Barely 15 years after we recovered from the “Great Recession,” we face a looming even greater recession.
The great recession of 2007-2009 was caused largely by the cascading effects of the rapid growth of sub-prime mortgage lending. Many elderly and poor borrowers who could not afford those mortgages defaulted on their loans. That led to the collapse of the companies that had originated those mortgages and, eventually, the collapse of the large Wall Street investment banks that financed those loans.
In a broader sense, the recession was due to greedy people and corporations, which could not resist the lure of large upfront fees.
We face an even worse lending crisis today. Historically, long-term credit was limited to significant assets, such as homes and autos, loans which businesses could expect borrowers would do their best to repay. Today, however, in their headlong rush to increase sales, businesses offer extended payment terms (sometimes also interest free) on everything from appliances to furniture.
As a result, consumer debt in the United States has grown dramatically. The continued overspending by American consumers, which has been the engine behind the growth of our economy, cannot continue much longer.
That issue is compounded by the ever-increasing number of layoffs, including white collar workers, by corporations that see artificial intelligence as a means to decrease costs and thereby increase profits. The growth of AI has, in turn, led to dramatic increases in the amount that Wall Street banks, as well as mutual funds and pension funds, have invested in risky high-tech enterprises.
Finally, the explosion of governmental debt at all levels is also unsustainable. The federal government borrowed $696 billion in the first four months of Fiscal Year 2026, including $94 billion in January, according to the Congressional Budget Office. Much of our current deficit was incurred in large part to finance programs such as the expansion of ICE (to the tune of $170 billion), numerous foreign military ventures, and tax cuts for the wealthiest members of our society.
Our government has had to raise its debt ceiling to $41 trillion (with a “T”). Of course, to an extent, the federal government can simply print more money, although at a certain level that results in increased inflation.
Our states and municipalities are complicit in this practice. The California non-partisan Legislative Analyst’s Office estimates that our state faces a 2026-2027 fiscal year deficit of almost $18 billion. Even worse, the LAO estimates that the state’s structural deficits will grow to approximately $35 billion annually starting in fiscal year 2027-28.
The city of San Diego is likewise facing financial problems. The city is projecting a $17 million mid-year deficit for the current fiscal year, with forecasts indicating structural deficits of over $100 million annually in the coming years.
This is not sustainable; we need to tighten our belts.
As Bruce Springsteen has sung, “Hard times come and hard times go, just to come again.” In the past, not that long ago, people saved money during boom times to prepare for eventual rainy days. We seem to have forgotten that common sense approach.
Sooner or later, we will pay the price for this reckless behavior.
David B. Zlotnick practices law in San Diego.
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