<
https://www.theguardian.com/business/2026/may/25/financial-crisis-trump-economics>
"A bona fide financial crisis has not broken out since the US housing meltdown
of 2007. Even the Covid pandemic and subsequent upsurge in inflation didn’t
lead to financial upheaval. The jitters produced by the collapse of Silicon
Valley Bank in 2023 were soon forgotten.
Given this stability, it might take some effort to convince financial markets
that another big one is around the corner. But it is. Financial markets and
their regulating governments may believe they have acquired immunity, but the
world is careening toward a moment of financial upheaval that could well dwarf
the damage caused by the last one.
What’s most scary about this approaching moment is not the specific nature of
the crisis, but the incompetence with which it will be handled.
Current US politics practically guarantee that Washington’s policy response
will be misguided, steered by Donald Trump’s incontinent appetites and
animosities. In a world where mistrust has strangled space for collective
action, damages are likely to be compounded by similarly blinkered responses
around the globe. As Maurice Obstfeld, former chief economist at the
International Monetary Fund noted: “The political fundamentals are really bad.”
We’ll never know exactly when and how a crisis will hit. But one can envisage
plausible pathways. Perhaps a financial bubble pops: stocks buoyed up by the
current euphoria over the prospects of artificial intelligence could be
downgraded sharply in light of disappointing returns, sending the stock market
tumbling, shrinking consumer spending and damaging balance sheets of companies
that have piled into the AI dream, as well as their financiers.
The largest risk, at this moment, revolves around the federal government’s
accumulation of debt, now in excess of 120% of the nation’s gross domestic
product, a near unprecedented level. It is likely to keep on growing at a fast
clip given massive built in budget deficits for the next decade.
Both of these scenarios live in a global context: the US’s insatiable appetite
for capital – to finance datacenters or the federal deficit – is met by China’s
export of capital to recycle its huge trade surplus. A coarse, schematic way to
think of it is China sells stuff to the US and invests the proceeds in the US.
Then, Americans take money from China and use it to buy Chinese stuff.
A win-win fix would be for China to spend more on their own stuff while
Americans, especially the federal government, splurged somewhat less. Given
politics in Washington and Beijing, this arrangement seems exceedingly
unlikely."
Via Kenny Chaffin.
Cheers,
*** Xanni ***
--
mailto:xanni@xanadu.net Andrew Pam
http://xanadu.com.au/ Chief Scientist, Xanadu
https://glasswings.com.au/ Partner, Glass Wings
https://sericyb.com.au/ Manager, Serious Cybernetics
