What Could Go Wrong? Lots.

The record-high level of debt across government, corporate, and consumer balance sheets is no secret. It’s been the elephant in the room for a long time, and it’s growing fatter by the decade. Its knees are beginning to buckle. We’ve reached the point where the entire global financial system looks like one giant bubble.

Total US government debt sits north of $39 trillion and is growing at over $2 trillion annually. Corporate debt is at record levels. Households are carrying credit cards, auto loans, mortgages, and student debt like never before. Add in the rest of the world’s borrowing binge—now approaching $350 trillion globally—and you have a mountain of IOUs worth triple the level seen in 2008.

You’ve heard all this before, from me and others. The real question isn’t whether things will unravel, because they certainly will. The question is what will trigger it. The most plausible paths to a dramatic unwind—some obvious, some not—all lead to the same endgame: a systemic reset that forces governments, central banks, and markets to start over, driving many folks to the poorhouse.

There are obvious risks that don’t require a crystal ball. The warning signs are already flashing. US banks are sitting on approximately $306 billion in unrealized losses on their investment securities portfolios—primarily Treasuries and mortgage-backed securities. Most of these losses sit in “held-to-maturity” (HTM) accounts, where accounting rules let banks pretend the bonds are still worth par.

It’s a polite but dangerous fiction. If depositors start fleeing, or rates spike again, those paper losses will become real in a hurry—as we saw with Silicon Valley Bank in 2023. SVB had invested heavily in long-term bonds, which lost value as interest rates rose. When the bank announced a big loss from selling those bonds, it couldn’t satisfy heavy withdrawal demands and was shut down by regulators.

Then there’s the private credit market. At roughly $1.5–2.1 trillion in the US (part of a $3–3.5 trillion global pool), private credit has ballooned dangerously since banks retreated after 2008. Redemption pressure is already showing up in evergreen funds and Business Development Companies, and liquidity remains elusive. If a run for redemptions occurs, selling private equity or private credit positions into “pretend bids” is about as effective as trying to exit a crowded theater when someone yells “fire.” Price discovery only happens when you really try to sell—and in a stress scenario, buyers vanish or offer pennies on the dollar.

The crypto market, now valued at around $2.6 trillion (with Bitcoin making up roughly half that), is another obvious vulnerability. Michael Saylor’s Strategy empire and its preferred shares now command a market value of nearly $70 billion. In a market crash, its “perpetual” preferred Bitcoin accumulation scheme would unravel quickly. That would unwind the insane speculation in all crypto assets.

The same goes for the equity markets and their flavor of the year: AI. Legendary investor Paul Tudor Jones recently pointed out that US stock market capitalization, mainly driven by AI investment, has reached a record 252% of GDP—far above the 170% peak in 2000 and the 65% level in 1929. Even a normal 30–35% bear market correction would destroy wealth equivalent to roughly 80–90% of GDP. That would collapse capital-gains tax revenue, blow out the budget deficit, pressure the bond market, and trigger a self-reinforcing negative feedback loop. Private equity’s massive and illiquid footprint makes the situation even more precarious.

Of course, as is customary, Wall Street continues to show willful neglect. And don’t expect the CNBC cheerleaders to seriously challenge the viability of the system. Trusting Wall Street or the mainstream media to have your best interests in mind when recommending or warning against financial products is like putting raccoons in charge of the egg count in a chicken coop. Wall Street will keep encouraging this speculative fever right up until the collapse. After which they will feign innocence, much like Captain Louis Renault in Casablanca, who says, “I’m shocked, shocked to find that gambling is going on in here!”—just before the croupier hands over Renault’s own winnings.

Oil remains another lethal threat. Full closure of the Strait of Hormuz and access to the Red Sea would lead to one of the largest supply shocks in history. Prices could surge into the $150–$200 range, or even beyond. Global inflation would mushroom, recession or depression would follow, and the debt bomb would detonate.

Stating what has been obvious to many of us for a long time, Jamie Dimon, CEO of JPMorgan Chase, recently warned that rising government debt levels could trigger a bond market crisis, forcing policymakers to act only after markets impose discipline. Warren Buffett is sitting on record cash levels—the same cautious posture he took before the dot-com bust in 2000 and again before the financial crisis of 2008.

Then there are the unknown unknowns, black swans as they’re known. Black swans live in the flat tails of probability curves. We don’t see them coming until the black feathers start flying. Forecasting models assume normal distributions; reality follows power-law distributions where extreme events are more common than people realize. Complexity makes accurate prediction impossible—everything is interconnected. And humans are wired to ignore low-probability, high-impact risks.

Any number of things could start a crash. A severe debt-ceiling crisis, for instance, or a technical default that shatters confidence in US institutions. A coordinated de-dollarization breakthrough by China, the Gulf states, and BRICS. A cyberattack that cripples Treasury settlement or clearing systems. A summer of extreme fire, drought, and fertilizer shortages that send global food prices spiraling even higher than the Iran war is now doing.

Another pandemic would mean more QE and insanely higher deficits, which in turn could trigger a dollar crisis. A contested US midterm election outcome could spark a constitutional crisis that turns into civil unrest. Escalation in the Middle East could cause Israel, in a last-ditch scenario, to launch its “Samson Option” and use nuclear weapons. In which case, heaven help us all.

There are many flashpoints that could trigger a broader war, as I pointed out a couple of years ago in an article for The Intercept. None of the scenarios I’ve mentioned might start a chain reaction were it not for the unprecedented level of debt, the interconnection of markets, and the vast web of opaque derivatives. Financial contagion is a real risk; collapse would inevitably follow.

You can’t predict what will burst the bubble, but you can get out from under it. Avoid financial products you don’t fully understand. Reduce leverage. Own real assets that have survived previous resets: physical gold and silver, productive land, and equities in high-quality businesses with real cash flow. Keep some liquidity outside the banking system. Diversify internationally, but be realistic—no country is a safe island.

The debt super-cycle has run its course. Speculative fever is at an all-time high. Geopolitical rumblings are like the tremors that precede an earthquake. The only questions left are timing and which event does the job. History shows that when a reset comes, it’s rarely gentle.

I don’t mean to sound like Chicken Little, who panics when an acorn falls on her head and runs around warning everybody that the sky is falling. “Don’t panic” is usually sound advice. That said, it’s better to be early and wrong than late and right. For our precarious times, this might be better advice: Panic now and avoid the rush.