The US Economy in 2025: Recession or New Normal?

The Great Depression: A line of men waiting for bread George Segal ( The details of the sculpture created by George Segal depict unemployed men waiting in line for bread during the Great Depression; part of the Franklin Delano Roosevelt Memorial in Washington, D.C.

The U.S. economy in 2025 stands at a troubling crossroads. Household debt has surpassed $18.04 trillion, public debt has climbed to $34 trillion, wealth inequality has reached new heights, speculative market bubbles are inflating, regional banks are failing one after another, and political gridlock has weakened our ability to respond. These phenomena inevitably evoke memories of the economic prosperity before the Great Depression of 1929, a financial disaster that devastated countless families and exposed the vulnerabilities of debt-driven growth. Today, history seems to whisper, warning us that the same mistakes may be repeating. The question is: will another Great Depression occur? If a crisis strikes, will it be worse than before? By comparing the economic characteristics of the 1920s with those of 2025, along with the latest data and analysis, we can gain a clearer understanding of the current risks and opportunities.

Let us first return to the 1920s, an era known as the "Roaring Twenties." The United States emerged from World War I unscathed, with the economy thriving due to post-war consumer booms, new technologies, and credit expansion. Installment payment cards issued by stores allowed consumers to "buy now, pay later," with 75% of furniture and 60% of cars purchased through credit, making debt the fuel for economic growth. The stock market surged nearly 500% in five years, with investors speculating with leverage as high as 90%, chasing seemingly endless profits. However, this prosperity masked deep fractures. The top 0.1% of income earners held nearly 25% of pre-tax income, and wealth concentration left the lower classes with no cushion against economic fluctuations. Unregulated financial markets allowed speculation to run rampant, and the banking system was weak. On October 28 and 29, 1929, the stock market plummeted by 13% and 12% respectively, with half of its market value evaporating in a month. 9,000 banks failed, erasing nearly 1% of the total economy, and the unemployment rate soared to 25%, with industrial output falling by nearly 50%. The government's response only worsened the situation: protectionist tariffs, high interest rates, and a lack of global coordination pushed the crisis to the brink. The lessons of the Great Depression are clear and brutal: the combination of debt, inequality, and policy mistakes was enough to destroy an apparently invincible economy.

The U.S. economy in 2025 shows astonishingly similar characteristics, but also significant differences. Firstly, the debt issue has become a core hidden danger. According to the fourth quarter data from the Federal Reserve Bank of New York in 2024, the total household debt in the U.S. reached $18.04 trillion, an increase of over 80% since 2003, exceeding China's GDP scale. Credit card debt has hit a historic high of $1.2 trillion, and student loans have reached $1.8 trillion, with buy-now-pay-later schemes becoming a new tool for many families to cope with daily expenses. This surge in debt is reminiscent of the 1920s when consumers similarly relied on credit to satisfy their consumption desires. However, today's debt structure is more complex, covering multiple areas such as credit cards, student loans, and auto loans. More worryingly, wage growth has lagged far behind inflation. According to data from the Bureau of Labor Statistics, the inflation-adjusted real wage in 2025 is only on par with that of 1978, while the cost of living, especially education and housing, has skyrocketed. College tuition has increased by 1,200% since 1980, forcing families to borrow in pursuit of the "American Dream." The credit card delinquency rate has reached a 12-year high, with 40% of short-term loan borrowers missing payments in the past year, indicating that financial pressure on households is accumulating.

At the same time, the cracks of wealth inequality are widening. By 2025, the income of the richest 1% is 139 times that of the bottom 20%, a gap that far exceeds the 25% of the 1920s. This inequality not only undermines the consumption base but also fuels speculative frenzies. AI stocks, cryptocurrencies, and meme-driven IPOs have become market hotspots, similar to the leveraged speculation of the 1920s. The stock market has set records for five consecutive years, with 60% of Americans investing through 401)k(, index funds, etc., and market corrections will directly impact the retirement savings and pensions of the middle class. Although the leverage in modern markets is lower than in 1929 (margin debt as a percentage of GDP is 0.5% vs. 10%), the interconnectedness of global finance means that risks spread more rapidly. For example, a burst of an AI or cryptocurrency bubble could quickly ripple through global markets, triggering a chain reaction.

The vulnerability of the financial system is equally concerning. From 2023 to early 2025, eight regional banks, including Silicon Valley Bank, collapsed, highlighting the pressures on small and medium-sized banks. In 2025, nearly $1 trillion in commercial mortgages will mature, and high interest rates (with the federal funds rate maintained at 4.25%-4.5%) make refinancing difficult. In contrast to the 9,000 bank failures in 1929, modern banks are protected by the Dodd-Frank Act and the Federal Deposit Insurance Corporation (FDIC), resulting in lower systemic run risks. However, potential defaults in commercial real estate could weigh down small and medium-sized banks, further undermining market confidence. Additionally, federal debt has reached $34 trillion, with annual interest payments nearing $1 trillion, equivalent to the market value of 11 Teslas. In October 2025, Congress passed a temporary bill to raise the debt ceiling by $480 billion, but it will face default risks again in December. This scale of debt limits fiscal response space, making the economy more susceptible to external shocks.

