early 2028, headline inflation re-accelerates into the high-single digits, approaching 8–10% at an annual rate. Consumers feel this brutally at the grocery store and gas pump.

In response, the Federal Reserve in 2028 is forced into a policy U-turn. After having cut rates in 2026–27 under political pressure, the Fed now faces an even more dire inflation outlook and a collapsing currency. Concerns of a full-blown currency crisis – where the dollar could enter a free-fall – compel the Fed to hike interest rates sharply, despite the weak economy. This is reminiscent of the Volcker shock of 1980–82, when the Fed jacked up rates to 20% to break inflation’s back​ npr.org. By mid-2028, the Fed raises the federal funds rate back into the high single digits (8–10%), reversing all of its easing from two years prior. These rate hikes, while necessary to defend the dollar and quell inflation, have a devastating effect on the economy: credit becomes very tight, and investment and consumer spending plunge.

Double-Dip Recession (or Worse): The U.S. likely falls into a “double-dip” recession in 2028 – a second contraction following the shallow 2026 recession, but this time deeper. GDP potentially falls by several percent, rivaling the severity of the 2008–09 downturn. The unemployment rate shoots past 10% for the first time since the early 1980s. The twin evils of high inflation and high unemployment – something economists call the Misery Index when added – hit their highest combined level in recent memory. To Americans, 2028 feels like a flashback to 1980 (when inflation was ~13% and unemployment ~7%) but possibly worse, as now unemployment is double-digit while inflation, though starting to ease under the Fed’s drastic action, is still painful. By late 2028, inflation does show signs of relenting (the Fed’s harsh medicine is starting to work), but it remains well above target (~6%). Businesses are failing at higher rates – small business bankruptcies spike as the one-two punch of rising costs and weakening demand proves fatal for many. Even some large corporations are not immune; heavily indebted companies in industries like retail, airlines, and energy struggle to refinance loans at the new higher rates and a few default or restructure.

Fiscal Emergency and Austerity Talks: The fiscal situation hits a breaking point in 2028. With the economy contracting and interest rates up, the federal deficit swells further (automatically via lower tax receipts and higher safety-net spending). By now, even basic interest costs on the debt have become a behemoth in the budget. In this scenario, 2028 could see net interest outlays approach $1.5 trillion, which might be about one-third of all federal revenues – an extraordinarily high proportion. For comparison, interest was only ~15% of revenues in 2019; even the CBO’s dire baseline had it rising to ~28% by 2055​ crfb.org, but here we are approaching those levels decades sooner. International creditors react: in mid-2028, a consortium of major foreign holders (including some combination of China, Japan, and Gulf states) privately pressures the U.S. Treasury and Federal Reserve to stabilize the dollar and commit to fiscal discipline, hinting that failure to do so will result in mass unloading of U.S. bonds. Faced with this implicit ultimatum and the domestic crisis, U.S. policymakers take a step previously unthinkable: serious discussions begin on a debt rescue package. This could take the form of an informal structural adjustment: dramatic spending cuts, potential tax increases, and perhaps even seeking help from the International Monetary Fund (IMF) or allies. (The irony is rich – only a few years prior, “Project 2025” advocated withdrawing from the IMF and World Bank​, but by 2028 the U.S. might need the IMF’s seal of approval to restore creditor confidence.) Congress, bitterly divided, is forced by necessity into considering austerity measures to reign in the deficit. The prospect of cutting Social Security or Medicare, or raising taxes amid a recession, is politically nightmarish – yet bond markets are signaling no alternative. The yield on 30-year Treasurys at one point in 2028 surges into double digits, reflecting fears of either default or runaway inflation in the long run.

One tangible fiscal step taken: the government passes a stopgap budget that includes an automatic spending sequester (cuts) if debt-to-GDP isn’t stabilized by 2030. This is meant to assure markets. However, those cuts (often falling on public investment, education, etc.) further dampen the economic outlook. By end of 2028, U.S. debt is roughly 130–135% of GDP (public debt) – far above the previous historic high of ~106% after WWII​. This figure would be even higher if not for inflation somewhat inflating away a portion of the debt’s real value. It’s a vicious cycle: high debt leads to higher borrowing costs, which leads to more debt. The U.S. is forced to contemplate painful adjustments that it had deferred for far too long.

