Debt Bubble
A period of excessive debt that, according to the 'Rise and Decline of Empires' theory, often precedes major internal and external conflicts.
First Mentioned
1/1/2026, 5:57:55 AM
Last Updated
1/1/2026, 6:00:28 AM
Research Retrieved
1/1/2026, 6:00:28 AM
Summary
A debt bubble is an economic phenomenon characterized by credit-based investments that lack the backing of real assets and are often fueled by frivolous lending. In the context of geopolitics, it is identified as a primary driver in the rise and decline of empires, contributing to global instability and escalating conflicts. Historically, the term gained formal recognition through the British Bubble Act of 1720 following the South Sea Company's collapse. Modern manifestations include a significant rise in 'junk' and 'BBB' rated corporate debt, as well as soaring sovereign debt service costs, which in the United States have reached approximately $1.216 trillion, or 17% of federal spending.
Referenced in 1 Document
Research Data
Extracted Attributes
Definition
Intangible or credit-based investments with little ability to satisfy growing demand in a non-existent market.
Primary Risks
Debt deflation, bank runs, and currency crises when governments can no longer maintain fiat currency.
US Federal Debt Service Cost
$1,216 billion (representing 17% of federal spending).
Global Sovereign Debt Maturity
42% of all global sovereign debt is set to mature by 2027.
US Corporate Debt Risk Profile (2018)
Approximately two-thirds of nonfinancial corporate debt was rated 'junk' or 'BBB'.
Timeline
- The British Parliament passes the Bubble Act to curb 'bubble' companies following the South Sea Company's takeover of national war debt. (Source: Stanford GSB)
1720-01-01
- The share price of the South Sea Company begins a massive crash, falling from 775 to 290 British pounds by October. (Source: Stanford GSB)
1720-08-31
- Data indicates 22% of US nonfinancial corporate debt is rated 'junk', with another 40% at 'BBB' status. (Source: Wikipedia)
2018-06-01
- The U.S. Federal Reserve notes that mutual funds are acquiring one-fifth of new leveraged corporate loans. (Source: Wikipedia)
2019-11-01
- Mexican oil giant Pemex has $105 billion in debt downgraded to junk status. (Source: Wikipedia)
2020-04-17
- Projected deadline for the maturation of 42% of global sovereign debt, potentially resetting at higher interest rates. (Source: Empower Investment Insights)
2027-12-31
Web Search Results
- Economic bubble
A debt bubble is characterised by intangible or credit based investments with little ability to satisfy growing demand in a non-existent market. These bubbles are not backed by real assets and are based on frivolous lending in the hope of returning a profit or security. These bubbles usually end in debt deflation causing bank runs or a currency crisis when the government can no longer maintain the fiat currency. Examples are the Roaring Twenties stock market bubble (which caused the Great [...] ### Debt bubble [edit] [...] [edit] There are different types of bubbles, with economists primarily interested in two major types of bubbles: The equity bubble and the debt bubble. ### Equity bubble [edit]
- Corporate debt bubble - Wikipedia
In June 2018, 22% of outstanding U.S. nonfinancial corporate debt was rated "junk", and a further 40% was rated one step above junk at "BBB", so that approximately two-thirds of all corporate debt was from companies at the highest risk of default, in particular retailers who were losing business to online services. The U.S. Fed noted in November 2019 that mutual funds held about one-sixth of outstanding corporate debt, but were acquiring one-fifth of new leveraged corporate loans. The size of [...] Halliburton doubled its corporate debt to $11.5 billion between 2012 and 2020; it sold $1 billion in debt in early March 2020 with the explicit purpose of paying off existing debt and has $3.8 billion in debt payments due through 2026. AT&T debt ballooned to $180 billion following its acquisition of Time Warner in 2016. In 2018, Moody's declared AT&T to be "beholden to the health of the capital markets" because of its reliance on continued credit to service its debt load. [...] On 17 April, the $105 billion in debt issued by Mexican oil giant Pemex was downgraded to junk status, making it the largest company to fall from investment grade. However, its bond yields held steady as investors assumed an implicit guarantee by the Mexican government.
- A Brief History of Financial Bubbles
The term bubble came into official use with the passage of the “Bubble Act” in 1720 by the British Parliament. England had recently granted the South Sea Company the right to take over its war debt in exchange for exclusive trading rights in the gold and silver rich South American colonies. Investors quickly inflated the share prices of South Sea, similar trading companies, and other “bubble” companies that the act sought to curb. [...] able to service their debts. Investors put their bonds up for sale and prices crashed. Faced with this capital flight, the countries had no choice but to default. [...] The Trustees of the British Museum From Aug. 31 to Oct. 1, 1720, the share price of the South Sea Company, which had taken on England’s war debt, crashed from 775 British pounds to 290. ## Latin American Debt Crisis Image Courtesy of the John Carter Brown Library of Brown University.
- A “monster?” A “time bomb?” How to see the real danger from U.S. ...
Households (both directly and through mutual funds) and foreign investors have remained avid buyers of newly issued U.S. debt. In July, when Treasury auctioned $42 billion worth of 10-year notes, buyers lined up with demand that exceeded supply by 2.5 times.4 This demand has kept interest rates in check even as the government debt load has soared.
- The global debt problem
In the U.S., the Department of the Treasury and Bureau of the Fiscal Service report the cost of debt service — the interest rate payments on the debt — has sharply risen as rates have climbed. It now stands at $1,216 billion (that’s 17% of federal spending). OECD points out that 42% of all global sovereign debt is set to mature by 2027, meaning that debt that was previously underwritten during periods of very low interest rates may reset at higher rates. Plus, more debt may be coming [...] The Federal Reserve Bank of Dallas found that for each percentage point increase in debt to GDP, long-term yields rise by three basis points (0.03%). Don’t misunderstand the nature of the problem: This doesn't necessarily mean we think the 10-year Treasury yield will spike in 2026; the debt issue is the steeplechase, not the 100-meter dash. Plus, if we see lower growth or lower inflation, they could push against higher long-term rates. [...] The S&P 500® Index (“Index”) and associated data are a product of S&P Dow Jones Indices LLC, its affiliates and/or their licensors and has been licensed for use by Empower Retirement, LLC. ©2025 S&P Dow Jones Indices LLC, its affiliates and/or their licensors. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spdji.com.