Author: arndxt Compiled by: Tim, PANews The US economy has been torn into two worlds: financial assets continue to prosper, while the real economy is mired in a slow recession. The ISM Manufacturing Index has been in contraction for more than 18 consecutive months, the longest such contraction since World War II, but the stock market continues to rise, the reason being that profits are concentrated in technology monopolies and the financial sector . All of this is due to the expansion of the balance sheet. Monetary liquidity continues to drive up financial asset prices, while wages, credit, and small business activity remain stagnant. The result is the formation of a K-shaped economy, which is a cyclical pattern in which different economic sectors develop in completely opposite directions. The K-line's upward trend: Capital markets, asset holders, the technology sector, and large corporations all show a surge (profits, stock prices, and wealth growth). The downward trend of the K-line represents salaried workers, small businesses, and blue-collar industries, who face stagnation or recession. Growth and pain coexist. Policy collapse Monetary policy has stopped transmitting to the real economy. When the Federal Reserve cuts interest rates, it pushes up stock and bond prices, but it fails to create new jobs or raise wages. Quantitative easing makes it easier for large corporations to obtain loans, rather than helping small and medium-sized enterprises (SMEs) to grow. Fiscal policy also has little room for maneuver. Currently, nearly a quarter of the U.S. government's fiscal revenue is used to pay interest on national debt. This leaves policymakers in a helpless situation. If tightening policies are used to curb inflation, capital markets will stagnate; if loosening policies are used to support growth, prices will rise again. The entire economic system is self-contained, and reducing debt or balance sheets will inevitably impact the core assets that maintain economic stability. The current structure of capital markets Passive cash flows and high-frequency arbitrage have transformed the open market into a closed-loop liquidity machine. Fundamental factors have taken a backseat to position sizing and volatility mechanisms. Retail investors are essentially acting as counterparties to quantitative funds. This explains why defensive sectors have been abandoned and tech stock valuations continue to expand, as the current market structure rewards quantitative strategies rather than value investing. While the market we designed maximizes price discovery efficiency, it undermines capital efficiency. The open market has evolved into a self-circulating liquidity machine. Funds flow automatically through passive index funds, ETFs, and algorithmic trading, creating a continuous buying trend that ignores fundamentals. Price fluctuations depend on the flow of funds, not on value. High-frequency trading and quantitative funds dominate daily trading volume, while retail investors effectively act as counterparties in these trades. Stock price fluctuations depend on position allocation and volatility mechanisms. This is why the technology sector continues to rise while defensive sectors underperform. Social reflexivity: the political cost of mobility Wealth creation in this cycle is concentrated among the top wealthy individuals. The wealthiest 10% control over 90% of financial assets, so inequality is exacerbated when markets rise. Policies that drive up asset prices are eroding the purchasing power of everyone else. If real wages fail to rise and housing costs remain high, voters will ultimately demand change through wealth redistribution or political reform. Both of these approaches will increase fiscal pressure and exacerbate inflation. For policymakers, the motivation is clear: maintain liquidity, stimulate a market rebound, and call it a recovery. Superficial measures have replaced thorough reforms. The economy is fragile, but the charts look promising ahead of the next US election. Cryptocurrencies as a social pressure relief valve Cryptocurrency is one of the few tools that allows people to store and transfer assets without relying on banks or governments. Traditional markets have become closed systems: large capital has already obtained the vast majority of profits through private transactions before the public is even allowed to enter. For the younger generation, Bitcoin is less a speculative tool and more a new channel for participation: when the entire system is rife with shady dealings, it becomes their only way to stay at the table. Despite the heavy losses suffered by many retail investors due to overvalued token offerings and VC sell-offs, the core demand remains strong: people still crave an open, fair, and self-controlled financial system. Outlook The US economy is caught in a reflexive cycle: tightening policies trigger recessions, which in turn cause panic, followed by massive liquidity injections that push up inflation, and so on. With deteriorating economic growth data and a widening fiscal deficit expected in 2026, the US is likely to launch a new round of easing. The stock market will likely experience a brief rally, but unless capital shifts from financial assets to productive investment, the fundamentals of the real economy will struggle to improve. We are currently witnessing the late-stage symptoms of a financialized economy: Liquidity as GDP The market has become a policy tool Bitcoin as a social pressure relief valve As long as this system continues to inject debt cycles into asset inflation, what we will get is not a real recovery, but only a slow stagnation disguised by rising nominal