A senior economist and investment expert recently warned that the stock market may be forming a very destructive debt bubble, and its potential losses could have a shock effect on the entire financial system.

In a column for Project Syndicate, economist and now head of Versaca Investments Dambisa Moyo expressed growing concerns about the current overvaluation of the stock market. She pointed out that Wall Street's enthusiasm for artificial intelligence this year has greatly boosted the earnings of large technology stocks, driving the three major stock indexes to new highs.

“Signs of a bubble are already evident in financial markets,” Moyo wrote. “This trend has undoubtedly heightened market concerns about the formation of a new bubble.”

More worryingly, however, the U.S. may be experiencing a particularly severe bubble, one driven by high debt and so-called “unproductive” assets. Moyo stressed that these unproductive assets are far more harmful than productive assets financed by cash or equity and that actually contribute to the economy, because the losses they cause are more profound for investors.

She further explained that the subprime mortgage crisis was a typical example, when oversupply in the real estate market combined with risky lending practices, ultimately leading to a one-third drop in house prices.

While many economists believe a similar crisis is unlikely now, given stricter lending standards in the banking sector, Moyo warned that many heavily indebted and unproductive companies appear to have received funding in the shadow banking sector, where debt is less regulated.

Data from S&P Global shows that heavily indebted and less profitable companies are already in trouble, and corporate bankruptcies are growing at the fastest rate since the outbreak of the epidemic, with the number of bankruptcy filings surging to 346 in June.

Moyo added that losses at these troubled companies could spread to other areas of the market. "While losses incurred by individual investors using accumulated savings have limited impact on the overall economy, losses incurred by using 'borrowed' funds, especially highly leveraged funds, can spread rapidly. A system that lacks transparency into the source and form of capital for many investments is extremely dangerous. Strengthening the regulation of unproductive leveraged assets is essential to preventing financial crises," she stressed.

Other Wall Street experts have also expressed concerns about stocks and high-yield corporate debt, especially with market valuations so high. According to one valuation measure, stocks are more expensive than they were in 1929, further fueling concerns about a potential bubble.

.