[From a vivid post by Ian Welsh on the elite-disconnect problem.]
' [F]or the people in charge, the last thirty years have been absolutely wonderful. Seriously, things haven’t been this good since the 1890’s and the 1920’s. Everyone they know–their families, their mistresses and toyboys, their friends–is doing well. Wall Street paid even larger bonuses for 2007, the year they ran the ship into the shore, than they did in 2006 when their bonuses equalled the raises of 80 million Americans. Multiple CEOs walked away from companies they had bankrupted with golden parachutes in excess of 50 million. And if you can find a senator who isn’t a millionaire, (except maybe Bernie Sanders) you let me know.
Life has been great. The fact that America is physically unhealthy, falling behind technologically, hemorrhaging good jobs, and that ordinary Americans are in debt up to their eyebrows, haven’t seen a raise in 30 years, and live in mortal fear of getting ill–because even if they have insurance, it doesn’t cover the necessary care–means nothing to the decision-making part of America because it hasn’t experienced it. America’s elites are doing fine, thanks. All they can taste or remember is the caviar and champagne they swill to celebrate how wonderful they are and how much they deserve all the money federal policy has given them.
This is the second insanity of the US: The decision making apparatus in the US is disconnected from the results of their decisions.
. . .
This is the fundamental disconnect in the West: the people who are making the decisions do well no matter how much ordinary people are hurt; no matter how much they weaken their own countries. In fact, it’s worse than that: the worse their countries and citizens are doing, the better they do.
Every disaster is used to allow more looting. Are there oil shortages? Raise prices even more than costs? Food? Same thing. Are some companies going bankrupt? Buying opportunity! Are citizens desperate? Great, they’ll work for less.
Life is good for our elites and the more they destroy our countries, the better life is for them.
Of course they don’t care that Trump is driving America and the West into the dirt? Why should they?
So sorry about high gas prices, high food prices, high health care costs and no future for you or your children. None of that matters. Trump’s getting rich being President and so are American elites and in the eternal honest words of George W. Bush “who cares what you think?” '
The key point is that U.S. market highs no longer describe the same economy experienced by most households.
The stock market can keep rising because the wealth effect is highly concentrated. The top 10% owns roughly 67% of household net worth, while the top 1% owns more wealth than the bottom 50% by roughly a factor of twelve. When equities and high-end housing rise, the balance sheets of asset-rich households expand quickly. But that does not mean the median household feels richer.
The lower part of the distribution is living in a very different economy. The aggregate saving rate is around 4.0%, but that average hides a huge split: the top 10% is still saving around 18% of income, while the bottom 60% is saving roughly 1.2%. The top 20% still has positive excess savings; the bottom 80% is already below its pre-pandemic savings trajectory. At the same time, effective inflation for the bottom 20% is much higher than for the top 20%, because food, shelter, and energy take up a much larger share of their budgets.
That is why consumer confidence can keep falling even when stocks are near record highs. For asset holders, rising markets create a cushion. For lower-income households, higher prices, higher debt service, credit-card rates above 20%, rising delinquencies, and auto repossessions near post-GFC levels are the actual economy.
So the contradiction is only apparent. The U.S. is not experiencing one unified consumer economy. It is experiencing a balance-sheet economy for the top and a cash-flow economy for the bottom. The stock market is measuring the first. Consumer confidence is measuring the second.
What can you say to all this. It’s technology , it’s economics and put simply none of adds up and the politics and belief system behind it is mired in the most destructive corruption of the public good in 70 years. It’s not going to end well that’s for sure. Could the US implode like the Soviet Union did? Now there’s a thought.
For centuries, the trope for leadership ignoring the realities of life has been Nero "fiddling" while Rome was burning. Decades from now, the trope will be changed to a president designing triumphal arches and grand ballrooms, all the while claiming that everything is good, that we are winning our wars, and that the economy is the best it has ever been. At the same time, the "little guys" experience the high cost of fuels, inflation in the grocery store, reductions in healthcare benefits for society at large, a disemboweled public health infrastructure that ignores a hantavirus outbreak, and poor job prospects for new grads of colleges and universities.
