In the lead-up to the 2007 Great Recession, I remember whispers around the dinner table. While things seemed good, there was always a lingering question. Were things too good? Was the run up in housing prices sustainable? These home prices seemed unprecedented. Was it a bubble? Once again, you hear whispers. But it’s all around the national debt. Is this level of government borrowing sustainable? Or is America immune to a debt crisis because the dollar is the world’s currency? When something appears to be too good to be true, you can rightly assume, that in fact it is too good to be true. So where do we stand today?

Well, the current global economic crisis that is spreading from China, Japan and Europe to the United States differs significantly from the 2007-08 Recession. Unlike the previous downturn, which was driven in large part by the collapse of the U.S. housing market, today's recessionary pressures are emerging simultaneously from multiple regions, including China, Japan, and Europe.

One of the most alarming trends is that global debt has been growing at a much faster rate than GDP. As of 2023, global debt reached a record $313 trillion, which is nearly 330% of the world’s total GDP. When debt grows faster than GDP, it signals an unhealthy economic environment where the burden of debt stifles growth. This trend is particularly worrisome because it indicates that, on a global scale, economies are essentially shrinking in real terms, even if nominal GDP figures show some growth. For instance, China's economic performance is lagging due to property market struggles and high levels of corporate and government debt. Japan's situation is worsening, with long-term economic stagnation compounded by an aging population and deflationary pressures.

And on the home front, things aren’t looking better. Over the past several years, the United States has accumulated over $35.06 trillion in federal government debt—a staggering amount we've often discussed in this newsletter. The leverage, especially from Japan, has been incredible, propping up our ever-increasing indebtedness. But a day of reckoning is approaching.

To be clear, we at the Puck do not believe that the world is coming to an end. Built into the human condition are periods of relative stability and then rapid change and disruption. We need to accept that change is inevitable and that there will always be winners and losers. We need more accountability and while risk taking is partly what makes America unique, it becomes reckless when the government rescues the businesses that fail, because there then is no consequences and we are rewarding incompetence as opposed to rewarding competence and ingenuity.

During the 2007-08 financial crisis, a trillion-dollar collapse in the housing market was enough to bring down the global economy. However, the current situation is even more precarious. This time, it’s not just the traditional banks that are at risk, but also non-bank entities like SoftBank and other shadow lenders that have taken on tremendous leverage. These non-bank institutions are funding companies with little to no real collateral and without proven earnings, creating a fragile financial environment.

Additionally, the cryptocurrency market, which many once heralded as the future of finance, has proven to have no real substance or underlying value. The speculative bubble surrounding crypto assets further adds to the instability. To be clear, this isn’t to say that there isn’t a real use case for a digital currency, but rather we are simply pointing out that the way cryptocurrencies are currently traded, support a speculative asset classification as opposed to a store of value or means of financial exchange.  

Commercial real estate is another ticking time bomb. Valuations in this sector need to be reduced by at least fifty percent due to prolonged periods of "extend and pretend" practices, where lenders have been artificially maintaining property values. Meanwhile, variable rate apartment buildings, which have been over-leveraged, are poised for significant declines as interest rates rise and the reality of inflated property values sets in.

We’re also witnessing the deflation of the “everything bubble,” driven in part by the end of an unsustainable financial strategy that saw Japan borrowing at near-zero rates and purchasing U.S. Treasury bills to exploit the interest rate spread. With inflation now impacting both Japan and the U.S., that game is over, and as this financial bubble bursts, the fallout will be severe. Keeping it simple, if an economy is based on asset valuations that are in based on emotion or hope as opposed to fundamentals, it is only a matter of time before reality sets in.

And unfortunately, in these times of economic uncertainty, the vulnerabilities we’ve outlined—whether in non-bank leverage, overvalued assets, or the unsubstantiated rise of cryptocurrencies—are set to collide in a way that could lead to severe financial and societal consequences. Sadly, when financial instability grips the world, bad actors are often quick to take advantage of the chaos. We’re already seeing increased aggression from nations like Iran, North Korea, Russia, and China. As the financial instability reaches its crescendo, the likelihood of conflict grows.

The reckless strategies that have driven global finance for years are now unraveling, and the cost will be borne by many. We are heading into uncharted territory, and the question remains: who will bear the brunt of this impending storm? We are approaching a critical juncture where nations must come together to address these challenges. It’s a time for unity—both as a country and as a global community—to reckon with the realities we face and work towards solutions that will stabilize and secure our future.

Jim recently sat down with Frank Bruni, a contributing Opinion writer at The New York Times. Bruni has been both a White House correspondent and a leading restaurant critic. He is the author of four New York Times best sellers: a 2022 reflection on illness, aging and optimism, The Beauty of Dusk; a 2015 examination of the college admissions frenzy, Where You Go Is Not Who You'll Be; a 2009 memoir, Born Round, about the joys and torments of his eating life; and a 2002 chronicle of George W. Bush’s initial presidential campaign, Ambling Into History. In the summer of 2021, he became a professor of journalism and public policy at Duke University. His newest book is called The Age of Grievance.

On this recent episode, Jim sits down with renowned physician, scientist, and author of the New York Times bestseller Eat to Beat Disease: The New Science of How Your Body Can Heal Itself, Dr. William Li. Dr. Li is a lab scientist and vascular biologist, who has built a career studying our relationship to food. Their conversation covers Dr. Li’s research, his background, and some practical advice about how diet can impact your long-term health.