United States: the whole truth about the American speculative financial boom and the crisis to come

The American economic system has always been based primarily on finance and innovation. The development of a particularly sophisticated financial sector, built around the Dollar as a reserve currency, made it possible to attract global capital to finance technological innovation and research. Until the end of the 1990s, the United States operated on an economic model also based on large-scale industrial production, although even then the relocation of low-value-added activities was steadily increasing. The great shift came from 2001, when China joined the WTO and globalization intensified.

From that moment on, outsourcing created a global value chain capable of supporting even high-value-added industrial production relocated abroad.

Offshoring therefore extended to the advanced sectors of the economy as well, and the country’s deindustrialization struck entire core manufacturing regions, with the result that today the United States also depends on foreign countries for key production components in the military, pharmaceutical and communications sectors, raising a national security issue. But while manufacturing continued to shrink, the financial sector kept expanding, thanks to an excess of available capital that could no longer be deployed in industry and manufacturing. And so, in the 2002–2007 period, the financial sector continued to finance technological innovation and research, but it also channelled the excess capital available into real estate, creating the bubble that triggered the 2008 crisis.

The monetary interventions that followed the crisis, which lasted for more than 14 years, triggered yet another colossal excess of liquidity in the financial system. But in the meantime, the structure of the American economy had continued along an increasingly pronounced path of production offshoring, and the excess capital in the system kept circulating in the financial sector, finding less and less use in the real economy. A significant share of this excess capital, which also financed offshoring to Asia, remained in the financial sector and created speculative bubbles almost everywhere. The Central Bank continued to inject liquidity without taking into account that the economic system was no longer able to absorb it as before, due to production globalization that was pushing real investment abroad.

The financial sector therefore deployed this excess liquidity by financing anything that offered a return above the zero rates set by the FED between 2008 and 2022. This monetary policy mistake, pursued for more than 14 years, created a colossal misallocation of excess capital in the system.

Between autumn 2018 and the end of 2019, signs of crisis began to emerge in one of the sectors that had benefited from this excess capital, once again real estate. A dangerous weakening in the economic cycle brought to light a speculative bubble in Commercial Real Estate that began to affect the system. The FED was forced into an emergency intervention in the Repo market, with a massive injection of liquidity, and it resumed QE operations that it had halted months earlier. In this way, with signs of crisis already evident, the US financial system reached the onset of Covid in very poor overall condition, precisely because of this misallocation of excess capital injected during the QE years.

The pandemic, however, made it possible and legitimate to adopt unimaginable rescue measures, allowing the system to overcome the crisis and re-emerge thanks to yet another bailout, the largest ever carried out in economic history.

The colossal monetary and fiscal intervention (equal to about 40% of GDP) cushioned the economy during the pandemic and then triggered the recovery once the system came out of lockdown. The Commercial Real Estate sector did not recover, however, since Covid triggered smart working, effectively worsening the sector’s situation. The Central Bank’s further attempt to support the system with yet more excess liquidity increased the use of capital in finance, leaving the fundamental problems of the real economy unresolved. One effect of this capital deployment became clear from 2020 onwards, when large institutional investors (pension funds and insurance funds), no longer very attracted by the excessive valuations reached by equity markets, began to channel a significant share of their investments into Private Markets, seeking opportunities in markets that were less inflated by speculation.

The colossal amount of money diverted into these investments channelled more than USD 7 tr into Private Equity, swelling AUM from USD 2 tr in 2010 to more than USD 9 tr in 2025 (+350%). Private Credit, a sector that was virtually non-existent until 2020, received more than USD 2 tr from these investors. In total, these markets received a flow equal to 50% of US GDP for that period. Private Credit exists because it finances what banks could never finance, confirming how a system with excess capital seeks predominantly speculative outlets.

The growth in flows also fuelled a speculative bubble in these segments of the financial sector, partly generating real investments (start-ups) that then proved to be poorly remunerative or loss-making, thereby creating further misallocation of capital.