Oil markets settled pretty quickly after SMO in 2022, I don't see a reason why they won't again this time. Nor does the market - WTI for April 2027 delivery has crept up to $74 and no more.
Gas markets didn't then and same problems apply.
There is a lot of cognitive dissonance out there - not just in the Economics.
There is the K curve.
The US military weakness vs their apparent aggression and US taking on a country without A bombs or H bonbs to prove how macho it is after backing down against Russia and China (but still losing)
There is the Star Wars narrative after decades of Star Trek - the Good Policeman is now the Dark evil empire which has a small stick but screams.
But at least no one talks about Democratic values while conducting blatant Regime changes any more.
Thankyou Adam for your insightful analysis, as always. Now that the US war has effectively met it's preliminary goals in the Middle East, we are beginning to seeing the banking class' pursue their primary goal in starting the war. This is the economic warfare phase. It's major objectives are to kill off the mBridge payments system in CBDC eYuan, force Saudi, and UAE on to permanent swap lines, restore the petrodollar, extend the seizure of financial assets, deflate bond yields, sustain the AI hype, and avert collapse of the US dollar. The BIS, IMF, Davos usual suspects' fingerprints are all over this IMHO. All wars are bankers wars - Smedley Butler.
So the mechanism is now: if the stock market goes up, earnings go up, and if earnings go up, the stock market goes up? How much of total earnings growth across the broader indices is due to "other income", I wonder?
I still think AI is overrated, driven more by ideology than human reality. It’s just a matter of when it will run into a wall, technical, economic, political and financial.
I’d like to ask a blue sky question, which turns out to be a possible footnote to Gabriel‘s excellent comment:
AT, can you help us imagine an alternative scenario to some of these catastrophic ones in which AI could be used to make, instead of obscene profits for the 1%, an easier transition to economic Manchesterism? Perhaps starting in some congenial states, but eventually becoming a model for the entire country – once we get our politics right?
I’ve been inspired by this excellent article in the latest New Statesman, “The Case for Manchesterism,” which begins with similar points to yours about the danger of relying on bailouts, and proposes an alternative model of support for people and work.
The Swiss version of your cognitive dissonance: the firms whose Zurich presence the country celebrates are designing the technology that will dissolve its labour market. The social state can carry ~130,000 unemployed; an AI-driven shock at even half of Sanders' numbers takes you past a million. Back-of-envelope, UBI at that scale comes out roughly twenty percent cheaper than patching the existing architecture (expanded social aid, pension-fund losses on devalued Swiss equities, foregone tax). The corporate tax base Switzerland depends on and the labour market it needs to insure are increasingly the same balance sheet.
The 60 percent of Q1 net income at the two leading hyperscalers attributable to other income is the cleaner version of the circular-funding question than the cloud-commit data. Goldman flagged that $49 billion of the aggregate $53 billion across the five largest hyperscalers came from equity-stake mark-ups in private AI labs, with Alphabet's Anthropic position pulling from $183 billion to $380 billion over months and Amazon's parallel position doing similar work. OpenAI and Anthropic now sit at roughly half of cloud order books at Oracle, Alphabet, Amazon, and Microsoft per the Information, so the same mark-ups underwrite the cloud commits that produced them. The term-premium widening on the long bond is doing more work than the S&P print on what the bond market thinks of this loop.