Societal Strain and Political Upheaval: 2028 being an election year, the economic meltdown takes center stage in politics. The populace is angry and looking for change. We witness a political upheaval akin to 1932 (during the Great Depression) – voters gravitate either to radical alternatives or to whoever promises to “restore order” and stability. Mass protests become routine in Washington and other major cities. Unfortunately, some turn violent. The National Guard is deployed more than once to quell unrest related to unemployment and benefits cuts. The social safety net is stretched thin: homelessness and poverty climb sharply due to the economic contraction. Charitable organizations say the demand for food assistance in late 2028 rivals the worst of 2020, despite no pandemic this time – it’s purely economic hardship. Civil discourse deteriorates; scapegoating and conspiracy theories proliferate to explain the calamity (some blame immigrants, others blame Wall Street or specific politicians, etc.).

Many Americans begin to fundamentally question the nation’s direction and even its unity. The notion of a “national divorce” (splitting the country) that was fringe some years ago has gained a bit more traction (polls show perhaps 20% of Americans favor exploring a split between red and blue states in some form​, though no leader openly advocates this). While the union holds, the political center is collapsing – 2028’s election features perhaps the most polarizing choices in modern history. Internationally, rivals like China and Russia seize the propaganda opportunity: state media in those countries portray the U.S. as a failing state, and pitch their own governance models as more stable. By the end of 2028, the United States is still a wealthy country with immense resources and innovative capacity, but it is severely shaken – economically humbled, with its credibility and soft power greatly diminished. The critical question becomes whether it can pull out of this downward spiral in the coming years, or if worse outcomes (like an outright debt default or hyperinflation) might materialize.

2029: Acute Fiscal Crisis and Systemic Breakpoint

Climax of the Crisis: The year 2029 is marked by an acute fiscal and financial crisis for the United States – arguably the worst in living memory. After years of compounding policy errors and global shifts, multiple chickens come home to roost. Early 2029 sees the U.S. government hit a debt ceiling impasse once again (as the limit set a couple years prior is reached). This time, however, global investors are in no mood for political theater. The mere possibility that the U.S. might default on some obligations – even for a few days – triggers panic in financial markets. In February 2029, with Congress still gridlocked on raising the ceiling amid partisan recriminations, credit default swap (CDS) spreads on U.S. Treasurys (essentially insurance prices against a U.S. default) spike to record highs. Under intense pressure, Congress ultimately raises the ceiling at the 11th hour, but not before the damage is done: the U.S. credit rating is slashed again, this time by Moody’s (from Aaa to Aa), and some large global funds explicitly announce plans to reduce U.S. bond exposure due to “governance concerns.” The phrase “fiscal instability” – normally reserved for emerging markets – is now used in reference to the U.S.

At the same time, the Federal Reserve’s tightening (which resumed in 2028) finally crushes inflation by 2029. By mid-year, inflation has rapidly fallen – perhaps too rapidly – dropping below 3% as consumer demand collapses. However, what might seem like good news (taming inflation) comes at the cost of a depression-like economic state. Real GDP in 2029 contracts sharply again (for a second consecutive year), and unemployment surges toward post-WWII record levels, possibly in the 12–15% range at the peak. This economic contraction, combined with the government spending cuts from the 2028 austerity measures, leads to some improvement in the annual deficit – but not nearly enough to stabilize debt. In fact, debt-to-GDP rises further because GDP itself is shrinking. Federal revenue as a share of GDP, already low, plunges with the weak economy – it falls below 15% of GDP, crossing a dangerous threshold (for reference, the last time it was this low was 2009 in the Great Recession​ usgovernmentrevenue.com). With interest still eating up a huge chunk of those revenues, the U.S. is forced into extraordinary measures: the Treasury prioritizes interest and entitlement payments, temporarily delaying or suspending other obligations (e.g. federal salaries or contract payments) at times to conserve cash. In effect, a kind of “soft default” occurs on certain federal obligations, even if formal debt default is avoided – a historic first. The American public experiences this as delayed tax refunds, postponed government vendor payments, and the scaling-back of certain federal services.