data.Author: arndxt Compiled by: Tim, PANews The US economy has been torn into two worlds: financial assets continue to prosper, while the real economy is mired in a slow recession. The ISM Manufacturing Index has been in contraction for more than 18 consecutive months, the longest such contraction since World War II, but the stock market continues to rise, the reason being that profits are concentrated in technology monopolies and the financial sector . All of this is due to the expansion of the balance sheet. Monetary liquidity continues to drive up financial asset prices, while wages, credit, and small business activity remain stagnant. The result is the formation of a K-shaped economy, which is a cyclical pattern in which different economic sectors develop in completely opposite directions. The K-line's upward trend: Capital markets, asset holders, the technology sector, and large corporations all show a surge (profits, stock prices, and wealth growth). The downward trend of the K-line represents salaried workers, small businesses, and blue-collar industries, who face stagnation or recession. Growth and pain coexist. Policy collapse Monetary policy has stopped transmitting to the real economy. When the Federal Reserve cuts interest rates, it pushes up stock and bond prices, but it fails to create new jobs or raise wages. Quantitative easing makes it easier for large corporations to obtain loans, rather than helping small and medium-sized enterprises (SMEs) to grow. Fiscal policy also has little room for maneuver. Currently, nearly a quarter of the U.S. government's fiscal revenue is used to pay interest on national debt. This leaves policymakers in a helpless situation. If tightening policies are used to curb inflation, capital markets will stagnate; if loosening policies are used to support growth, prices will rise again. The entire economic system is self-contained, and reducing debt or balance sheets will inevitably impact the core assets that maintain economic stability. The current structure of capital markets Passive cash flows and high-frequency arbitrage have transformed the open market into a closed-loop liquidity machine. Fundamental factors have taken a backseat to position sizing and volatility mechanisms. Retail investors are essentially acting as counterparties to quantitative funds. This explains why defensive sectors have been abandoned and tech stock valuations continue to expand, as the current market structure rewards quantitative strategies rather than value investing. While the market we designed maximizes price discovery efficiency, it undermines capital efficiency. The open market has evolved into a self-circulating liquidity machine. Funds flow automatically through passive index funds, ETFs, and algorithmic trading, creating a continuous buying trend that ignores fundamentals. Price fluctuations depend on the flow of funds, not on value. High-frequency trading and quantitative funds dominate daily trading volume, while retail investors effectively act as counterparties in these trades. Stock price fluctuations depend on position allocation and volatility mechanisms. This is why the technology sector continues to rise while defensive sectors underperform. Social reflexivity: the political cost of mobility Wealth creation in this cycle is concentrated among the top wealthy individuals. The wealthiest 10% control over 90% of financial assets, so inequality is exacerbated when markets rise. Policies that drive up asset prices are eroding the purchasing power of everyone else. If real wages fail to rise and housing costs remain high, voters will ultimately demand change through wealth redistribution or political reform. Both of these approaches will increase fiscal pressure and exacerbate inflation. For policymakers, the motivation is clear: maintain liquidity, stimulate a market rebound, and call it a recovery. Superficial measures have replaced thorough reforms. The economy is fragile, but the charts look promising ahead of the next US election. Cryptocurrencies as a social pressure relief valve Cryptocurrency is one of the few tools that allows people to store and transfer assets without relying on banks or governments. Traditional markets have become closed systems: large capital has already obtained the vast majority of profits through private transactions before the public is even allowed to enter. For the younger generation, Bitcoin is less a speculative tool and more a new channel for participation: when the entire system is rife with shady dealings, it becomes their only way to stay at the table. Despite the heavy losses suffered by many retail investors due to overvalued token offerings and VC sell-offs, the core demand remains strong: people still crave an open, fair, and self-controlled financial system. Outlook The US economy is caught in a reflexive cycle: tightening policies trigger recessions, which in turn cause panic, followed by massive liquidity injections that push up inflation, and so on. With deteriorating economic growth data and a widening fiscal deficit expected in 2026, the US is likely to launch a new round of easing. The stock market will likely experience a brief rally, but unless capital shifts from financial assets to productive investment, the fundamentals of the real economy will struggle to improve. We are currently witnessing the late-stage symptoms of a financialized economy: Liquidity as GDP The market has become a policy tool Bitcoin as a social pressure relief valve As long as this system continues to inject debt cycles into asset inflation, what we will get is not a real recovery, but only a slow stagnation disguised by rising nominal data.