The increased failure to repay comes on the back of gloomy economic sentiment in the US, where a closely watched measure of consumers’ confidence last week fell to its second-lowest level on record. US President Donald Trump’s trade war has driven expectations of higher inflation

“If the tariffs are fully implemented, the US will need to sell its future debt… at lower prices and higher yields,” Smetters said. “More tax cuts, instead of helping offset some of the negative effects of tariffs, will add to the debt at a time when it will become more costly to do so.”

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Jonathan Nachmani, a managing director with Madison Capital, a commercial real estate investment and finance firm, said hundreds of billions in office building loans were coming due in the next two years. He said banks hadn't been selling loans en masse because they didn't want to take losses and there wasn't enough interest from big investors.

"It's because nobody wants to touch office," said Mr. Nachmani, who oversees acquisitions for the firm.

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Michael Hamilton, one of the heads of the real estate practice at O'Melveny & Myers, said he had been involved with a number of deals in which banks were quietly giving borrowers a year to find a buyer for a property -- even if it meant a building was sold at a substantial discount. He said that the banks were interested in avoiding a foreclosure and that borrowers benefited by getting to walk away from a mortgage without owing anything.

"What I have been seeing is the cockroaches are starting to come out," said Mr. Hamilton. "The general public does not have a sense of the severity of the problem."''

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The state government isn't exactly ignoring the rising water. Governor Ron DeSantis and his administration have attempted to address the havoc caused by the changing climate with his $1.8 billion Resilient Florida Program, an initiative to help communities adapt to sea-level rise and more intense flooding. But the governor has also signed a bill into law that would make the term climate change largely verboten in state statutes. That same bill effectively boosted the use of methane, a powerful greenhouse gas, in Florida by reducing regulations on gas pipelines and increasing protections on gas stoves. In a post on X the day he signed the bill, DeSantis called this "restoring sanity in our approach to energy and rejecting the agenda of the radical green zealots."

It's an idea so radical that in mainstream academic and financial circles, it borders on heresy -- the sort of thing that in the past only Turkey's populist president, Recep Tayyip Erdogan, or the most zealous disciples of Modern Monetary Theory would dare utter publicly.

But the new converts -- along with a handful who confess to being at least curious about the idea -- say the economic evidence is becoming impossible to ignore.

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This is, the contrarians argue, because the jump in benchmark rates from 0% to over 5% is providing Americans with a significant stream of income from their bond investments and savings accounts for the first time in two decades. "The reality is people have more money," says Kevin Muir, a former derivatives trader at RBC Capital Markets who now writes an investing newsletter called The MacroTourist.

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Einhorn notes that US households receive income on more than $13 trillion of short-term interest-bearing assets, almost triple the $5 trillion in consumer debt, excluding mortgages, that they have to pay interest on. At today's rates, that translates to a net gain for households of some $400 billion a year, he estimates.

We would note also that present structural interest rates aren't actually "high" -- they're still historically a bit low (with the average prior to the QE era being around 6%). Money does need some time value for the economy to work properly, we've been saying around here for over 15 years...

We've suspected for a while that Jerome Powell secretly agrees with this stance, too.

(A final point, consumer interest rates have lost most coupling from the Funds rate and similar rates a long time ago. With usury laws buried, typical consumer credit card rates have been north of 22% for a long time. When the funds rate went up from 0% to 5%, these credit card rate levels bumped up to 25-30%. So what? That's just not a significant enough proportional change to make a difference. We just don't see many out there who would make different buying decisions on a 30% CC versus a 25% CC; and the population who would default at each rate level is probably the same. Therefore, overall, we would think that Einhorn's point about consumers ending up with more cash when structural interest rates go up as being on the balance, the prevailing factor.)

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Yet Mr. Kelly of J.P. Morgan lists various reasons that periods of U.S. economic growth may be elongated and less chaotic going forward. Federal deposit insurance, introduced after the Depression, sharply reduced bank panics and failures. Vastly improved information on inventory levels among goods-producing businesses, he said, has "tamed" the inventory cycle, preventing mismatches between supply and demand that can cause mass layoffs.

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[But] Mr. Herndon noted the work of the 20th-century Polish economist Michal Kalecki, who argued that business leaders feel "undermined" by the maintenance of full employment. Using their substantial influence over policy, Kalecki argued, they can help institute restrictive economic policies that bring times of economic expansion to an end and reset them with softer, more tolerable labor power.

And Mr. Herndon said he thought old-fashioned "bubble" manias and "credit cycles" remained a danger, too.