The dissonance dissolves once you stop treating "the market" and "the economy" as the same object. Three things explain why they decoupled. First, breadth: equal-weight S&P has gone nowhere YTD while cap-weighted prints all-time highs. Half the index trades at 12-15x forward; Mag-7 carries the average to 21x. That isn't a healthy market, it is concentration dressed up as a bull run. Second, the yen carry trade is the load-bearing wall nobody is naming. Japan 10Y at 2.59% (highest since 1997), 40Y at 4.08%. When the global free-funding source unwinds, US Treasuries and long-duration tech lose their structural marginal buyer. Two preview tremors in 2024 and 2025; the next one may not resolve gracefully. Third, the labor-market signal: white-collar layoffs accelerating while AI substitutes (not just augments) senior output. Median tech wage flat in real terms since 2022. The cohort that drove post-2009 consumption is shifting from secular tailwind to secular headwind on retail and CRE. None of these triggers something tomorrow. But they explain why thoughtful long-duration capital allocators (Berkshire's $300B+ cash, central bank gold buying — 244 tonnes in Q1 alone) are positioned defensively while indexes keep grinding higher.
The cognitive dissonance is partly structural and partly cohort-driven.
Structural: the last cycle where the US ran a real wartime price regime alongside genuine supply shocks (oil, grain, dollar pressure all at once) was 1973-1980. Most of the people allocating capital today were either children or not born then. The framework for pricing geopolitical risk into a household balance sheet (gold weighting, foreign FX exposure, cash buffer in months not weeks, capacity to keep a mortgage current on one income) has been replaced by a framework that prices intra-cycle volatility and assumes the dollar regime, the supply chain, and the political ordering of Western capital are constants.
Cohort: investors who were 25-40 during the 2008-2009 shock saw a financial crisis resolved by central-bank balance-sheet expansion. The rebound became the canonical template. The chart most US households carry in their heads is the S&P from March 2009 forward. That isn't the chart that is relevant in 2026.
The dissonance breaks the day a household-level event (layoff, illness, a parent needing care, a rate reset on a mortgage) collides with portfolios constructed for the 2009-2021 regime. That is the conversation I don't see being had in retail finance media, and the part where Chartbook does a public service every issue.
[From a vivid post by Ian Welsh on the elite-disconnect problem.]
' [F]or the people in charge, the last thirty years have been absolutely wonderful. Seriously, things haven’t been this good since the 1890’s and the 1920’s. Everyone they know–their families, their mistresses and toyboys, their friends–is doing well. Wall Street paid even larger bonuses for 2007, the year they ran the ship into the shore, than they did in 2006 when their bonuses equalled the raises of 80 million Americans. Multiple CEOs walked away from companies they had bankrupted with golden parachutes in excess of 50 million. And if you can find a senator who isn’t a millionaire, (except maybe Bernie Sanders) you let me know.
Life has been great. The fact that America is physically unhealthy, falling behind technologically, hemorrhaging good jobs, and that ordinary Americans are in debt up to their eyebrows, haven’t seen a raise in 30 years, and live in mortal fear of getting ill–because even if they have insurance, it doesn’t cover the necessary care–means nothing to the decision-making part of America because it hasn’t experienced it. America’s elites are doing fine, thanks. All they can taste or remember is the caviar and champagne they swill to celebrate how wonderful they are and how much they deserve all the money federal policy has given them.
This is the second insanity of the US: The decision making apparatus in the US is disconnected from the results of their decisions.
. . .
This is the fundamental disconnect in the West: the people who are making the decisions do well no matter how much ordinary people are hurt; no matter how much they weaken their own countries. In fact, it’s worse than that: the worse their countries and citizens are doing, the better they do.
Every disaster is used to allow more looting. Are there oil shortages? Raise prices even more than costs? Food? Same thing. Are some companies going bankrupt? Buying opportunity! Are citizens desperate? Great, they’ll work for less.
Life is good for our elites and the more they destroy our countries, the better life is for them.
Of course they don’t care that Trump is driving America and the West into the dirt? Why should they?
So sorry about high gas prices, high food prices, high health care costs and no future for you or your children. None of that matters. Trump’s getting rich being President and so are American elites and in the eternal honest words of George W. Bush “who cares what you think?” '
https://www.ianwelsh.net/the-law-of-elite-consequences-continues-to-demolish-america/
The key point is that U.S. market highs no longer describe the same economy experienced by most households.
