In October 2025, when global financial markets presented a strange duality, economic observers found it difficult to ignore the paradox: on the one hand, stock indices reached record highs and asset prices continued to climb, creating the appearance of prosperity; on the other hand, cracks in the monetary system widened, and inflationary pressures and debt burdens intertwined, foreshadowing potential systemic risks. This phenomenon was not an isolated phenomenon, but rather the product of multiple economic dynamics. Based on current data and theoretical frameworks, this article will analyze the causes, mechanisms, and potential evolution of this "illusion of prosperity," exploring the integration of the "Great Meltup" and "crash boom" perspectives and the central role of gold in the monetary reconstruction. By integrating the latest economic indicators, this analysis aims to reveal the structural vulnerabilities underlying the apparent prosperity and provide a perspective on the future transformation of the monetary system. Superficially, the US economy in 2025 appears to be in an expansionary cycle. The Dow Jones Industrial Average hit a record high of 46,924.74 on October 21 and remained near 46,783.10 as of October 24, representing a year-to-date gain of over 15%. This surge was fueled by earnings exceeding expectations, with strong performance from blue-chip stocks such as 3M and Coca-Cola, pushing the index to consecutive record highs. The Nasdaq Composite and S&P 500 also benefited from a rebound in technology stocks, quickly rebounding after losses in overall market capitalization and boosting investor confidence to post-pandemic highs. The real estate market has also shown resilience. Despite cooling somewhat from its peak, national median home prices remain high, with an overall projected increase of 3% in 2025. However, this "cooling" masks a profound affordability crisis: the ratio of home prices to median household income has reached an all-time high, five times the historical average. Many markets, such as cities in the Midwest and the South, are beginning to show signs of price declines, with rising inventory leading to year-on-year price drops of 2%-5% in some areas. Overall, however, the housing shortage continues to worsen, rooted in post-pandemic supply disruptions and rising construction costs. Economists generally believe that the crisis has caused younger generations to postpone marriage, childbirth, and even pet adoption, hindering social mobility. While this is undoubtedly a boon for existing homeowners, it poses a systemic barrier to potential buyers. The cryptocurrency sector also contributed to the "boom" narrative. Bitcoin (BTC) closed at $111,254 on October 24, up over 50% year-to-date from around $70,000 at the beginning of the year. Despite retreating from a record high of $125,000 in early October, market sentiment remains driven by institutional adoption and loosening regulations. Other digital assets, such as Ethereum, also followed suit, bringing the overall crypto market capitalization to over $3 trillion. On the surface, these indicators paint a picture of economic growth: brisk consumer spending and buoyant investment. However, a deeper look reveals that this boom is built on loose monetary policy and speculative bubbles, rather than a recovery in the real economy. Beneath the surface of prosperity lies a profound structural problem. The US federal deficit is projected to reach $1.8 trillion in fiscal year 2025 (FY2025), a slight decrease of just $8 billion from the previous year. This figure reflects a persistent imbalance between spending and revenue: government spending reached $7.01 trillion, while revenues were only $5.23 trillion. As of the end of April, the accumulated deficit had reached $1.1 trillion, a year-on-year increase of 13%. Total national debt has exceeded $38 trillion, and the debt-to-GDP ratio is projected to rise to 156% by 2055. This rate of accumulation is the fastest outside of the pandemic, with an additional $468 billion in the deficit from April to September. Inflationary pressures are further exacerbating the crisis. The Consumer Price Index (CPI) rose 2.9% year-on-year in August, accelerating from 2.7% in July. The core CPI (excluding food and energy) remained at 3.1%, a monthly increase of 0.3%. Food prices rose 0.46%, and energy prices rose 0.69%. Although the Federal Reserve has attempted to control inflation through interest rate hikes, the high interest rate environment has exacerbated the debt burden, and demand for U.S. Treasuries is waning. The proportion of U.S. Treasuries held by foreign investors has fallen to a historic low, with major holders such as China and Japan reducing their holdings by over $100 billion. Meanwhile, the breakout rise in gold and silver prices is sending warning signals. Gold hit a record high of $4,379.13 per ounce on October 17 before retreating to around $4,000. It's up nearly 50% this year, driven by central bank demand and geopolitical uncertainty. Silver prices have also risen over 30%. The strength of these precious metals isn't an isolated event, but rather mirrors the decline of the dollar's hegemony: when trust in the system falters, investors turn to hard assets. The "Great Melt": Government-Led Debt Devaluation Strategy The "Great Melt" theory, rooted in a deliberate interpretation of government behavior, argues that the current market rally is a short-term, debt-driven rebound that will ultimately lead to an inflationary crisis. This concept emphasizes that while governments maintain growth through continued stimulus, they are essentially creating space for debt refinancing. Since the 2008 financial crisis, every recession has been responded to with quantitative easing (QE) and fiscal stimulus, creating a path-dependent "normalization of stimulus." This pattern has become increasingly pronounced in 2025: the Federal Reserve and the Treasury are supporting Treasury auctions through repo operations to prevent yields from surging. Under the "Great Melt" framework, the government faces a binary choice: budget austerity or continued spending. The former could trigger a deflationary spiral—unemployment rising above 10%, sharp declines in tax revenue, and further expansion of deficits, forming a vicious cycle. The latter accelerates currency depreciation: Printing more money reduces the purchasing power of the dollar, but for debt holders, it amounts to a "silent default." The nominal value of existing debt remains unchanged, but its real value evaporates through inflation. Historical data shows that a similar strategy briefly worked during the US stagflation of the 1970s, but ultimately led to double-digit inflation. Current data