The Covid-19 pandemic aside, we have not had a major economic recession since 2008 in the United States.

But from my observations, a recession is likely on the horizon—and we also run the risk of a debt crisis in the future. Whether you’re a business owner or an employee, you need to brace for impact.

Where The United States Stands Economically

Historically, the United States economy has moved through predictable cycles of expansion and contraction, having “experienced 34 recessions since 1857.” From the conclusion of World War II onward, the United States has had 12 recessions, which is an “average of one every 6.5 years.

Some financial experts, as noted in a U.S. News & World Report article, “anticipate a soft landing for the U.S. economy” in 2025. But even if the country manages to avoid a recession this year, its current economic state indicates the possibility of a recession in the next few years.

For years, the government stimulus and money printing have fueled long-term economic growth in the U.S. But this is unsustainable. Our debt-to-GDP ratio, for one, has reached staggering heights. According to data from the U.S. government, it “surpassed 100% in 2013 when both debt and GDP were approximately 16.7 trillion.” In 2024, it climbed to 123%. In 2024, our gross national debt increased beyond $34 trillion. In FY 2024, we had a deficit of $1.83 trillion.

When the debt-to-GDP ratio is high, the federal government has to allocate more revenue to interest payments. As interest rates rise, these payments increase, which can force the government to borrow additional funds just to cover existing debt. This increased borrowing may lead to investors demanding higher yields on government bonds due to perceived risk, further increasing the government’s borrowing costs. And when government bond rates increase, private sector lending rates usually follow suit. As borrowing becomes more expensive and consumers reduce spending, it could catapult the country into a recession. Depending on the severity of the debt crisis, a recession could spiral into a depression.

Addressing The U.S.’s Economic Challenges

Many Americans recognize that the national debt is an issue. According to a survey of 1,000 voters conducted by John Zogby Strategies, “74% are alarmed by the growing debt, exacerbated by rising interest rates and mounting deficits.” Moreover, “74% worry that a potential default could lead to a severe recession.”

But the policies that can help the U.S. lower its debt-to-GDP ratio and deficit—namely, tax increases and spending cuts—are unpopular.

Consider, for instance, data gathered by Gallup in April 2024, which revealed that “56% of Americans say their federal taxes are ‘too high.’” While that’s lower than 60% (the response Gallup received in 2023), that’s still over the majority. Moreover, a 2023 Pew Research Center survey revealed that most Americans “say they pay more than their fair share in taxes.” While there is significant support for raising taxes on incomes above $400,000, as highlighted in the Pew Research Center survey, this measure alone would not suffice to substantially lower the nation’s debt-to-GDP ratio or deficit.

As for how Americans view spending cuts, a 2023 poll from the Associated Press-NORC Center for Public Affairs Research shed light on the issue. Sixty percent of U.S. adults indicated that the government “spends too much money.” However, “majorities also favor more funding for infrastructure, health care and Social Security — the kind of commitments that would make efforts to shrink the government unworkable.”

The more the country holds off on addressing its high debt-to-GDP ratio and deficit, the more challenging it becomes to foster economic growth. Economists Carmen M. Reinhart and Kenneth S. Rogoff explained in their paper, “Growth in a Time of Debt,” that “there is no obvious link between debt and growth until public debt reaches a threshold of 90 percent.” We crossed that threshold long ago.

Think about it this way: A family making $75,000 a year can pay off $5,000 in debt by cutting back here and there. They can take care of the issue without too much stress. But if that family has $100,000 in debt, the amount they owe can cause severe stress and even a crisis.

How We Can Safeguard Ourselves

Unfortunately, many Americans aren’t poised to be able to weather a recession or depression. Bankrate’s 2025 report on emergency savings found that 89% of U.S. adults “say they would need at least three months of expenses saved in order to feel comfortable.” However, “as of May 2024 polling, 27 percent of U.S. adults have no emergency savings at all.” That’s alarming.

In my view, everyone should brace for impact. The advice I’ve previously shared on preparing for a debt crisis applies equally to navigating a recession—or even a depression. Saving more money and diversifying income sources (such as through passive income such as real estate, high-quality dividend stocks and low-cost index funds) are what I believe are key. Cut back on unnecessary costs, and avoid relying on one income source.

If you’re a business owner, it’s not just your livelihood at stake. If your business closes its doors, your employees could suffer. Examine your current costs and see what you can cut. For instance, if you’re currently paying for two software solutions that more or less accomplish the same thing, consider dropping one. Additionally, evaluate if there are financially sound opportunities your business could tap into to start making more money. You might find that, say, spending a bit of money to modify a service offering could generate a substantial amount extra in profit.

If you’re an employee, avoid getting too comfortable. Even if your employer is doing well right now, the tide can shift quickly if there’s a recession or depression. Look into other income streams, such as starting a side hustle or ramping up your investing.

Ultimately, the time to save and diversify is now. The more savings and income sources you have, the more you’ll be financially protected in the event of a recession or depression.The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Read the article on Forbes HERE

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