The stock market can keep rising because the wealth effect is highly concentrated. The top 10% owns roughly 67% of household net worth, while the top 1% owns more wealth than the bottom 50% by roughly a factor of twelve. When equities and high-end housing rise, the balance sheets of asset-rich households expand quickly. But that does not mean the median household feels richer.
The lower part of the distribution is living in a very different economy. The aggregate saving rate is around 4.0%, but that average hides a huge split: the top 10% is still saving around 18% of income, while the bottom 60% is saving roughly 1.2%. The top 20% still has positive excess savings; the bottom 80% is already below its pre-pandemic savings trajectory. At the same time, effective inflation for the bottom 20% is much higher than for the top 20%, because food, shelter, and energy take up a much larger share of their budgets.
That is why consumer confidence can keep falling even when stocks are near record highs. For asset holders, rising markets create a cushion. For lower-income households, higher prices, higher debt service, credit-card rates above 20%, rising delinquencies, and auto repossessions near post-GFC levels are the actual economy.
So the contradiction is only apparent. The U.S. is not experiencing one unified consumer economy. It is experiencing a balance-sheet economy for the top and a cash-flow economy for the bottom. The stock market is measuring the first. Consumer confidence is measuring the second.
What can you say to all this. It’s technology , it’s economics and put simply none of adds up and the politics and belief system behind it is mired in the most destructive corruption of the public good in 70 years. It’s not going to end well that’s for sure. Could the US implode like the Soviet Union did? Now there’s a thought.
For centuries, the trope for leadership ignoring the realities of life has been Nero "fiddling" while Rome was burning. Decades from now, the trope will be changed to a president designing triumphal arches and grand ballrooms, all the while claiming that everything is good, that we are winning our wars, and that the economy is the best it has ever been. At the same time, the "little guys" experience the high cost of fuels, inflation in the grocery store, reductions in healthcare benefits for society at large, a disemboweled public health infrastructure that ignores a hantavirus outbreak, and poor job prospects for new grads of colleges and universities.
Oil markets settled pretty quickly after SMO in 2022, I don't see a reason why they won't again this time. Nor does the market - WTI for April 2027 delivery has crept up to $74 and no more.
Gas markets didn't then and same problems apply.
There is a lot of cognitive dissonance out there - not just in the Economics.
There is the K curve.
The US military weakness vs their apparent aggression and US taking on a country without A bombs or H bonbs to prove how macho it is after backing down against Russia and China (but still losing)
There is the Star Wars narrative after decades of Star Trek - the Good Policeman is now the Dark evil empire which has a small stick but screams.
But at least no one talks about Democratic values while conducting blatant Regime changes any more.
Thankyou Adam for your insightful analysis, as always. Now that the US war has effectively met it's preliminary goals in the Middle East, we are beginning to seeing the banking class' pursue their primary goal in starting the war. This is the economic warfare phase. It's major objectives are to kill off the mBridge payments system in CBDC eYuan, force Saudi, and UAE on to permanent swap lines, restore the petrodollar, extend the seizure of financial assets, deflate bond yields, sustain the AI hype, and avert collapse of the US dollar. The BIS, IMF, Davos usual suspects' fingerprints are all over this IMHO. All wars are bankers wars - Smedley Butler.
So the mechanism is now: if the stock market goes up, earnings go up, and if earnings go up, the stock market goes up? How much of total earnings growth across the broader indices is due to "other income", I wonder?
Where can I get some of this blissfulness?
The Fortune article FT Alphaville links to is very good: https://fortune.com/2026/04/30/google-amazon-ai-profits-anthropic-stake-bubble-earnings-2026/
The real questioon is So How does it End. I'm guessing not with being Raptured to Heaven ? But what do I know...
I still think AI is overrated, driven more by ideology than human reality. It’s just a matter of when it will run into a wall, technical, economic, political and financial.
I’d like to ask a blue sky question, which turns out to be a possible footnote to Gabriel‘s excellent comment:
AT, can you help us imagine an alternative scenario to some of these catastrophic ones in which AI could be used to make, instead of obscene profits for the 1%, an easier transition to economic Manchesterism? Perhaps starting in some congenial states, but eventually becoming a model for the entire country – once we get our politics right?
