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Anthony Rowley

If financial markets can survive the United States’ war on Iran and Russia’s war against Ukraine, does this mean that financial crashes have become a thing of the past? Or have markets just not grasped the true nature of the current threats to the financial system?
The latter is almost certainly the case, as former Goldman Sachs CEO Lloyd Blankfein suggested when he said in a recent Financial Times interview that people had “got more complacent” about financial risks since the 2008 crisis.
It is true that equity markets around the world have shown resilience so far through both US President Donald Trump’s trade wars and kinetic wars. But Blankfein’s observations reveal to those with sufficient experience and perception that one must simply look in the right place.
Financial crises rarely, if ever, recur in the same segment of the market as the last shock.
The Trump administration’s triumphalist pronouncements regarding its invasion of Iran could be undercut not only by the backlash from energy prices and transport logistics but also by a brewing crisis in financial markets as debt vulnerabilities erupt on uncertainty, rising inflation and crystallising systemic threats.
Blankfein told Bloomberg on the Big Take podcast that he is worried about problems brewing in the private credit sector. This segment of the market could be the flashpoint for a bigger crisis in markets, he suggested.

“We’re due for kind of a reckoning,” Blankfein said. “Because we haven’t had a problem for such a long time, undoubtedly we’ve put money in places where write-offs are going to need to happen. And when you’re dealing with opaque, illiquid assets like credit, that’s a place that one would clearly have to look.”
Blankfein is not the first person to sound the alarm about the very rapid and largely unregulated private credit market expansion. However, when warnings come from those such as the former head of Goldman Sachs, who led the investment bank through the 2008 global financial crisis, they tend to be taken more seriously.
There’s no guarantee that this will prove to be the case, but the writing is on the proverbial wall in rather large letters.
The point is that risk has now gone undercover. It was in full view in the case of some large banks before the 2008 financial crash. The failure of Lehman Brothers and others was a very high-profile event. Regulations on big lenders were somewhat tightened after the crisis.

But demand for borrowing did not shrink accordingly, especially in the succeeding years of ultra-low interest rates when governments and central banks pushed out cheap money to offset the impact of financial crises and the Covid-19 pandemic. Instead, lending migrated to “shadow banks”, such as hedge funds and insurance companies, many of them financed by big banks via back-door credit markets.
This concealment of mushrooming debt is threatening to erupt into the open. As Gita Bhatt, the editor-in-chief of the IMF’s Finance & Development publication, observed, “For years, policymakers have treated government debt like an elastic band that could be stretched without ever snapping.” As public debt exceeds economic output in multiple advanced economies, Bhatt asked: “How much stretch is left for the next crisis?”
“Debt levels in several advanced economies are the highest ever reached in peacetime, driving up borrowing costs for governments and consumers alike,” she noted, adding that rising debt and high interest rates will force policymakers into making some difficult choices. “Raise taxes, cut spending on essential services and benefits, stoke inflation – or delay the reckoning by borrowing even more and praying markets won’t impose too high a premium,” she said.
Global debt has reached a level of close to US$350 trillion, according to the Institute of International Finance (IIF). That is three times the size of global gross domestic product (GDP), which stood at around US$117 trillion last year, according to Statista, and close to three times the total capitalisation of global stock markets.

However, what is even scarier is how quickly the debt mountain is growing, almost as if it were a continuously erupting volcano. Last month, the IIF reported that nearly US$29 trillion was added to global debt stockpiles in 2025.
This marked the fastest increase in debt since the surge during Covid-19, according to the IIF, which also noted that debt stocks reached new highs across both advanced and emerging economies. “A powerful mix of fiscal expansion, accommodative monetary policy, and ‘lighter-touch’ regulatory simplification could drive further debt accumulation”, the IIF cautioned.
Driven especially by rising defence spending, government borrowing accounted for more than US$10 trillion of the increase in global debt in 2025, with China, the US and Europe responsible for nearly three-quarters of the rise. The European Union’s defence spending increases could lift its government debt-to-GDP ratio by over 18 percentage points by 2035, according to the IIF.
Emerging markets, meanwhile, face record refinancing needs of over US$9 trillion in 2026.
Debt-to-GDP ratios eased in mature markets in 2025 but still stood at 308 per cent, while emerging markets’ debt-to-GDP ratios continued to rise, hitting a fresh record above 235 per cent. The accumulation of global debt is surely where markets should expect the next financial crisis to erupt.


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Markets have so far shrugged off wars and trade conflicts, but the rapid rise of already massive debt should alarm investors


Markets have so far shrugged off wars and trade conflicts, but the rapid rise of already massive debt should alarm investors.


Financial regulation

Global Financial Crisis of 2007-2008

Global monetary policy

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Goldman Sachs

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Column

The cause of the next global market crash is hiding in plain sight

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Markets have so far shrugged off wars and trade conflicts, but the rapid rise of already massive debt should alarm investors

Markets have so far shrugged off wars and trade conflicts, but the rapid rise of already massive debt should alarm investors