Private Credit Boom Sparks Fears of a $2 Trillion Time Bomb
The private credit market has ballooned over the past decade, but not everyone’s celebrating. Some experts—like Clem Chambers, CEO of Online Blockchain—see eerie parallels to the kind of risky lending that triggered the 2008 crash. In a recent interview, he didn’t mince words: this could be a “zombie treadmill to meltdown.”
Private credit sounds like an old, established part of finance. But Chambers argues it’s not. The term itself only popped up about 10 or 12 years ago. Now, it’s a sprawling, shadowy network of hedge funds, private equity firms, and other institutions lending money at rates as high as 15%. “That rings a red flag,” he said. “It’s like 2007, 2008 all over again.”
The Zombie Treadmill Problem
What’s so dangerous about it? For one, many of these lenders are essentially propping up companies they already own—or even themselves. It’s a weird, self-reinforcing cycle. Firms take on debt to pay interest on older debt, then borrow more just to keep the lights on. Chambers calls it a “zombie treadmill,” where weak companies shuffle along, surviving only because credit keeps flowing.
But here’s the catch: rising interest rates are making that debt harder to carry. Defaults could start piling up, and because these loans aren’t priced transparently, no one really knows how bad it is until it’s too late. “They’re not marked to market,” Chambers noted. “You only find out the real value when everything blows up.”
Could This Spill Over?
Chambers doesn’t think banks will take the direct hit—private credit operates in its own corner of the financial world. Still, if the market unravels, the fallout could be ugly. A sudden collapse might wipe out hundreds of billions, maybe even trillions, as lenders scramble for cash. That could force central banks, like the Fed, to step in with emergency measures to stop a broader crisis.
And then there’s inflation. If the Fed has to flood the system with liquidity to keep things stable, we could be stuck with stubbornly high prices—think 5% or 6%—for years. Not exactly what anyone wants.
For now, the private credit machine keeps humming along. But Chambers’ warning is hard to ignore: when lending gets this opaque, and this reckless, it rarely ends well.
*Featured image via Shutterstock*