Market and Banking Collapse: Financial markets, both in the U.S. and globally, react to these events with turmoil. The U.S. stock market, already down, falls further – possibly bottoming out at a loss of over 60% from its last peak, rivaling the 1929–32 drop in real terms. Investors flee equities for perceived safer assets, but where is safe? Typically, money would rush into U.S. Treasurys in a crisis (flight to safety), but this time U.S. Treasurys themselves are part of the crisis. Instead, capital flows into gold, European and Japanese bonds, and even cryptocurrencies as alternate havens. The U.S. dollar, after stabilizing a bit in late 2028 with the Fed’s aggressive hikes, now faces another challenge: as the Fed starts to signal it may have to ease later in 2029 (to address the economic free-fall), markets worry about renewed dollar weakness. The DXY index swings wildly – at one point in mid-2029, paradoxically, the DXY shoots above 110 (briefly strengthening as global risk-aversion causes a scramble for cash dollars), but later in the year as U.S. rates come down, the DXY falls back below 100. These volatile currency swings wreak havoc on international trade and balance sheets, prompting foreign policymakers to coordinate dollar-intervention to smooth it out.

The banking sector hits a systemic breaking point. The combination of spiking defaults (companies and individuals defaulting in the severe recession) and the mark-to-market losses on banks’ bond portfolios (as yields surged in 2028) leaves many banks insolvent. Several major U.S. banks – not just regionals – teeter on the brink. In this scenario, one of the top ten banks by assets could fail or require a government rescue, something unthinkable since 2008. The FDIC and Fed convene emergency weekend meetings to merge failing banks into healthier ones, backstop all deposits (well above the formal insurance limit), and effectively nationalize some bad assets. The financial crisis aspect of 2029 in this narrative rivals 2008 in intensity. Credit freezes up even for sound businesses; consumers can’t get loans easily; the economy’s plumbing is clogged by fear and uncertainty. The international financial system also feels the shock – U.S. debt and stocks were so central to global portfolios that their crash triggers worldwide losses. Some foreign banks with large U.S. exposure stumble as well. It’s a global crisis, with the U.S. at the epicenter.

Figure: Federal debt held by the public as a percentage of GDP, actual and projected under baseline vs. this stress scenario. The gray dashed line shows the official CBO baseline projection (assuming current policies), while the red line illustrates the medium-worst case scenario where debt accelerates sharply. Under the baseline, debt rises gradually to ~118% of GDP by 2035​. In the stressed scenario, debt soars past 130% by 2030 and approaches ~150% by 2035, far exceeding historical records. Such debt levels greatly increase the risk of a fiscal crisis​ crfb.org and pose severe challenges to future budgets. By 2029 in this scenario, the U.S. is effectively in a debt trap – interest payments themselves drive much of the deficit growth.

Turning Point – Policy Reset: Late 2029 brings the realization at the highest levels that drastic reform is the only path forward. The newly elected government (from the 2028 election) takes office in January 2029 and, amid the chaos, is compelled to undertake a series of emergency measures. In a bipartisan deal (out of pure necessity), they enact a comprehensive stabilization program: some tax increases (perhaps a temporary surtax on high incomes or a wealth tax), major spending reforms (though politically sensitive, steps are taken to slow the growth of Social Security and Medicare costs, along with cuts to defense and other discretionary spending), and debt management operations (such as swapping out short-term debt for longer-term bonds to reduce rollover risk, potentially with the Fed’s help in the form of quantitative easing once inflation is under control). By the end of 2029, these measures, combined with the economy’s severe contraction (which perversely reduced imports and improved the trade balance), start to stabilize the fiscal outlook. The Federal Reserve, having regained some autonomy with a new administration less hostile to it, works in tandem – it provides liquidity to calm the banking crisis and signals it will act as needed to cap Treasury yields if panic selling resumes. Essentially, the Fed becomes a buyer of last resort for Treasurys in late 2029, reintroducing quantitative easing on a large scale. This helps put a ceiling on borrowing costs and brings some calm to bond markets.

Inflation is no longer the top concern – by the end of 2029, inflation has potentially fallen to near 0%, or even slight deflation, given the depth of demand destruction. Thus, the Fed has room to be very accommodative without stoking prices. These coordinated actions – fiscal austerity plus monetary support – mark a reset of U.S. economic policy. They are painful, yes, but finally create conditions for recovery. Think of it as the U.S. hitting rock bottom and at last enacting the tough love medicine that had been delayed. The question is whether the patient can recover after so much damage.

