The Economy Is in a ‘Rolling Financial Crisis’ As Private Sector Debt Balloons

The economy is facing a slow-moving financial crisis fueled by escalating levels of private sector debt, warns GMO. Partner James Montier highlights the risk posed by the massive buildup of private debt, which can act as an amplifier during market declines. The US, in particular, faces a high risk due to its consistently high ratio of private sector debt to GDP. While current private credit growth remains relatively low, the mounting debt threatens financial stability and asset prices. Experts anticipate a potential recession, as interest rates overtighten the economy. Montier advises investors to choose assets that hedge against risk and retain value. Market observers, including GMO co-founder Jeremy Grantham, have also raised concerns about a potential crisis, with Grantham predicting a significant stock market crash and estimating a potential 50% drop in the S&P 500 over the next few years.