A couple of months ago I had a post wondering about the possibility of a Great Crash occurring in 2026. There were various reasons for concern, which I tend to focus on because in investment terms I’m what’s known as a permabear. Meaning I always feel like everything is about to collapse.

I was thinking more on this subject this past week for a couple of reasons. First of all, I was talking to an acquaintance who is a financial advisor and I told him how I thought the economy was about to go smash and that the trigger was going to be a debt crisis. This rhymed with something Andrew Ross Sorkin says in the introduction to his recent book 1929: “The almost singular through line behind every major financial crisis is one thing: debt.” If you had parents or grandparents who grew up in the Great Depression you know this because they probably drilled it into you. When things get bad, debt is the multiplying force, making everything much worse.

When I said this to the financial advisor he immediately asked what kind of debt I was talking about. I said every kind. Or all three levels, as these things are usually arranged. To go through them in order:

(1) National debt: A few days ago the U.S. announced that their debt had hit $40 trillion, a number that would have been simply unimaginable only ten years ago. In that same decade (actually it’s been less than ten years) the debt has doubled. As a result, the U.S. has spent almost $1.4 trillion in the last 12 months alone on interest payments, which is more than they spend on their military or on Medicare (and they spend a lot on those things). The numbers are staggering, and unsustainable. Note how this chart just begins in 1995.

There are only a few ways of getting out of such a debt spiral. First, the U.S. could renounce their debt completely and effectively declare bankruptcy. This is unlikely. Second: the usual right-wing talking point has it that the economy can grow its way out of any debt. This is frankly impossible now, so much so that my jaw actually dropped when Treasury Secretary Scott Bessent said in an interview just a couple of days ago that “there’s nothing magic about the $40 trillion number, and we can grow our way out of that.”

This is a fantasy and Bessent knows it. If he didn’t, he found out when he tried to bring bond rates down by buying up debt (at the same time as he was claiming $40 trillion was just a number), an action that brought less than 24 hours of relief. Nevertheless, his boss would echo Bessent’s statement just a little later the same day, saying “The way you take care of debt is with growth . . . the growth will take care of that [the debt] very easily.” The commander-in-chief then made the bizarre pronouncement that “The ultimate intervention is our military. And if we have to use that, we will.” No one knew what he was talking about.

So that leaves the third alternative, inflation, which is already rising as a result of tariffs, an energy shock, and the rate at which the Federal Reserve has been printing money since COVID. This is the most likely scenario, but it’s one where the solution brings a host of other problems in its wake.

There are two things I’d add. First of all, I’ve been talking about the American situation only because any American crisis is going to be felt all over the world, maybe even worse than in the U.S. And second, the situation in the U.S. is all the fault of their federal government. The war in Iran was a war of choice. The One Big Beautiful Bill (a budget bill) blew up the debt. Trade wars and tariffs are inherently inflationary. What’s happening now is the result of deliberate policy decisions. None of it had to happen.

(2) Business or corporate debt: I think this is a huge problem but not discussed as much because much of the debt is hidden in the labyrinth of private equity and the shadow banking system. Enough is known about the sheer amount of debt being concealed though to cause some anxiety, as credit spreads are widening and lenders are looking to insure themselves (read: cover their asses) by creating the sort of hedges that will sound familiar to anyone who remembers 2008. Collateralized debt obligations (CDOs). Special purpose vehicles. Subprime lending. It’s all coming back. They haven’t even changed the names.

The purpose of all these maneuvers is to keep debt off the books. And we’re talking a lot of debt, though the exact figure is being kept as secret as possible. When the tide goes out though, as Warren Buffett has said, we’re going to see a lot of people have been swimming naked.

(3) Personal debt. Consumer debt and credit card debt is at an all-time high and personal savings are now at their lowest levels since it became possible to keep track of such things. What I find particularly concerning though is how margin debt in the U.S. (money borrowed to invest in the stock market) has exploded by nearly 50% in the past year, going from $1 trillion to $1.4 trillion. One place you see this is in the take-off in the number of leveraged ETFs that are being launched, though the preferred language now is to call these “enhanced” rather than “leveraged” funds. Note in this chart that the numbers for 2026 are lighter shaded because they only count funds launched so far, not for the full year.

A little leverage can be a useful part of any investment portfolio, juicing your gains, but leverage works against you when things go south. This was seen in a couple of examples just this month: (1)  the frequent shutdown of the Korean stock exchange as single-stock leverage ETFs went into death spirals and (2) the collapse of the Situational Awareness hedge fund, which skyrocketed by making leveraged bets in AI infrastructure stocks but then had to be sold off when its positions (they were leveraged up to 400%) became untenable.

Retail investors buying stock on margin is of course one of the things that created the conditions for the Great Crash in 1929. It is taking off again now as more and more people come to view investing as the equivalent of gambling or sports betting. The consequences may be the same. Most people will lose.

No one can say for sure what’s going to happen to the global economy in the months ahead, but my concern is only growing more pronounced as I see these conditions worsening and not much in the way of a rational political response. Meanwhile, any increase in interest rates now will be seen as the sounding of the final trumpet in the Book of Revelation, which perhaps it would be since the debt accumulated has been the result of cheap money and any tick upward in its cost will be disastrous. There are a lot of bad loans out there.

So I think we’re moving ineluctably towards something more profound than a mere stock market correction, and I think the triggering event for a significant economic crisis is going to be related in some way to these debt issues. But as a permabear I always expect disaster, which means I’m always happy to be proven wrong. I hope for the best while fearing the worst. Nevertheless, I feel so sure about a crash coming within the next year that I’m happy to put a pin in this prediction. A year from now we’ll see if I was right or wrong.