The US is risking financial crisis ahead of midterm elections: former IMF official
The world has lost faith in the dollar, and the United States could suffer a financial crisis next year, according to Desmond Luckman, former deputy director of the International Monetary Fund’s policy development and review division.
in Project Syndicate column On Monday, he noted that the US financial situation is already volatile before President Donald Trump began his second term.
But his tax cuts at the megaville, which has just been signed to the law, will add trillions to the deficit. Meanwhile, his tariffs and pressure on the Federal Reserve further weakens confidence in the dollar by robbing inflation concerns, explained Luckman, a senior fellow at the American Enterprise Institute.
“In addition to Trump’s ignoring the rule of law, the market believes there is little reason to trust the US,” he added.
In his view, that’s why the dollar sunk 10% against other top global currencies earlier this year, showing the worst performance of the greenback since 1953.
We have usually ended up increasing the dollar despite US rates and wider premiums with other top economies.
The surge in gold this year, more than 25% is another indication that it will disrupt market confidence in the US, just as Treasury yields remained rising despite market turbulence, Luckman said.
It all leads to a very clear vote of confidence from the financial markets in the Trump administration’s economic policy.
“The problem for Trump is that unlike politicians, they can’t put pressure on the market or pre-merize it,” he said. “If he rejects investors’ warnings, the US should probably pay the dollar and bond market crisis until next year’s midterm elections.
Certainly, many on Wall Street have warned about tariffs, inflation, growing deficits, unsustainable debt and demand from the US Treasury.
But so far, there are Could not cause a surge in inflationrevenue collected from duties is at a pace that will reach $300 billion this year.
And despite warnings that “bond vigilantes” would express their dissatisfaction with fiscal policy by demanding higher yields on bonds that have not yet been realized. In fact, recent Treasury auctions show that for now there is still sound demand for US debt.
Furthermore, many analysts see the dollar, which holds its status as the world’s leading reserve currency despite attempts to drive alternatives.
John Queen, Capital Group’s bond portfolio manager, Recent Notes The bond market is adapting to higher debt levels, adding that the interest rate market is “incredibly efficient” with risk pricing.
He is worried about the size of his debt and the impact on borrowing costs, but it is unclear when those worries come true.
“Many people predict that the catastrophe is around the corner, and one of them will be right one day,” Queen wrote. “Unfortunately, they’re just speculating, so I’m not going to predict that. Instead, I think the market is good at pricing those concerns.”