The Largest Bubble Meets a Coming Recession: Debt, Deficits, and the Seeds of a Sovereign Crisis

The Case of France: Too Big to Fail, Too Weak to Reform

The warning signs are growing impossible to ignore. After years of easy money and ever-rising debts, the global economy appears to be heading toward a downturn – and perhaps something even more dangerous. My own business cycle model, which abstracts away from short-term market euphoria, has been signaling that a U.S. recession is looming. The U.S. economy has enjoyed a long expansion recently, yet we are now seeing clear evidence of a slowdown in growth. Meanwhile, government and private debt have swollen into what could be the largest financial bubble in history, stretching valuations and fiscal balances to unsustainable extremes. In my analysis, these conditions set the stage for a major crisis over the next few years – one that could encompass not just a recession, but a sovereign debt reckoning in the weakest links of the global economy.

I’m not in the business of crystal-ball predictions, but I believe in analyzing the cycle and the data objectively. And today, the data tell a troubling story. In this article, I’ll walk through the key indicators – from inverted yield curves to exploding interest costs – that point to a hard landing ahead. We’ll examine why the coming recession may be especially severe, given the unprecedented debt overhang. We’ll also dive into a case study of France, where fiscal frailties in one of the world’s largest economies exemplify the sovereign risks brewing beneath the surface. Throughout, I’ll reference my broader economic thesis: that the convergence of cyclical downturn and debt excess is a recipe for a debt crisis. This isn’t mere conjecture; it’s grounded in historical patterns and current evidence. By the end, it should be clear why I expect a sovereign debt crisis as part of the “bigger development” unfolding in the next few years, and why prudent observers should be on high alert.

U.S. Economy Flashing Recession Signals

Several classic recession indicators in the United States are now flashing red, aligning with what my business cycle model has been predicting. One of the most reliable warning signs – the inverted yield curve – has been unprecedentedly persistent in this cycle. An inverted yield curve means short-term interest rates exceed long-term rates, and it has an uncanny track record of preceding recessions by 6 to 24 months[1][2]. In fact, by late 2023 the U.S. saw its longest continuous yield curve inversion in recorded history, lasting over 783 days from 2022 into 2024[3]. This broke the previous record from 1978-1980, and every instance of such inversion in the last half-century has been followed by an economic recession[4][5]. While some argued “this time might be different,” the sheer duration of the inversion is hard to shrug off as an anomaly.

Chart: U.S. Treasury yield curve (10-year minus 2-year yield spread) since the late 1970s. Negative values (below 0) indicate an inverted yield curve, highlighted during the period from mid-2022 to late 2024. The gray bars are past recessions, which have consistently followed yield curve inversions with a typical lag of several months[1][2].

The yield curve isn’t the only indicator foreshadowing a downturn. Leading economic indices have been weakening as well. The Conference Board’s Leading Economic Index (LEI) for the U.S. has declined for numerous months in a row through 2024-2025, even triggering their “recession signal” in recent updates[6]. For example, in July 2025 the LEI was down 2.7% over six months, a depth and duration of decline that historically correlates with impending recessions[7][6]. Consumer confidence has soured and new orders for manufacturers have weakened, reflecting pessimism about business conditions. Notably, even the Conference Board – typically conservative in recession calls – acknowledged that the LEI’s six-month downturn met the criteria for a recession warning, though their baseline forecast still assumes only a growth slowdown (1.6% GDP growth in 2025) rather than a full recession[8]. In my view, this is a case of hope edging out historical precedent. The breadth and persistence of the LEI decline suggests the economy’s momentum has truly faltered.

One needs only to look at the labor market and manufacturing to sense the cooling. Job openings have fallen sharply from their peak, layoffs in interest-rate-sensitive sectors (like tech and real estate) have made headlines, and the once ultra-tight employment market is loosening at the margins. Manufacturing activity, as reflected in PMIs (purchasing manager indices), has been in contraction for months both in the U.S. and globally. Even consumer spending – the workhorse of the U.S. economy – is starting to show fatigue as excess savings from the pandemic era dwindle and high inflation crimps purchasing power. Recent data on retail sales and household credit indicate that consumers are relying more on credit cards and savings drawdowns to maintain spending, an unsustainable dynamic if income growth doesn’t keep up. Indeed, credit card balances in the U.S. have surged past $1.3 trillion and delinquencies are rising[9], a sign that many households are feeling the squeeze of higher prices and borrowing costs. These micro-level stresses tend to presage cutbacks in consumption, which in turn feed into the broader downturn.

Another development consistent with an end-of-cycle environment is the shift in the jobs market trend. Throughout 2023, monthly job growth steadily decelerated. By 2024, we even saw an uptick in unemployment claims and a couple of surprisingly weak payroll reports that jolted markets. For instance, one late-2024 payrolls release came in far below expectations, prompting analysts to openly debate if the U.S. was “on the brink” of recession after all – something that was largely dismissed just a few months prior when the job market appeared unsinkable[10]. The U.S. unemployment rate, which hit a 50-year low of 3.4%, edged up into the mid 3% range and appears biased to continue rising. Historically, once unemployment ticks up off a trough, a recession has never been very far behind (this is related to the Sahm Rule, another reliable recession indicator). My business cycle approach, focusing on these kinds of turning points, cuts through the noise of any single data point. It leads me to conclude that a U.S. recession is not a question of “if”, but “when” – and the “when” is soon.