We Are Living In A Bifurcated Economy

Which part of America can keep the party going?

Over the past few months, I have been collecting data on the bifurcation we are seeing in the US Economy, which is defined as the following: 10% of the country owns assets and continues to spend, 90% of the country only consumes and their consumption is going down.

The point of presenting all this research for this article is not to dissuade those investing in the stock market to stop doing so (in fact, the opposite) or to sound the alarm on some horrible bear case for the economy. Rather, I think it’s important for everyone to just understand how bifurcated the economy has become. The data is very telling and the implications necessitate a more nuanced perspective on the nature of economic conditions which hopefully can aid in making more thoughtful choices when deciding where to allocate capital.

I do have one broader takeaway after presenting all the data which will be towards the end of the article.

Alright, let’s take a look at the two different parts of America…

People living check to check

The first thing I want to focus on is the amount of Americans that need the next check to survive in their day-to-day lives. I was one of those Americans just two years ago, so I know the feeling far too well. In fact, I remember relying on the Trump $600 stimulus check back in 2021 just so I could make my $311 Honda Civic car payment. It is not fun when you have to worry about how you will pay the next bill.

This is also where I think President Trump has a point around the Federal Reserve lowering interest rates. Now, the Fed would argue that if they take rates down significantly that it would spark a second battle in 5 years with inflation. I’m planning to go deeper in a different article on the debate between the labor market & inflation (rates go down good for labor market but bad for inflation, rates stay paused good for inflation but bad for the labor market) but it is undeniable how important the cost of capital is within a economy.

Why?

When the cost of capital rises (higher Fed rates, tighter credit), the first thing lower income households notice is not that the stock market is dropping—it’s the immediate jump in prices at Walmart, the gas pump, the grocery store, and their rent. Businesses that borrow to stock shelves, transport goods, or pay hourly workers instantly face higher interest expenses and pass nearly 100% of those costs to the consumer within weeks. Because food, fuel, used cars, and basic household goods make up 70-90% of a low-income budget (versus 30-40% for higher earners), a 1–2 percentage point increase in the cost of capital can translate directly into hundreds of dollars less purchasing power per month for a family earning $35,000–$50,000 a year.

When the cost of capital is kept artificially low for years, lower-income households get almost none of the upside that middle- and upper-income groups enjoy. Cheap money drives up home prices and rents (making housing less affordable for non-owners), pushes stock and bond values higher (benefiting the half of Americans who own meaningful investments, not the bottom third who own almost nothing), and funds corporate buybacks or tech-startup valuations that rarely create stable, high-paying jobs accessible without a degree.

The small benefit of a slightly lower car-loan or credit-card rate is quickly wiped out when rent rises 8–12% a year in a low-rate environment or when the inevitable tightening cycle arrives and layoffs hit retail, construction, and service jobs first—exactly the sectors where lower-income workers are concentrated. In both phases of the interest-rate cycle, the cost of capital acts as a hidden mechanism that extracts real income from the bottom 40% of households and redirects it upward.

So, how many people are living paycheck to paycheck?

A 2025 financial wellness study found that 67% of Americans are living paycheck to paycheck, up from 63% in 2024, according to the PNC Bank Financial Wellness in the Workplace Report.

Numerous other studies have it in that same range of 60-70%. Now, if you had just looked at the stock market over the past 5 years, you would’ve seen a Nasdaq that has doubled since 2020. Nvidia stock is up more than 1000%. The reality outside of the stock market is most people did not participate in that upside and as a result are continuing to live paycheck to paycheck while not participating in the ownership class.

Delinquencies

Now, why do lower rates matter when it comes to lower income households paying their bills? Well, if 70% of Americans are living paycheck to paycheck, reducing the cost of capital would really help with the most essential debt Americans are trying to pay off:

Debt continues to pile up at the highest levels in years, as per Equifax:

- Serious credit card delinquencies (90+ days past due) have climbed to 12.4% of total balances—the worst level since early 2011.

- Auto loan delinquencies 90+ days overdue now stand at 5%, the highest in 14 years.

- Student loan serious delinquencies sit at 9.4%, marking the second-highest rate since 2020.

Now, much of this debt is also because loans were paused for so long after the pandemic, in particular, student loans were paused for years. Many companies were forgiving if you missed a loan payment and rates were so low that the debt financing wasn’t as large of a burden. As rates rose in 2022 and continued to stay high, Americans have now begun to go more delinquent on the most essential of those loans like credit, autos, and student loans.