Social Landscape: The American populace in 2029 is exhausted and wary. The hardships of this year surpass anything experienced since the 1930s. Unemployment and homelessness are visible in most communities; the social safety net, while still functioning, is stretched to limits with record numbers on food assistance and emergency aid. However, there is a glimmer of unity emerging from shared adversity. Much like the Great Depression forged a sense of collective purpose (leading to the New Deal consensus), the 2029 crisis, in this narrative, forces Americans to reckon with systemic issues. Grassroots movements call for campaign finance reforms, anti-corruption measures, and policies to reduce inequality once the crisis abates. It’s as if the near-collapse has shocked the system into recognizing that business as usual cannot continue. Whether this public sentiment leads to constructive change or further discord in the 2030s remains to be seen, but the events of 2029 leave an indelible mark on a whole generation.

Preparing for the Road Ahead: Advice for American and Canadian Households

NOT PROFESSIONAL FINACIAL ADVICE

Given the economic outlook and risks we’ve detailed, it’s wise for individuals and families to take steps to build financial resilience and be ready for a range of eventualities. Here we provide a strategic advisory for households in the United States – much of which also applies to Canadian households, who face similar dynamics as an interconnected economy.

1. Shore Up Emergency Savings: One of the most important buffers is having sufficient liquid savings to cover 3–6 months (or more) of living expenses. In uncertain times, this cushion can carry you through job loss, an illness, or other shocks without falling into debt. During the pandemic, households with savings fared far better. Looking ahead, if a recession hits or inflation spikes, having cash reserves means you’re not forced to sell investments at a bad time or rely on high-interest credit. Canadians should similarly prioritize saving, especially as many will see higher mortgage payments – an emergency fund can help cover those if income fluctuates. Consider holding part of your savings in inflation-protected or stable instruments (for Americans, inflation-indexed I-Bonds or TIPS are good for preserving purchasing power Net Interest Will Total $10.5 Trillion Over the Next Decade-2023-02-24); Canadians have Real Return Bonds and high-interest savings accounts).

2. Manage and Reduce High-Interest Debt: With interest rates up, carrying balances on high-interest debt (like credit cards, which often charge 15–20%+) is especially costly. Prioritize paying down these debts. It will free up your cash flow and reduce vulnerability to further rate hikes. If possible, refinance variable-rate loans into fixed rates to lock in current rates – the Fed’s future path is uncertain (baseline expects moderate rates, but worst case could see even higher rates). For example, if you have an adjustable-rate mortgage set to reset soon (common in Canada), plan for higher payments and see if you can renew early or negotiate a fixed rate. According to TransUnion Canada, 74% of Canadian household debt is mortgage debt (Q2 2024 Credit Industry Insights - TransUnion Canada) and a large chunk will reprice by 2025 – start budgeting for that increase now. In the U.S., most mortgages are fixed 30-year, so focus on other variable debts (like home equity lines or student loans if rates vary). Reducing debt also improves your credit score, which can help if you need to borrow in the future.

3. Rebalance and Diversify Investments: Review your investment portfolio with an eye toward diversification and risk tolerance. The last few years have been volatile for stocks and bonds. Ensure you are not over-concentrated in one asset class or sector. A diversified portfolio (mix of stocks, bonds, possibly real assets like real estate or commodities) helps weather different scenarios. For instance, in a high-inflation scenario, inflation-protected bonds, commodities, and perhaps real estate tend to perform better, whereas in a recession/deflation scenario, high-quality bonds and defensive stocks do better. Consider gradually rebalancing to include some inflation hedges like commodities or gold as a small portion – gold often gains when confidence in fiat currencies declines, and it has recently been a preferred reserve asset for central banks. Ensure your stock holdings are not just U.S. but also global if possible – non-U.S. markets could outperform if the dollar weakens (e.g. emerging markets might benefit from stronger local currencies). Canadians should also diversify globally, not just in Canadian equities, because Canada’s market is heavy in finance and resource sectors. If a global crisis hits the U.S. hardest, other regions might relatively outperform (though in a global crisis, all risk assets fall, which is why safe bonds or cash are needed too).

4. Protect Against Inflation:

• Invest in Real Assets: Besides traditional investments, think about real assets that maintain value if prices rise. Real estate is one (though be cautious with new leverage given high rates). Owning your home can be a hedge – you lock in housing costs (mortgage fixed) while the property value and rents typically rise with inflation. However, don’t overstretch to buy if you can’t afford the higher rates now – renting and saving might be better short-term in high-cost markets. Another angle is investing in businesses or equities that have pricing power (companies that can raise prices with inflation).

