The founder of a $16 billion hedge fund specializing in extreme market events warns that the U.S. economy is on borrowed time.

Universa Investments founder Mark Spitznagel argues that high debt levels and interest rates will soon trigger a recession, forcing the Federal Reserve to slash rates and resume bond purchases.

In an interview with Reuters, ’Spitznagel predicts the economy will finally buckle under historically high interest rates. Though the Fed has finally started to cut rates, Spitznagel says its too late.

"The clock is ticking and we are in black swan territory," he said. Black Swan events are rare economic events that dramatically impact financial markets.

Soft landing or Black Swan?

Spitznagel's view goes against the grain. Other analysts say the U.S. is basically out of the woods, having achieved the elusive soft landing. The Fed says it started easing monetary policy by cutting rates to maintain strength in the labor market. Plus, inflation is on its way down, according to recent data.

Spitznagel, however, believes the Fed's first interest rate cut marks the beginning of an aggressive easing cycle. He argues this is necessary because the economy, burdened by high debt levels and interest rates, will struggle to sustain growth and likely fall into a recession.

In Spitznagel's view, we could be staring down the barrel of a recession as soon as this year, forcing the Fed to rapidly reduce interest rates from their current 4.75%-5% range. He predicts this could ultimately lead to a return to quantitative easing (QE), with the central bank resuming bond purchases to shore up the economy.

Universa is a tail-risk hedge fund or Black Swan fund. These funds use complex tactics like credit default swaps and stock options to profit from market turmoil. Universa profited heavily during the early days of the Covid-19 pandemic.

Echoes of the Great Crash

Spitznagel isn't just ringing alarm bells - he's drawing a direct line between today's economy and some of history's biggest market meltdowns.

"The Fed hiked rates into such a huge, unprecedented debt complex," Spitznagel explained. "That's why I say I'm looking for a crash that we haven't seen since 1929."

So what has Spitznagel so on edge? An upside-down yield curve. This curve, which compares short-term and long-term Treasury yields, just flipped from negative to positive after a two-year inversion. Historically, such a shift has often preceded a recession.

In the last four recessions - 2020, 2007-2009, 2001, and 1990-1991 - the yield curve turned positive just months before each downturn began.

Despite all the doom and gloom, Spitznagel believes the Fed will eventually step in to mitigate the economic fallout.

"I do think they'll save the day again," Spitznagel said. “I feel strongly that QE is coming back and rates are going to go back to something like zero again.”