The excess capital available and channelled into Private Markets was invested mainly during QE, when the valuation parameters for these projects were based on interest rates of zero. But in 2022, following the rate hikes, Private Equity and Private Credit began to show signs of crisis, fundraising slowed sharply and IPOs came to a halt. At present, around USD 11 tr (equal to 30% of US nominal GDP) is effectively frozen in Private Markets and redemption pressures have begun to expose the critical issues. Private Equity has around USD 4 tr in unsellable assets on its books (Source: PitchBook), purchased at the time at valuations consistent with the QE phase and zero rates.

Private Credit began to run into trouble when the failure of some companies brought to light risks that had previously been completely ignored. Meanwhile, from 2022 onwards, Private Equity firms, to meet investors’ liquidity demands, began to turn to bank financing to pay returns that the invested portfolio was unable to generate. The major American banks, again thanks to the ample excess liquidity available that was not being absorbed by the real economy, financed these operations using the collateral represented by the stakes held by Private Equity funds. In addition, again to meet redemption requests, Private Equity firms created new vehicles, known as Continuation Funds, which buy from previous Private Equity funds the assets that cannot find buyers in the market, thus helping to create a secondary market for the stakes held by troubled Private Equity funds.

By the end of 2025, however, it emerged that the main investors in Continuation Funds are the Private Equity firms themselves, which make these purchases through additional bank debt, or American insurance companies owned by the same Private Equity funds. Over time, Private Equity firms have acquired majority stakes in insurance companies and at the same time have bought smaller rating agencies. Over the last three years, in parallel with the crisis in Private Equity and Private Credit, insurance companies owned by Private Equity funds have steadily allocated increasing investments at the peak of the speculative credit cycle, reassured by the generous ratings assigned to speculative credit by rating agencies owned by the same Private Equity firms, which also control Private Credit companies.

These practices undoubtedly confirm the crisis of one of the most important sectors of Shadow Banking.

While the entire Private Market and Shadow Banking System infrastructure had already begun to show obvious difficulties and dangerous conflicts of interest as early as 2022, the US banking system, with more than 3.5 trillion in excess reserves provided by the FED, continued to channel massive financing into this sector in an attempt to contain the crisis. As a result, between 2022 and 2025 official exposure to the Shadow Banking System by the main US banks rose to 25% of total loans, although bank balance sheets also contain an equal amount of “unclassified” loans that could certainly form part of this exposure and would further inflate the figure.

Credit to the economy has been stalled for some time, but lending to Shadow Banking has continued to grow at double-digit rates precisely as the sector has shown signs of crisis.

At the start of 2026, JP Morgan announced its intention to reduce its risk exposure to Private Credit and Private Equity, worsening the sector’s problems and triggering further redemption requests (if JPMorgan no longer finances it, why should an investor?). At the beginning of May ’26, HSBC reported a balance-sheet loss of more than USD 400 million stemming from exposure to the Private Credit sector. The issue, beyond the loss itself, is also the mechanism through which it emerged. Press reports (FT of 6/05/26) indicate that the exposure to the failed counterparty did not appear in the published accounts for the previous quarter.

The sudden loss stems from an off-balance-sheet loan granted to a financial vehicle (SPV) that in turn financed the leverage of a Private Credit fund.

At this point, the question is obvious: how many exposures of this kind exist in international banks without appearing on balance sheets, and how much leverage is hidden inside Private Credit funds? Until yesterday, in fact, nobody knew that Private Credit funds had “off-balance-sheet” positions and hidden leverage created by such mechanisms, and this is yet another confirmation that the excess capital in the system, deployed between 2008 and 2022, financed a speculative credit bubble that is still little understood but significant and larger than the 2003–2007 bubble. Meanwhile HSBC, the same bank that in 2007 announced the closure of its mortgage division in America because of losses, announced on 15 May ’26 that it was stopping all banking activities linked to Private Credit (a bad sign, compared with what happened in 2007).