I’ve been inspired by this excellent article in the latest New Statesman, “The Case for Manchesterism,” which begins with similar points to yours about the danger of relying on bailouts, and proposes an alternative model of support for people and work.
https://www.newstatesman.com/politics/economy/2026/05/the-case-for-manchesterism
There's a war? Why didn't my butler tell me?
The Swiss version of your cognitive dissonance: the firms whose Zurich presence the country celebrates are designing the technology that will dissolve its labour market. The social state can carry ~130,000 unemployed; an AI-driven shock at even half of Sanders' numbers takes you past a million. Back-of-envelope, UBI at that scale comes out roughly twenty percent cheaper than patching the existing architecture (expanded social aid, pension-fund losses on devalued Swiss equities, foregone tax). The corporate tax base Switzerland depends on and the labour market it needs to insure are increasingly the same balance sheet.
The 60 percent of Q1 net income at the two leading hyperscalers attributable to other income is the cleaner version of the circular-funding question than the cloud-commit data. Goldman flagged that $49 billion of the aggregate $53 billion across the five largest hyperscalers came from equity-stake mark-ups in private AI labs, with Alphabet's Anthropic position pulling from $183 billion to $380 billion over months and Amazon's parallel position doing similar work. OpenAI and Anthropic now sit at roughly half of cloud order books at Oracle, Alphabet, Amazon, and Microsoft per the Information, so the same mark-ups underwrite the cloud commits that produced them. The term-premium widening on the long bond is doing more work than the S&P print on what the bond market thinks of this loop.
The dissonance dissolves once you stop treating "the market" and "the economy" as the same object. Three things explain why they decoupled. First, breadth: equal-weight S&P has gone nowhere YTD while cap-weighted prints all-time highs. Half the index trades at 12-15x forward; Mag-7 carries the average to 21x. That isn't a healthy market, it is concentration dressed up as a bull run. Second, the yen carry trade is the load-bearing wall nobody is naming. Japan 10Y at 2.59% (highest since 1997), 40Y at 4.08%. When the global free-funding source unwinds, US Treasuries and long-duration tech lose their structural marginal buyer. Two preview tremors in 2024 and 2025; the next one may not resolve gracefully. Third, the labor-market signal: white-collar layoffs accelerating while AI substitutes (not just augments) senior output. Median tech wage flat in real terms since 2022. The cohort that drove post-2009 consumption is shifting from secular tailwind to secular headwind on retail and CRE. None of these triggers something tomorrow. But they explain why thoughtful long-duration capital allocators (Berkshire's $300B+ cash, central bank gold buying — 244 tonnes in Q1 alone) are positioned defensively while indexes keep grinding higher.
The cognitive dissonance is partly structural and partly cohort-driven.
Structural: the last cycle where the US ran a real wartime price regime alongside genuine supply shocks (oil, grain, dollar pressure all at once) was 1973-1980. Most of the people allocating capital today were either children or not born then. The framework for pricing geopolitical risk into a household balance sheet (gold weighting, foreign FX exposure, cash buffer in months not weeks, capacity to keep a mortgage current on one income) has been replaced by a framework that prices intra-cycle volatility and assumes the dollar regime, the supply chain, and the political ordering of Western capital are constants.
Cohort: investors who were 25-40 during the 2008-2009 shock saw a financial crisis resolved by central-bank balance-sheet expansion. The rebound became the canonical template. The chart most US households carry in their heads is the S&P from March 2009 forward. That isn't the chart that is relevant in 2026.
The dissonance breaks the day a household-level event (layoff, illness, a parent needing care, a rate reset on a mortgage) collides with portfolios constructed for the 2009-2021 regime. That is the conversation I don't see being had in retail finance media, and the part where Chartbook does a public service every issue.
It's all so incredibly incoherent and unmoored.