Experts say rising debt and high interest rates could spark a crisis like 2008 — or worse.
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00:00So the 2008 financial crisis was very specific to subprime lending on what we call BC paper lending on the credit markets.
00:09And what happened was those subprime loans were packaged together, collateralized as bonds and sold on Wall Street as really safe debt instruments to invest in.
00:19And we know that that didn't work out. There was a lot of insurance policies that were insuring those BC bond packages that ended up defaulting.
00:27And that's what we call the credit default swaps. So the insurance policies collapse, which is what brought down AIG.
00:33And what I would say is different this time is that the debt level of the world in 2025 compared to the GFC in 2008, 2009 is not even comparable.
00:45We are so much further indebted and further leveraged.
00:49If you look at the mezzanine debt, if you look at the collateralized loan obligations, if you look at all of the kind of subprime financing that's happened on the commercial side this time,
00:57instead of the actual, you know, consumer side, that's where we see problems.
01:03That's where we see insolvency. We have nine trillion dollars of federal debt that is getting refinanced in just 2025.
01:10And so as we see more and more debt have to be issued, then that's what brings up yields,
01:16because the risk of issuing more and more debt means it's riskier, which means the risk premium goes up.
01:22And then we're refinancing debt at higher interest rates.
01:25The problem with refinancing nine trillion of thirty six trillion at higher interest rates than it was when we wrote the nine trillion is because it raises our interest expense.
01:34Our interest expense is now our third largest expense right behind Social Security and Medicare ahead of even at the same par equivalent of military spending.
01:43This is unsustainable. And if it leads to what we call a debt bubble bursting, because we will be basically getting so much interest due every 100 days.
01:52We'll have to add more debt to service the interest.
01:55And it really becomes a self-defeating prophecy of like a hamster wheel that eventually explodes.
02:00So unfortunately, I do have to say that the solvency, if we look at the reserves, for example, if you look at the banking system, United States of America,
02:09and you look at the Federal Deposit Insurance Corporation's balance sheet, you'll see that the assets that are held by the FDIC is less than two percent of all the reserves they actually guarantee in the U.S. banking system.
02:18The problem is we are priced to perfection. If anything, as Trump implements his tariff policy, as China retaliates, as other countries get back into the mix after the 90 day expiration,
02:30if anything doesn't go well, we have a lot of leveraged credit out there that would be problematic if it doesn't get refinanced at reasonable rates.