• Long-term Fixed Rates: If you have the opportunity to lock in a fixed interest rate on a major loan (mortgage, student loan) at a reasonable rate, doing so insulates you from inflation. You’ll pay back in future dollars that might be “cheaper.” For example, those who locked 30-year mortgages at 3% in 2021 have an asset now – their cost of housing is fixed even as inflation runs higher. Even now, if you can secure a fixed rate, it may be beneficial if inflation doesn’t fully revert to 2%.

• Adjust budgets for higher costs: Plan that essential costs (food, utilities, etc.) may continue to rise. Look for ways to increase energy efficiency (lowering heating bills) or substitute cheaper alternatives in your household spending. Essentially, be proactive in finding savings to offset any future price increases. Also, consider that certain insured costs (like health insurance premiums, in the U.S.) often go up yearly – allocate more for that.

5. Prepare for Career and Labor Market Changes: The job market might shift with economic conditions. In a robust scenario, there will be opportunities; in a downturn, competition may increase. Invest in your skills and education. Enhancing your qualifications or learning new in-demand skills (like digital skills, AI, green tech) can increase job security and potential earnings. If you’re in a vulnerable industry (say one that might be hit by tariffs or spending cuts), consider upskilling or pivoting before a downturn hits. Networking and maintaining a strong professional network can also help – sometimes jobs during tough times come via connections. For younger workers, be open to geographic mobility – some regions (or countries) might fare better economically; being willing to move can open opportunities (e.g. if certain states/provinces benefit from reshoring manufacturing or energy booms). Canadians might consider opportunities in the U.S. and vice versa if immigration/work visas allow, given the integrated labor market for certain sectors under USMCA. Diversifying your income sources can help too: for example, a side business or freelance work can provide additional income and resilience if your main job is at risk.

6. Stay Informed and Politically Engaged: Economic policies will have a big impact on personal finances in the coming years. Stay informed about fiscal and monetary policy shifts – for instance, if it looks likely that tax laws will change (like 2025 cuts expiring or new taxes introduced), plan ahead for how it affects you (maybe accelerating income or deductions into certain years, etc.). Understanding the implications of policy proposals (like Project 2025’s tax changes) can help you advocate for your interests. Engage with your representatives – let them know that you care about sustainable fiscal policies that avoid burdening future generations, but also about maintaining social safety nets. An informed electorate can push policymakers toward balanced solutions (e.g. pressure to responsibly raise the debt ceiling without risking default, and to tackle deficits through fair measures). By voting and civic engagement, households can indirectly influence which scenario becomes reality. For example, public support for anti-inflationary policies in the late 1970s gave political cover for tough Fed actions that eventually broke inflation – citizen voices matter.

7. Plan for Social Support and Community Resilience: In worst-case economic situations, social cohesion and local community support become very important. Build and maintain strong community ties – know your neighbors, consider joining community groups or mutual aid networks. In a severe downturn, communities that share resources and information fare better. For instance, local exchange of goods/services can help if formal markets have issues (some communities use time-banking or local currencies in tough times). At a family level, discuss plans: extended families might consider pooling resources or living arrangements if things get tight. This was common in past eras of hardship and can alleviate costs (multigenerational households, etc.). Also, support and use public goods that exist – libraries (for resources and internet if you need to cut expenses), public transport (cheaper than driving if fuel prices spike), community health clinics, etc. Canadians generally have strong social safety nets (healthcare, etc.), which is a relief in crises. Americans should be aware of what support programs exist (unemployment insurance, SNAP, Medicaid) and not hesitate to use them if needed – they are there to cushion downturns.

8. Protect Retirement and Long-Term Plans: If you’re nearing retirement or retired, consider inflation and market risk in your withdrawal strategy. You may need to adjust the classic 4% withdrawal rule if portfolios shrink or inflation is high. TIPS and annuities (especially inflation-indexed annuities if available) can provide stable real income. Diversify retirement accounts; for younger folks, continue contributing regularly (dollar-cost averaging) – market volatility can be an opportunity when you have decades to invest. For Canadians, ensure you’re making use of TFSAs and RRSPs (tax-advantaged accounts) to buffer against tax changes and accumulate savings. If the government at some point needs more revenue, tax rates might go up on investment income – using tax-sheltered accounts fully each year is prudent.