While the Shadow Banking System and banks reveal an inextricable web of risks, obvious yet not fully transparent and entirely opaque, American financial markets have “played the AI card.” This sector has begun to absorb the residual excess liquidity in the financial system through massive investment in data centres. The excess liquidity in the financial system, partly trapped in Private Markets and speculative bubbles, has not been able to fully sustain such investments. Corporate cash flow has therefore now stepped in as the main source of funding. However, the cash flow of these companies is not sufficient for the resources currently required by this innovation, and large tech firms have begun to raise part of the excess liquidity still left in the system through debt issuance.

The transformation of one of the few surplus sectors in the US economy into a deficit sector increases the drain on excess liquidity and poses risks to the resilience of the speculative bubbles, which have been fed precisely by this mechanism. On top of the public-sector and private-sector deficit, the deficit of the only sector of the economy that was in surplus, thanks to the monopolistic positions it had created, will soon be added as well. In this way, a financial system now burdened by a colossal misallocation of capital created during the long QE period is channeling its last resources into competing with China in AI, aware that the returns on such investments are not yet entirely clear and are probably too spread out over time.

Meanwhile, the American system, based on finance, innovation, offshoring and limited production, has generated unsustainable internal and external imbalances.

In an attempt to reverse course, the United States has begun introducing mechanisms that will put the model born after the 2001 crisis into turmoil. Import tariffs, trade war and the fight against offshoring are in sharp contrast with the dynamics that created the current economic and financial structure. These measures will put the system under strain precisely at the peak of the credit cycle that supported the speculative bubbles generated by excess liquidity, now dissipating. Even the profits reported by the stock market, apart from a few monopolistic companies, are mainly determined by an almost negligible tax burden, aggressive buybacks aimed at supporting EPS and financial leverage that is no longer low-cost.

The frenzy of buybacks confirms that the real economy offers insufficient opportunities to reinvest profits, which are therefore used to buy shares.

These extraordinary factors, favoured by 14 years of QE, are now running out, and the proof is the ongoing demand for aggressive fiscal policies to prevent the cycle from weakening. US finance has therefore spent more than twenty years managing the excess liquidity injected by an irresponsible central bank, channelling that liquidity mainly into financial markets, both public and private, because the real economy, due to offshoring, could not use it, and for this reason systemic speculative bubbles were created. Meanwhile, the economy outside finance and the monopolistic tech sector is clearly struggling and requires constant fiscal intervention, which also serves to avoid slipping into a recession that the speculative bubbles would not be able to withstand.

But debt that tends toward infinity can still create a crisis. Monetary policies without end, and now fiscal ones as well, have therefore turned into a structural trap with no way out.

Constant extraordinary fiscal support, in order to prevent the cycle from weakening and a recession from taking hold, requires ever more capital from abroad or, alternatively, domestic savings. But since there are no domestic savings, foreign capital from Japan and Europe is now the only support for this system (China and EM have already partly stepped back). A dangerous situation is therefore emerging on the horizon, in which excess liquidity, which has sustained the speculative bubbles, is shrinking for several reasons: 1) the Shadow Banking crisis has trapped a significant portion of it, 2) AI Capex is absorbing that of the only surplus sector of the economy, 3) public debt is expanding to avoid crisis and requires growing savings flows to be financed.

This mechanism is producing an unwanted rise in global interest rates, now further amplified by the ongoing energy crisis. To stop it, more QE and monetary injections would be needed, something the FED does not seem willing to do now because of inflation risks.

At this point, we can foresee that the Dollar, one of the pillars of the debt-innovation-offshoring model, may be one of the triggers of the crisis. We are therefore in a situation where the system needs more excess liquidity precisely when inflation prevents it from being supplied, but when it is eventually supplied it will affect the system’s core pillar, the one that supports its colossal external debt: the Dollar. Investors are therefore all passengers on a moving train with no brakes, where at present no one can get off, since the pressure of passive management prevents them from doing so, but the terminal station is a financial crisis.

The scale of this crisis will be closely linked to the scale of the imbalances that have built up, the concentration of risk in the markets and their illiquidity, the amount of speculative credit accumulated and the length of the speculative cycle. All numbers are decidedly higher than in the 2003–2007 credit cycle, when in just four years we managed to build the largest crisis since 1929.