Rising delinquency rates among lower-income households are bad for the entire U.S. consumer economy because these families have no financial buffer and spend almost every dollar they earn. When credit-card, auto, and student-loan payments go 90+ days late at the highest rates in over a decade, it signals that millions of households are no longer able to cover even the minimum payments on debt they took on to afford basic transportation, education, and daily expenses.

Defaults trigger a brutal downward spiral: repossessions remove cars needed for work, wage garnishment cuts take-home pay, credit scores collapse (making future renting or borrowing far more expensive or impossible), and forced liquidations of used vehicles flood the market and depress prices for everyone. Because lower-income consumers account for a disproportionate share of spending on everyday goods—groceries, gas, clothing, fast food, and discount retail—their sudden pullback from spending ripples quickly into layoffs at exactly the retailers, restaurants, and service businesses that employ other lower-income workers.

Additionally, these are some other examples from Q3 earnings over the past on companies citing that the consumer is weakening:

• Home Depot: The company cut its full-year forecast and cited “consumer uncertainty and continued pressure in housing” as disproportionately impacting home improvement demand.

• Lowe’s: Executives noted that “affordability and uncertainty in the broader economy continue to weigh on consumer confidence,” particularly for larger, discretionary purchases.

• Target: The retailer, which has a largely discretionary assortment, reported declining sales and acknowledged “challenging consumer conditions” and that consumers “remain cautious”.

• Chipotle: The restaurant chain saw its traffic fall in Q3, with executives noting that diners, particularly young adults, were visiting less frequently.

• Deckers Outdoor Corp: The company, which owns brands like HOKA and UGG, mentioned that while international growth was strong, U.S. consumer sentiment remained under pressure.

You can see the stock prices YTD of many consumer brands that have continued to get hit — none of this proves that the overall consumer is doing horrible but it shows signs of an obvious weakening consumer compared to companies that aren’t reliant on the consumer in order to grow earnings.

So, Who’s Doing All The Spending?

The majority of the spending in this country is being done…by those that own assets.

As per Bloomberg:

• Consumers in the top 10% of the income distribution accounted for 49.2% of total spending in the second quarter, up from 48.5% in the first quarter.

• Retail sales rose in August for a third month, according to data released by the Commerce Department, showing consumers are still spending despite tariffs and subdued sentiment.

• Economists worry that the economy’s reliance on spending by wealthy consumers could put the expansion on wobbly footing, with a potential trigger being a downturn for stocks.

This has been one of the biggest takeaways for me this year as I’ve begun to understand the data at a higher level, the majority of the spending is coming from the people that actually own assets. Now, this has always been the case…but this year we have seen the “wealth effect,” take an even larger role in the country.

What’s the wealth effect?

The wealth effect is an economic concept describing how changes in individuals’ perceived or actual wealth influence their spending behavior and, by extension, overall economic activity. When asset prices—such as stocks, real estate, or other investments—rise, households feel richer even if their income hasn’t changed, leading them to increase consumption (e.g., dining out more, buying bigger-ticket items, or taking vacations). This boost in consumer spending stimulates aggregate demand, contributing to economic growth. Conversely, when asset values fall (as in a stock market crash or housing bust), people feel poorer, tend to cut back on spending, and increase saving, which can slow economic growth or deepen recessions. I have noticed this myself.

There have been plenty of days where I went out and decided to buy something (like ray ban glasses I never wear) or spend a bit extra on a dinner simply because I felt I was richer. Someone needs to buy those RayBans…someone needs to go out and eat that fancy food…the economy we are living in has shown us that those with assets are more likely to do those consumptive behaviors, propping up the economy, if the wealth effect takes place and within a bull market it has begun to meaningfully take place.

How could 67% of the country feel that they are living paycheck to paycheck? We’ve had one of the most exciting bull markets over the past 5 years…why is the reality for so many people still that of economic insecurity?

I’ve learned that the truth comes down to this: most people do not own assets. For those that bought Nvidia at $10 in 2020, or even $120 in 2025, you have the one thing that most Americans don’t have — the ability to borrow against your assets.