9. Consider Hard Assets for Worst-Case Scenarios: While we are not advocating doomsday prepping, a small allocation to tangible hard assets can be insurance. This includes holding some physical cash (in case of short-term power grid issues or bank freezes – rare but we saw brief ATM runs in some countries during crises), some holdings in precious metals like silver or gold (they can be sold for cash if needed and keep value if currency is compromised), and perhaps ensuring you have essential supplies (food, medicine, etc.) for a few weeks. These are basic preparedness steps recommended by emergency agencies as well, for scenarios ranging from natural disasters to financial system outages. It’s not about expecting apocalypse; it’s about low-probability high-impact readiness. Canadians in winter, for example, should always have emergency heating plans if energy infrastructure has issues (not directly economic, but related). Financially, having a portion of assets outside the digital banking system (like physical gold or even cryptocurrency in a secure wallet, if you’re knowledgeable and cautious with it) might provide flexibility in extreme events – but be very aware of crypto risks (as seen by huge volatility and platform failures).

10. Strengthen Social Safety Nets for Community (Advice by extension for policy-minded readers and communities): Advocate for and support policies that fortify social safety nets before a crisis hits. It’s easier to put buffers in place in good times. For instance, support adequate funding of unemployment insurance, food assistance programs, and health insurance coverage. Both Americans and Canadians benefit when these nets catch people during downturns – it not only helps those individuals but also stabilizes the economy (since those people can continue spending on basics, softening recessions). If you’re an employer or in a position to influence one, consider how you can contribute to financial wellness of employees (like retirement plans, emergency loan funds, etc.) – it will pay off in loyalty and productivity, and it’s the right thing to do heading into uncertain times.

In essence, households should aim to be financially agile and resilient. That means reducing vulnerabilities (high debt, lack of savings), ensuring some growth potential (investments, skills), and having contingency plans. Plan for inflation (don’t assume the past decade’s low inflation will be the norm), plan for possibly higher taxes (especially if you’re in a high bracket, governments may look there first for revenue), and plan for market swings (don’t panic-sell in a downturn, but do have a rebalancing strategy).

Canadians have the additional consideration of currency fluctuation: a weak U.S. scenario might weaken the USD vs CAD, which could actually lower import costs for Canada and perhaps export competitiveness suffers – or vice versa in other scenarios. If you spend or invest across the border, be mindful of exchange rate risk (e.g. maybe hold some assets in the other currency to naturally hedge – Canadians with US investments, Americans with perhaps some international funds).

Finally, maintain a long-term perspective and adaptability. The next decade will likely bring change – possibly the kinds of structural shifts (in energy, technology, geopolitics) that only happen once in a generation. Those who adapt – by learning, by staying financially prudent, and by engaging with their communities – will fare best. Humans are remarkably resilient; the U.S. and Canada have been through world wars, depressions, stagflation before, and emerged with renewed growth. By taking prudent steps now, households can “hope for the best, but prepare for the worst.” That old adage is perhaps the simplest summary of how to approach the 2025–2035 outlook.

---

Sources:

1. Congressional Budget Office (CBO), Budget and Economic Outlook: 2025 to 2035, January 2025 – Projected federal debt to reach 118% of GDP by 2035 (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17) (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17); interest costs rising to 4.1% of GDP by 2035 (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17); revenue and spending projections (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17).

2. Committee for a Responsible Federal Budget (CRFB), CBO Releases January 2025 Outlook, Jan 17, 2025 – Debt held by the public at ~98% of GDP in 2025 rising to 118% by 2035 (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17) (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17); interest to hit record 3.2% GDP by 2025 (CBO Releases January 2025 Budget and Economic Outlook -2025-01-17).

3. CRFB, Net Interest Will Total $10.5 Trillion Over the Next Decade, Feb 24, 2023 – Interest outlays triple by 2033, reaching 3.6% of GDP (Net Interest Will Total $10.5 Trillion Over the Next Decade-2023-02-24); by 2053 interest could consume nearly 40% of revenues (Net Interest Will Total $10.5 Trillion Over the Next Decade-2023-02-24) (Net Interest Will Total $10.5 Trillion Over the Next Decade-2023-02-24); interest to exceed defense by 2028 (Net Interest Will Total $10.5 Trillion Over the Next Decade-2023-02-24) (Net Interest Will Total $10.5 Trillion Over the Next Decade-2023-02-24).

