Disclosure: Disclaimer: The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of any organization or institution.

By Doug Young – 15 December 2023

warning signs


In recent discussions, the White House, Wall Street, and the Central Bank have projected a strong economy for 2024 and beyond, even in the face of high inflation and rising interest rates. It is crucial to acknowledge the major red flags that many are currently overlooking, however.

By examining critical economic factors, we can gain a more holistic view of the current state of the economy and understand the potential challenges that lie ahead.

The Credit Crunch

During the pandemic era, corporations took advantage of historically low interest rates and borrowed substantial amounts of money. This has led to the creation of a massive debt mountain. As interest rates have risen, corporations now face the inevitable credit crunch. These businesses often hold adjustable loans rather than long-term fixed mortgages, leaving them vulnerable to increased interest rates.

The consequences of this credit crunch will begin to manifest in 2024 and accelerate in 2025. If interest rates remain high, corporations burdened with substantial debt will experience skyrocketing debt payments, significantly impacting their expenses.

Commercial landlords are a good example of a sector facing a unique dilemma. Many invested in commercial real estate or refinanced their properties during the period of low interest rates as a cost-saving measure. As their debts start to readjust over the next 24 months, the rising costs will pose challenges for these landlords.

Complicating matters further, the commercial real estate market, particularly the office sector, is experiencing a shift due to the new hybrid work style and changes in office dynamics. With increased vacancies and limited ability to raise rents, landlords find themselves struggling to meet mortgage payments and expenses, potentially leading to a crisis in the office market.

The Impact of Higher Interest Rates

The Federal Reserve Bank raises interest rates to combat inflation. By making spending more expensive, interest rate hikes cool down demand. However, these measures have broader consequences for the economy. Higher interest rates result in reduced spending power, as credit card debt, mortgages, and car payments become more expensive. As a result, spending cools down, leading to potential ramifications for businesses and employment.

The job market is beginning to feel the delayed impact of higher interest rates. Companies are hiring fewer people and slowing down their hiring processes across various sectors. Moreover, wage growth has been steadily slowing month after month. Previously, employees had more negotiating power, but the current shift in dynamics has given employers the upper hand.

With spending slowing and profits declining, companies are downsizing, which could contribute to higher unemployment rates. This trend is expected to continue into 2024 if interest rates remain high, potentially further exacerbating the unemployment situation.

Inflation and Cost of Living Dilemma

Despite claims of cooling inflation, it is essential to understand the underlying dynamics. Inflation compounds over time, and while it may be rising at a slower pace, prices are still increasing faster than most people’s wages. The current inflation is not an isolated event; it builds upon the inflation experienced in previous years. With high inflation persisting, individuals have less money to spend on themselves, save, or invest. Many have resorted to accumulating credit card debt, resulting in record-high levels of consumer debt.

The burden of student loans has also resurfaced, as millions of Americans were required to resume payments in October. This additional financial strain, combined with high inflation, creates a significant challenge for individuals and families. As expenses rise, spending slows, negatively impacting the economy.

The Fragile Economy and Warning Signs

The current state of the economy reveals warning signs that demand our attention.

While spending and economic growth may be occurring at present, the foundations are becoming increasingly fragile. The banking sector, for instance, faces risks related to underwater assets. Although some banks experienced failures in 2023 due to underwater assets, this issue has not improved for many other banks. In fact, it has worsened. If people struggle to make payments, such as commercial landlords or businesses, banks may face difficulties in raising capital due to their own underwater assets.


The economy faces significant warning signs, including the credit crunch, the impact of higher interest rates, and the cost of living dilemma. Inflation persists, and spending is slowing, which could lead to higher unemployment rates and a slower economy.

Understanding these challenges and staying financially educated will allow individuals to navigate the complex economic landscape and potentially capitalize on opportunities that arise. It is crucial to remain aware and prepared in these uncertain times.

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Disclaimer: The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of any organization or institution.