Borrowing Against Your Assets

The wealthy are able to borrow massive amounts of money against their stock holdings through a mechanism called securities-backed lines of credit (SBLOCs) or “portfolio lines of credit,” often offered by private banks (e.g., Morgan Stanley, Goldman Sachs Private Bank, JPMorgan, UBS) and specialty lenders such as Interactive Brokers or wealth-tech platforms. Instead of selling appreciated shares and triggering capital-gains taxes (currently up to 23.8% federal for long-term gains + state taxes), they pledge their stock portfolio as collateral and borrow at very low interest rates—typically SOFR + 1–3% (so roughly 5–7% in recent years).

If you have assets that have appreciated to any extent, your broker likely can offer you a margin loan and within seconds, you can withdraw money (not saying it is responsible but nontheless, it exists) and use your stock as collateral to then go pay your bills…if your stock keeps going up, you don’t have to pay taxes on it (because you never sold) and can then qualify to borrow even more money.

As long as the stock portfolio stays above a certain loan-to-value (LTV) ratio (usually 50–70% for diversified stocks, lower for single-stock concentration), no principal payments are required and interest can often be paid in-kind or deferred. This strategy is sometimes called “buy, borrow, die”: buy assets, borrow against them tax-free during life, and when the owner dies, heirs get a stepped-up basis, wiping out the embedded capital gains forever.

Over the past five-year bull market (2020–2025), this strategy exploded in popularity because of historically low interest rates (2020–2022) and the massive appreciation in tech-heavy portfolios.

Some Examples:

- Elon Musk: As of 2024–2025, he has pledged roughly 55–60% of his Tesla shares (hundreds of millions of shares) as collateral for personal loans reported to exceed $3.5 billion; he has repeatedly said on earnings calls and Twitter/X that he has “zero” margin debt elsewhere and uses these loans instead of selling Tesla stock to avoid taxes.

- Mark Zuckerberg: In 2023–2025, SEC filings showed he established a $700 million+ securities-backed line of credit against his Meta (Facebook) shares, using it to fund lifestyle and philanthropic commitments without selling shares and paying California’s 13.3% state capital-gains tax.

Here’s what Mark Zandi, chief economist at Moodys has said about the bifurcated economy:

Americans feel like the economy isn’t working for them. For those in the bottom 80% of the income distribution, those making less than approximately $175,000 a year, their spending has simply kept pace with inflation since the pandemic. The 20% of households that make more have done much better, and those in the top 3.3% of the distribution have done much, much, much better. The data also show that the U.S. economy is being largely powered by the well-to-do.

Because the stock market rose almost uninterrupted from the March 2020 low through early 2025 (S&P 500 up ~140%, Nasdaq up >200%), very few borrowers received margin calls, making the strategy look essentially risk-free and turbo-charging after-tax wealth accumulation for the top 0.01%.

What’s The Takeaway?

Some people may be seeing this data and wondering about if the stock market is healthy enough to invest in if the bifurcation of America continues to get worse. It is a legitimate question to ask. My focus was on showing the data that would help create a more well-rounded and holistic view on the view of wealth inequality in this country.

However, my core takeaway after staring at all this data for months…is to continue buying assets. Is there a world where the bifurcated economy becomes so bad that it ends up hurting the stock market? Yes. Is there also a world where if the stock market goes down, the wealth effect starts to disappear which would significantly effect all the spending we are seeing from those that own assets? Yes.

In the midst of all these concerns, the one core truth behind wealth is that it comes from owning, not consuming.

The timing of that ownership may be different based on an individual investor’s preference on when to buy an asset or not, but if you don’t assets, you will get left behind. Quite frankly, after looking through all this data, it only further motivates me to get every single extra dollar I have invested. The people that have benefited over the past 5 years are those that owned assets. Even if they didn’t own the best one or their timing was off, they benefited. The mentality of owning assets itself has likely led to more happiness and autonomy (along with stress) as those who participated in Google’s success or Palantir’s success have felt what it means to be along side a company on its journey.

There may be political solutions to the bifurcation of the economy and I think the recent NYC Mayor election highlights where people are willing to go in their political ideologies in order to more meaningfully address these concerns. However, if you have a belief that politics is simply not enough to take control of your own life and you don’t have the time to wait for a politician to save the day, then the answer continues to remain being an owner.

While the economy continues to be bifurcated, the fear of not participating in the ownership economy outweighs the divide of the economy itself and the only answer, outside of giving up on the entire game itself, is leveling up in the game by continuing to own assets and be part of the side of the economy that allows your wealth to have the chance to grow.

Thank you for reading — I’ll be exploring more pieces on the macroeconomy in the coming weeks!