It’s weird to worry about China when it’s still growing more than 7 percent a year, but it’s a little less so when you consider how mammoth its credit bubble has gotten.

The numbers are historic. China’s total debt has sprouted from 153 percent of gross domestic product in 2008 to 282 percent today [1]. That, according to Goldman Sachs, makes China’s borrowing binge bigger than 96 percent of all others on record [2]. The problem is that, despite all this debt, growth is slowing and profits are falling [3], which makes it harder for companies to pay back what they owe. So does the fact that inflation is down to just 0.8 percent [4]. It’s no surprise, then, that China’s central bank just eased policy for the third time in as many months [5], cutting its benchmark rates by a quarter of a percentage point, to try to avoid the kind of low growth, low inflation trap that the rest of the world has fallen into.

But it might be too late for that.

How did China get here? Well, once upon a time, China got rich by making low-cost things and selling them to rich countries. Now this was always going to run out once its workforce stopped growing [6] and its wages started rising faster [7], like they already have, and it got undercut by countries with even cheaper labor [8]. But it ran out a little sooner than that because the global financial crisis crippled its customers. So now China is getting rich by making the things it needed to be a rich country. New houses, subway lines, and roads, all sleek, all modern, and all paid for with borrowed money. A lot of it came from unregulated lenders, so-called “shadow banks,” [9] and was funneled through local governments [10] and state-owned companies that then plowed the money into the property market.

Housing prices boomed. But maybe too much. Things looked bubbly enough that the government tried to rein in lenders in 2011 [11]. But that worked a little too well, because then things looked wobbly enough that the government about-faced and tried to spur lenders on a year later [12]. China can fine-tune its housing market—and, by extension, economy—like this since it has state-owned banks and state-owned companies that it can strong-arm into doing things that private companies might not. The only exception are the shadow banks. They’ve been feeding money into the property market whether the government wants them to or not. So the central bank has resorted to engineering credit crunches [13] to try to flush out the ones that are the most like Ponzi-like [14]. It’s another case of careful what you wish for.

Now housing prices are falling again—5.1 percent in January [15]—but this time the government doesn’t want them to. It’s already loosening lending standards [16] to try to prop up prices, and says it will do more [17] if that’s not enough. It probably won’t be. That’s because the law of supply and demand, according to one developer [18], looks like it’s finally getting its revenge. China built too much, at least in its biggest cities, and now there’s a glut. It’s already forced one high-profile developer into default [19], and now offshore bond markets, where they’ve raised most of their money, are turning the rest away [20]. It’s a problem for local governments, too. They depend on money from land sales for revenue, so now that those are drying up, they’re facing a fiscal squeeze. Some of them have stooped to buying up land themselves in a last-ditch effort to push up prices [21], and, hopefully, get others to jump in. That’s quite literally moving money from your right hand to your left to make it look like you still have money coming in.

China, in other words, is going to have a lot of people looking for bailouts: local governments, state-owned companies, and, last on the list, property developers. Enough of them should get saved that China should avoid a “hard landing”—that is, less than 5 percent growth—but it could still get what, for them at least, would be a lost decade. Its growth, which was always going to slow down, could slow down even more to a relative crawl if lower interest rates aren’t enough to get over-indebted companies borrowing again. Even if they did, though, it wouldn’t help as much as you’d think. China has so much debt now that it doesn’t get as much bang for the borrowed buck as before. That’s because more of the money it’s borrowing today is going to pay back the money it borrowed yesterday. How bad is it? Well, China’s private sector is spending something like 13 percent of GDP on interest payments alone [22]. So it needs a new borrower—the government—to step in and be the one to spend instead. The good news, if there is any, is that China still has a lot of infrastructure needs. It wouldn’t have to waste money on bridges to nowhere.

But there’s still something ... wrong. It’s a bubble mentality that comes out of the fact that China has more savings than it knows what to do with. Now a big part of the problem is that China’s banks are only allowed to pay people piddling interest rates, all so that exporters can borrow for less. That means, though, that people don’t like to keep their money in banks, since they’re really losing money on it once you account for inflation. Instead, they pour their money into property, snatching up empty apartments and leaving them like that [23], because they think those are a better store of value. Or they buy shadow bank products with names like “Golden Elephant No. 38” [24] that promise 7.2 percent returns, but, it turns out, are only backed by an almost-abandoned housing project. In short, anytime people find anything that resembles a decent investment, it gets bid up until it’s unmoored from any kind of economic reality.

And now that’s happening to stocks. It’s still nowhere near its 2007 highs—in fact, it’s barely halfway there—but the Shanghai index has nonetheless been on a tear the last six months, up 50 percent in that time. Why? Well, it’s not earnings. Those are down. No, it’s the debt. Investors have become so exuberant, perhaps irrationally so [25], that they aren’t just throwing their own money into the stock market, but borrowed money, too. Margin accounts, which let people do this, more than doubled in 2014 [26]. And to give you an idea how important this has become to the market, stocks tanked 7.7 percent in a single day [27] after the government announced it wouldn’t let the three biggest brokerages open any new margin accounts for the next three months. It sure looks like China is replacing its housing bubble that just popped with a new stock bubble.

The nightmare scenario is that China’s stock and housing bubbles both burst at the same time that rates and inflation are low. That’s because there wouldn’t be any new, shiny bubble for people to get excited about, not that they’d need one when inflation is barely in positive territory. They could just sit on their cash instead—and they might. Psychology is a tricky thing. It’s not easy to make people feel confident again, even for a government that has the kind of singular control over its economy that China’s does. Especially when that’s already become harder than it used to be now that money, for the first time in a long time, is leaving the country [28]. The snag is that China’s currency “wants” to weaken, but they’re not willing to give up their dollar peg—which forces them to shrink their money supply [29] at the exact moment that their economy needs a bigger one. China, in other words, has plenty of problems even if its people don’t become too scared to do anything with their money. But if they do, watch out.

It could be 1929 with Chinese characteristics.

Matt O’Brien