March 2026
A month ago, I wrote about how the cycles pointed out by Kuznets, Kondratieff, and Minsky, combined with the writings of Joseph Schumpeter seemed to be coming together at the same time. Now that the war in Iran is nearly a month old, it seems the match has been lit that will set the frightening confluence ablaze. It sure looks like we’re in a credit bubble that is beginning to burst.
The challenge when writing about major developments is to sound calm and purposeful when the natural inclination might be to be more animated. How to get people to take urgent action without coming across as an over-the-top doomsayer?
To begin, I need to stress that I do not see myself as a pessimist. I’ve been speaking to college students throughout southern Ontario for the past few months and when I tell them about something I call Bullshift (the optimism bias fomented by the financial services industry), they often ask if I’m not being biased and overly gloomy. I respond both with evidence and by conceding that everyone has biases, so their allegations against me, while not incorrect, are nonetheless likely to be overstated. My view is that better wealth decisions are made using facts, critical thinking and a dash of skepticism regarding the finance industry’s motives.
There are multiple indicators that are now showing credit markets in a state of high stress. The longer the war in Iran persists, the worse the situation is likely to become. As such, here are a few things you could do immediately to reduce your exposure to credit.
- If you have not already done so, build an emergency fund. Many people use the equity in their home for this. The caveat here is that real estate prices are likely to drop in the short term, as well, so be careful. Where possible, consider setting aside money in a high-yield savings account for emergencies. When you’re financially cushioned, you’re less likely to rely on more punitive alternatives when money is tight.
- Pay down high-interest debt and avoid new debt. Do this by using either the preferred cascade method (pay highest interest rate debt first) or the snowball method (pay smallest balance first). Stop using credit cards for nonessential purchases. Buy only what you absolutely need.
- Lower credit utilization and automate timely payments. Aim to keep card balances well below credit limits. Set up automatic payments and pay as much as you can when the bill comes due. If necessary, you can even request a credit limit increase (which can lower utilization) or spread purchases across multiple cards.
- Consider placing a freeze or fraud alert with major credit bureaus if you suspect fraud. Enable wallet/mobile alerts for new accounts or unusual activity. That keeps your credit clean and prevents fraudulent debt from inflating your exposure.
- Consider debt consolidation or refinancing. Compare options like a personal loans and / or credit consolidation. Calculate total costs (rates, fees, and promo periods) versus your current debt. Use the savings to pay down balances faster and, of course, avoid new debt.
It looks very much like the world is heading to a recession. At a minimum. The past bull market in financial assets was fueled by easy credit. That tailwind looks almost certain to become a headwind soon. For over 40 years (1981 to 2022), interest rates (i.e. the price of money) fell. Lower rates meant higher leverage. Higher leverage, in turn, meant higher asset prices.
Now, with rates going up, affordability is dropping, as is demand. The Canadian economy is (i.e. Canadian citizens are) highly leveraged. It has become imperative to deleverage before the market does it for you. The same is true in the U.S., only there, the problem lies mostly in government debt, which recently surpassed $39 trillion. In addition, the U.S. 20-year Treasury Note yield just passed 5%. The trade impacts of the Iranian war look very much like a geopolitical ‘own goal’, creating the onset of a self-inflicted credit event. Time is short. If you can, please deleverage immediately!