The last time the financial system cracked, we could see the fault lines in hindsight. This time, several of them are visible in plain sight, right now, and that might actually make things worse.
A clutch of warning signals have been quietly blinking red over the past few months. Global debt levels are sitting at historic highs. Commercial property markets in the US and Europe are under serious stress. And the rapid rise in interest rates, the sharpest in a generation, has yet to fully work its way through household budgets and corporate balance sheets.
The Bank of England has flagged that UK mortgage holders rolling off fixed deals are still absorbing the shock of higher repayments. Some 1.6 million fixed-rate mortgages were due to expire in 2024 alone. That pressure doesn’t disappear overnight.
“The system absorbed the rate hikes better than most expected, but that’s partly because the pain was deferred, not avoided.”
That assessment from one City economist captures the mood fairly well. The 2008 crisis was rooted in dodgy mortgage-backed securities and overleveraged banks. Regulators spent the years after tightening rules on exactly those things. So the next shock, if it comes, almost certainly won’t come from the same place.
Instead, attention is turning to private credit markets, which have ballooned to roughly $1.7 trillion globally, much of it operating outside the traditional banking system and away from close regulatory scrutiny. It’s a corner of finance that most people have never heard of, which is precisely what worries those who have.
There’s also the geopolitical dimension. Supply chain disruptions, energy price volatility, and the economic consequences of conflicts in Ukraine and the Middle East add layers of unpredictability that no model fully accounts for.
None of this means a crash is inevitable. Economies are more resilient than the doomsday crowd tends to admit, and policymakers do learn, eventually. But the uncomfortable truth is that crises rarely announce themselves. They arrive through the door nobody was watching.
The question worth sitting with isn’t whether the warning lights are flashing. It’s whether anyone with the power to act is actually paying attention.
