#120: We’re Living Under a Financial Illusion. It’s Called the Prosperity Illusion

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Hey all, it’s MMV.

Four nights ago, I looked up from my phone, turned towards my wife, and told her that I have a really bad feeling about the economy.

For the past week, I couldn’t shake this feeling.

Normally, I’m pretty immune to the bad news about the economy and dips in the stock market because I know a lot of it are reactions by algorithms and market makers trying to downsize losses while realizing profits. Plus, I strongly believe that the average investor should have a long-term view when they invest their money.

Past events like tariff news in 2025, inflation/rate hike selloff in 2022, AI scares causing tech selloff in 2026, and even COVID in 2020, didn’t spook me as much as I’m spooked now.

This bad feeling that I have is that we’re on the verge of a major recession and we’re currently under an illusion that’s trying very hard to hide it.

I’m calling it the “Prosperity Illusion” and I’ll explain what I mean.

And if you’ve been seeing my content for years, you know that I NEVER share stock picks or try to raise the alarms about a crash, but for some reason, this one feels real (but I hope I’m wrong).

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Even prior to the Iran conflict and its impact on oil prices, we were not okay. The ongoing conflict is just a catalyst that’ll reveal the ugly truth about the economy.

For the past maybe two years, the possibility of a recession was getting stronger. Things like layoffs, persistent inflation, stock market volatility, and others kept getting worse.

Yet, headlines celebrated GDP growth and record stock market highs as evidence that we’re not headed towards a recession. The Federal Reserve and politicians pointed to low unemployment numbers as proof that the U.S. economy remains strong.

But for people like you and me, I can confidently say that we probably agree that maintaining our standard of living is getting harder. Rent, groceries, car payments, and insurance are getting higher and the raises aren’t keeping up.

We’re constantly bombarded with information from the news and social media so we’re constantly being told the economy is doing great, which is implying that if you’re not doing okay, it’s your fault.

To me, the data points that spook me are telling me that this is a systemic issue.

You might recall a recent newsletter I published (Post #116: Earning $100K But Still Feeling Like You're Drowning?) that the poverty line is flawed because of the way it’s calculated (3x food cost based on the assumption that food makes up 1/3 of a typical household budget) and that it should be much higher (estimated to $136,500) based on national averages.

Interestingly enough, I found a 2024 study by the Urban Institute that measured the true cost of economic security (TCES).

The TCES accounts for the full modern cost of living: technology, savings, debt, child care, and the ability to weather unexpected expenses.

The official (and flawed imo) poverty rate captures those in crisis while the TCES measure reveals the people (52% of Americans) who are above the poverty line are still unable to save, handle, emergencies, or build a secure future.

The researchers found that the national median threshold of families with children (adults under 65) is $134,800/year in 2024, which is very much in line with the estimated poverty line by another researcher.

The key insight from this study is that these thresholds are much higher than what most people would intuitively think of as “middle class”.

The middle class is under a lot of financial pressure that’s been building up over the last few years.

Generally, the middle class is doing okay-ish like they’re treading water, but it wouldn’t take much for them to not be okay. Most are just one or two events away from not being okay like a job loss, which isn’t uncommon now, or a medical expense.

Everything is costing more. Gas is just the the latest to hit the headlines, but we’ve all experienced rent going up, property tax increases, insurance going up, and so on.

That yearly increase you got from work? That probably doesn’t cover the difference.

For example, federal employees got a 1% increase in base salary in 2026. Health premiums for federal employees rose an average of 12.3% in 2026, but many plans saw steeper increases. The 1% increase still resulted into a net pay cut for many federal employees from 2025.

This is the slow bleed that Americans are going through. They’re giving up things like skipping vacation and not going out for a nice dinner. I don’t think it’ll be long for us to reach emergency level.

If things are this rough, why doesn't it seem that way? You might be thinking that because of social media.

Why does everyone on your feed seem to be traveling in luxury, making money on social media, and living fine?

Because it’s easy to APPEAR wealthy without actually HAVING to be wealthy!

For travel, it’s the lounge access, the priority boarding, the loyalty status for upgrades, and the "complimentary" hotel nights.

For social media, anyone can choose a nice background, set up a mic, and pretend someone is talking to them on a podcast. Anyone can post stories of money deposits and say they make $100,000 a month, but they live in a mediocre apartment.

Or you see that guy driving that nice sports car you’d love to have but he also has very little saved up for retirement, if any at all.

It’s all an illusion from the real K-shaped recovery.

The "K-shaped recovery", which is what economists called it post-pandemic, is when some parts of the economy experience strong growth while others continue to decline

This is exactly what’s happening not just in the economy but also in society:

If you think about what social media pushes on us like the finer things in life, it makes sense that we’re getting fed this perception that everyone is doing well. And the average person is living in a place with those old white appliances, carpeted floors, and whatnot.

There’s a reason why people who post their normal every day life gets followers. It’s because we, the vast majority of viewers, relate to them.

The prosperity illusion exists because the upper arm of the K is what gets shown in social media and the news, but there’s clearly a growing disconnect between what the data says and what it’s actually like.

We’re seeing the inequality gap in real time. The rich get much richer and the poor become poorer.

Now, more than ever, we need to prevent ourselves from falling behind when everything that’s out of our control is out to undo us.

I still hope that I’m wrong about where I think the economy is headed, but honestly, I’m confident when I look at the data.

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