4. U.S. Census Bureau, Income in the United States: 2022, Sept 12, 2023 – Real median household income was $74,580 in 2022, down 2.3% from 2021 (Income in the United States: 2022); highlights on income decline and distribution (Income in the United States: 2022).

5. Joint Economic Committee (Democrats), How Project 2025’s Economic Policies Hurt Families, Aug 1, 2024 – Analysis of Project 2025 tax proposals: two-bracket tax system (15% and 30%) would raise taxes on many middle-class families while cutting them for high earners (How Project 2025’s Economic Policies Hurt Families - How Project 2025’s Economic Policies Hurt Families - United States Joint Economic Committee) (How Project 2025’s Economic Policies Hurt Families - How Project 2025’s Economic Policies Hurt Families - United States Joint Economic Committee); elimination of credits like CTC/EITC could cost families thousands (How Project 2025’s Economic Policies Hurt Families - How Project 2025’s Economic Policies Hurt Families - United States Joint Economic Committee) (How Project 2025’s Economic Policies Hurt Families - How Project 2025’s Economic Policies Hurt Families - United States Joint Economic Committee); corporate tax cut to 18% adds to deficits (How Project 2025’s Economic Policies Hurt Families - How Project 2025’s Economic Policies Hurt Families - United States Joint Economic Committee).

6. Nomura Research, Trump’s Populist Policies and the Triffin Dilemma, Feb 2023 – Discusses modern Triffin dilemma: global demand for USD vs maintaining USD’s safety (Trump’s populist policies and the Triffin dilemma | Nomura Connects) (Trump’s populist policies and the Triffin dilemma | Nomura Connects); warns that higher inflation and deficits (from populist policies) could erode trust in USD assets, leading foreigners to demand higher yields (Trump’s populist policies and the Triffin dilemma | Nomura Connects) (Trump’s populist policies and the Triffin dilemma | Nomura Connects); notes USD still ~58% of global FX reserves (Trump’s populist policies and the Triffin dilemma | Nomura Connects) (Trump’s populist policies and the Triffin dilemma | Nomura Connects).

7. Goldman Sachs Research, Supply Chains and US Inflation: Short-Term Gains, Long-Term Pains?, Nov 2023 – Finds that supply chain normalization is easing inflation, but reshoring poses a risk of higher prices if it intensifies (Supply Chains and US Inflation: Short-Term Gains, Long-Term Pains? | Goldman Sachs) (Supply Chains and US Inflation: Short-Term Gains, Long-Term Pains? | Goldman Sachs); notes no meaningful aggregate reshoring yet (imports still outpacing domestic production) (Supply Chains and US Inflation: Short-Term Gains, Long-Term Pains? | Goldman Sachs) (Supply Chains and US Inflation: Short-Term Gains, Long-Term Pains? | Goldman Sachs); advanced semiconductor production ~44% more expensive in US, though small impact on consumer prices (Supply Chains and US Inflation: Short-Term Gains, Long-Term Pains? | Goldman Sachs) (Supply Chains and US Inflation: Short-Term Gains, Long-Term Pains? | Goldman Sachs).

8. Bureau of Economic Analysis (BEA), 2022 Trade Gap is $945.3 Billion, April 2023 – U.S. trade deficit in goods and services hit $945.3B in 2022, up from $845B in 2021 (2022 Trade Gap is $945.3 Billion - Bureau of Economic Analysis) (2022 Trade Gap is $945.3 Billion - Bureau of Economic Analysis); record goods deficit around $1.19T (per Morningstar/MarketWatch) (U.S. trade deficit in goods hits record high just before Trump took ...).

9. Fitch Ratings, Fitch Downgrades US Rating to AA+, Aug 1, 2023 (via House Budget Committee summary) – Cites expected fiscal deterioration: interest-to-revenue for AAA peers ~1%, US projected ~10%+ by late 2020s (U.S. Debt Credit Rating Downgraded, Only Second Time In Nation's ...); notes debt-to-GDP high and governance issues.