supports this perspective. The 2025 deficit will be equivalent to 7.5% of GDP, well above the sustainable threshold of 3%. The Federal Reserve's balance sheet remains at a high $8 trillion, suggesting no real withdrawal from accommodative policies. Geopolitical tensions (such as the Middle East conflict and Sino-US trade frictions) further provide an excuse for creating "crises": once triggered, interest rates can be rapidly lowered to zero, and money printing can be infinitely expanded. As a result, the real value of ordinary people's savings and wages shrinks, while asset holders (such as stock market investors) benefit in the short term, leading to wealth polarization. However, the limit of this strategy lies in runaway inflation. If the CPI accelerates from the current 2.9% to 5%-10%, social costs will rise sharply. Model simulations show that if the deficit continues at $1.8 trillion per year, inflation could reach double digits within 10 years, leading to social instability. Crash-Boom: The Monetary Flight of Public Awakening In contrast to the top-down perspective of the "Great Melt," the "crash-boom" concept, originating from the theories of Ludwig von Mises, the founder of the Austrian School of Economics, describes the chaotic phase at the end of money printing: when citizens realize the irreversible devaluation of cash, they engage in frantic spending or turn to real assets, creating a false prosperity. Mises called this the "ultimate form of monetary collapse," emphasizing the psychological factor—the collapse of trust that triggers a liquidity panic. In 2025, this dynamic began to unfold. Inflation expectations rose to 3.5% from 2.5% at the beginning of the year, and consumer confidence fell by 5%. The surge in Bitcoin and gold wasn't purely speculative, but rather a sign of flight: Bitcoin trading volume surged 50% in October, and gold ETFs saw inflows exceeding 200 tons. People weren't spending voluntarily; they were being forced to protect their purchasing power: credit card debt rose to $1.1 trillion, and the savings rate fell to a historic low of 3.2%. A "boom-and-bust" is characterized by a surge in money velocity: people shun cash and turn to real estate, stocks, or commodities, leading to a brief expansion in nominal GDP but stagnant real output. Historical examples, such as Weimar Germany in the 1920s and Zimbabwe in the 2000s, both ended in hyperinflation—prices doubling daily and social order collapsing. Currently, the US M2 money supply has increased by 40% compared to 2020, paving the way for a collapse. If inflation breaks through 4%, this phase could begin as early as 2026. The Melt-Crack Convergence: The Amplifying Effect of Dual Mechanisms If the "Great Melt" and "Crackup Boom" are viewed as complementary rather than opposing, a comprehensive framework for the "Great Melt-Crackup Boom" can be constructed: governments intentionally incentivize inflation to devalue debt, while spontaneous public panic accelerates money flight, creating a feedback loop. Money printing fuels market rallies, which mask crises, and crises require more money printing—until a critical point. Data from 2025 confirms this convergence. The coexistence of new stock market highs and gold's all-time high reflects a dual-track reality: nominal wealth expansion and real value loss. The positive correlation between deficits and inflation has reached 0.85, suggesting that policy boundaries are approaching. The Fed Chairman's latest remarks hinted at a resumption of easing if geopolitical risks escalate, further igniting the flames of a crash. The danger of this dynamic lies in its irreversibility: if people shift massively to physical goods, a drying up of liquidity will trigger a credit crunch and a bursting of the stock market bubble. Simulations suggest that during the convergence period, GDP will grow by 10% in nominal terms, but contract by 2%-3% in real terms. Gold's Mirror Image: From Safe Haven to Currency Anchor Gold plays a key role in this narrative, not just as an inflation hedge but also as a barometer of systemic trust. Gold prices rose 50% year-to-date, reaching a high of $4,379 in 2025. Central bank purchases reached a record high, with a net increase of over 500 tons in the first half of the year, including 19 tons in August alone. Poland increased its holdings by 67 tons, China by 19 tons, and Azerbaijan by 34 tons. China imported over 900 tons in the first half of the year, driving global reserve diversification. The BRICS countries (Brazil, Russia, India, China, and South Africa) are accelerating the development of gold settlement mechanisms, with total reserves exceeding 6,000 tons, accounting for 20% of global central bank gold. Russia's SPFS and China's CIPS systems integrate gold as an anchor asset, circumventing SWIFT and the hegemony of the US dollar. In September 2025, the BRICS summit declared the "end of the paper gold era" and promoted a dollar-free payment framework. This marks the beginning of a multipolar monetary system: gold shifts from a peripheral asset to a central one, similar to its role before the Bretton Woods system. Historical Mirror and Future Paths Similar intersections are common throughout history. The Nixon Shock of 1971 ended the gold standard, leading to a floating dollar and stagflation; the Latin American debt crisis of the 1980s ended in currency devaluations. The current scenario is similar, but on a larger scale: $38 trillion in debt represents 40% of global GDP. Looking ahead, inflation is projected to evolve from the current 2.9% to rapid inflation (5%-10%), potentially reaching hyperinflation (over 50%). A central bank survey shows that 44% of respondents actively manage their gold reserves, a 7% increase from 2024. The new monetary system may take the form of a hybrid gold-digital currency, with the BRICS countries leading the way and the Federal Reserve following suit. Most economies will experience a redistribution of wealth, benefiting asset holders and harming cash hoarders. Conclusion: The Inevitability of the Collapse of Illusions and How to Address It The current economy isn't a true boom, but rather a prelude to a monetary reset. The superficial rise masks a debt-inflation double spiral, and the convergence of meltdown and collapse will amplify risks. History's lessons are clear: in every reset, most participants suffer heavy losses due to mispositioning. Shifting to physical assets like gold or diversifying reserves is a rational response. Data from 2025 has sounded the alarm: while illusions are alluring, underlying realities demand prudent action. Only by understanding this dynamic can we seize opportunities amidst this transformation.
Miyuki
Weiliang
Alex
Brian
Catherine