More Debt, More Growth (For Now)

Rising credit and leverage are supporting near-term economic growth and market gains, but they are also increasing future fragility.

• U.S. government and corporate debt has risen from $10 trillion in 2005 to more than $50 trillion in 2026, while debt relative to nominal GDP has stayed relatively flat in recent years.
• Net debt issuance over the past twelve months is rising quickly, with corporate borrowing increasingly financing AI infrastructure; the authors argue that technology spending has a relatively high multiplier because its supply chains are global.
• The authors’ 30-year analysis finds that periods of declining margin debit balances have generally coincided with market weakness, although it cannot establish whether falling markets reduce leverage or reduced risk appetite causes markets to fall.
• There are an estimated 868 U.S.-listed leveraged ETFs with almost $200 billion in assets, representing about 1% of ETF assets but 16% of daily trading volume because they are mainly used for short-term trading.
• South Korea’s KOSPI rose 122% earlier in the year before giving back about half of those gains, as concentrated AI-related holdings and greater use of margin and leveraged vehicles amplified the move.

Takeaway: Credit and leverage can extend growth and market upside for now, but investors should account for debt-servicing, crowding-out and volatility risks, especially when leveraged products intensify market moves.