10. International Monetary Fund (IMF), The Fiscal and Financial Risks of a High-Debt, Slow-Growth World, IMF Blog by T. Adrian, V. Gaspar, P.O. Gourinchas, Mar 28, 2024 – Warns that higher real interest rates and lower growth will pressure debt sustainability (The Fiscal and Financial Risks of a High-Debt, Slow-Growth World) (The Fiscal and Financial Risks of a High-Debt, Slow-Growth World); urges credible fiscal action to stabilize debt (The Fiscal and Financial Risks of a High-Debt, Slow-Growth World) (The Fiscal and Financial Risks of a High-Debt, Slow-Growth World); notes without primary balance improvements, debt will keep rising and could strain financial stability especially in vulnerable countries (The Fiscal and Financial Risks of a High-Debt, Slow-Growth World) (The Fiscal and Financial Risks of a High-Debt, Slow-Growth World); recommends stress-testing banks for higher rates and improving market liquidity to preserve stability (The Fiscal and Financial Risks of a High-Debt, Slow-Growth World).

11. U.S. Bureau of Labor Statistics & Federal Reserve data – CPI inflation peaked at 9.1% June 2022 and eased to ~3.7% Sep 2023 (Supply Chains and US Inflation: Short-Term Gains, Long-Term Pains? | Goldman Sachs); wage growth ~5% in 2023 vs inflation ~4%, yielding slight real gains (derived from BLS reports). Unemployment at 3.8% (Sep 2023) near historic lows.

12. TransUnion Canada, Q2 2024 Credit Industry Insights – Notes Canadian household debt a record $2.41T, 74% mortgages (Q2 2024 Credit Industry Insights - TransUnion Canada) (Q2 2024 Credit Industry Insights - TransUnion Canada); many mortgages face rate reset in 2024–25 (45% of accounts) (Disparities in Wealth and Debt Among Canadian Households) (Disparities in Wealth and Debt Among Canadian Households). Indicates Canadian households are highly leveraged, making them sensitive to rate increases – a vulnerability as BoC keeps rates high.

13. Referenced Source extended list:

    Congressional Budget Office (CBO) - Budget and Economic Outlook ReportsU.S. Bureau of Economic Analysis (BEA) - National Income and Product Accounts (NIPA)U.S. Department of the Treasury - Monthly Statement of the Public DebtFederal Reserve Bank of New York - Household Debt and Credit ReportsFederal Reserve Board - Financial Accounts of the United StatesFederal Reserve Bank of Atlanta - GDPNow ForecastU.S. Office of Management and Budget (OMB) - Historical TablesU.S. Census Bureau - Income and Poverty ReportsSocial Security Administration - Trustees ReportsCenters for Medicare & Medicaid Services (CMS) - National Health Expenditure DataBureau of Labor Statistics (BLS) - Employment and Job Loss ReportsTax Foundation - Federal and State Tax Burden DataPeter G. Peterson Foundation - U.S. Debt and Fiscal ProjectionsCommittee for a Responsible Federal Budget (CRFB) - Debt and Deficit AnalysesKaiser Family Foundation (KFF) - Health Expenditure and Insurance Coverage DataAmerican Immigration Council - Undocumented Immigrant Tax ContributionsInstitute on Taxation and Economic Policy (ITEP) - Immigrant Fiscal Impact ReportsBrookings Institution - Economic and Fiscal Policy AnalysisUrban Institute - State-by-State Federal Funding DistributionsU.S. Customs and Border Protection (CBP) - Immigration Enforcement StatisticsU.S. Congressional Research Service (CRS) - Reports on U.S. Economic and Fiscal IssuesFitch Ratings - U.S. Credit Rating ReportsMoody’s Investors Service - Sovereign Credit Rating AnalysesStandard & Poor’s (S&P Global) - U.S. and Global Credit RatingsInternational Monetary Fund (IMF) - World Economic Outlook and Fiscal MonitorWorld Bank - Global Economic Prospects and Country DataOrganisation for Economic Co-operation and Development (OECD) - Economic SurveysStock market indices data: S&P 500, Dow Jones, NASDAQ, MSCI World IndexWall Street Journal - U.S. Economic Policy and Market Impact CoverageFinancial Times - Global Market Trends and Trade AnalysisThe Guardian - U.S. Economic and Immigration Policy ReportingU.S. Department of Commerce - Import/Export StatisticsU.S. Department of Defense (DoD) - Annual Budget and ExpendituresStatista - U.S. Military Industrial Complex Valuations and Multiplier EstimatesTrading Economics - Real-time Economic IndicatorsReuters - Reporting on Federal Reserve and Treasury Market Trends

2000 2025 Economic Dataset

43.9KB ∙ XLSX file

Download

Download

Three Projected Senarios

7.38KB ∙ XLSX file

Download

Download

High Risk Senario

6.22KB ∙ XLSX file

Download

Download