The inefficiency of the policy environment has exacerbated risks. In the 1920s, protectionist tariffs and high interest rates pushed the crisis from the United States to the global stage. In 2025, the United States imposed "reciprocal tariffs" of up to 145% on major trading partners, driving up consumer goods prices and triggering "stagflation-like shocks." The Federal Reserve faces a dilemma: maintaining high interest rates could trigger a recession, while lowering rates might reignite inflation. Political gridlock further weakens the ability to respond, with only 1% of proposals in the 118th Congress becoming law, well below the historical average. In contrast, the New Deal of the 1930s reshaped the economy through infrastructure construction, banking reforms, and employment programs, while today’s policymakers seem trapped in endless partisan battles, struggling to launch reforms of a similar scale.

Nevertheless, the economy in 2025 is not without buffers. The safety nets and tools of the modern economy far exceed those of the 1920s. The FDIC secures deposits, unemployment benefits and stimulus programs reduce the risk of mass unemployment, and the Federal Reserve's quantitative easing and interest rate adjustments proved effective during the crises of 2008 and 2020. Furthermore, the diversification of the U.S. economy (the service and technology sectors account for a much higher share of GDP compared to the manufacturing sector in 1929) provides additional resilience. While the global financial and trade networks have accelerated the spread of risks, they also enable international coordination (such as the G20 mechanism). These factors make a Great Depression-level crisis (25% unemployment rate, 50% industrial output decline) less likely to occur. However, the Leading Economic Index (LEI) from the Conference Board fell by 4% year-on-year in June 2025, hitting an 11-year low, and has sent recession signals for three consecutive months. Low consumer confidence, weak manufacturing orders, and rising unemployment benefit claims indicate that the economy may be sliding into recession.

So, if a crisis occurs, will it be worse than the Great Depression? The answer depends on the perspective. From certain aspects, the modern crisis may be more destructive. First, the globalized financial and trade networks mean that a crisis in the U.S. will quickly ripple across the globe. In 1929, the gold standard and trade agreements interconnected economies, but not nearly as tightly as today's supply chains and investment flows. A collapse in the U.S. market could disrupt global production, drive up inflation, and hit emerging markets hard. Second, debt levels far exceed those of the 1920s. Public debt accounts for 130% of GDP, corporate debt is used for stock buybacks rather than productive investments, and household debt crowds out consumption capacity. These high leverage levels limit fiscal and monetary policy space, and interest expenses have already crowded out budgets. Third, social divisions and a crisis of trust in institutions may hinder collective action similar to the New Deal. Political polarization and social media's amplification of distrust may lead the public to lose confidence in the economy, government, and even in each other.

However, from another perspective, modern crises may be milder. The speed of market adjustments has increased, and real-time trading and information flow have shortened the impact cycle. The experiences of 2008 and 2020 have made governments and central banks more adept at responding to short-term crises. Economic diversification and a service-dominated sector have mitigated the impact of manufacturing collapses. In addition, global coordination mechanisms (such as the International Monetary Fund and G20) can provide support during crises. Overall, a severe recession may lead to wealth losses, rising unemployment, and shaken confidence, but it is unlikely to reach the depth and duration of the Great Depression.

How can we avoid a repeat of the crisis? In the short term, the government should alleviate the pressure on households and small and medium-sized enterprises through debt restructuring or low-interest loans. The Federal Reserve needs to carefully balance interest rates, prioritize controlling inflation, and avoid excessive tightening. Strengthening regulation of speculative investments and regional banks can help prevent systemic risks. In the long term, structural reforms are crucial. A progressive tax system and investment in education can reduce inequality and enhance the purchasing power of low- and middle-income groups. Encouraging companies to invest in infrastructure and innovation rather than stock buybacks can help restore productive growth. International cooperation should replace protectionism to stabilize global supply chains. Ordinary households also need to take action: reduce unnecessary debt and increase savings to cope with potential shocks; investors should be wary of speculative bubbles and diversify their portfolios; the public should pay attention to policy debates and advocate for long-term stability rather than short-term stimulus.

The U.S. economy in 2025 is sending warning signals: a combination of debt, inequality, speculation, and policy gridlock is astonishingly similar to the 1920s. History does not repeat itself simply, but its lessons are clear and urgent. The Great Depression was not inevitable, but rather a result of ignoring risks. Today, we have more tools and experience, but also face a more complex global environment. If we continue to ignore issues and delay reforms, a "hard reset" could destroy savings, jobs, and trust. However, through proactive reforms, prudent policies, and global cooperation, the U.S. still has the opportunity to avert a crisis and reshape a path to sustainable growth. The whispers of history remind us: now is the time for action.