America's debt time bomb: Markets could crash before 2026 midterm elections, says ex-IMF official!
Desmond Lachman
, a former deputy director at the International Monetary Fund, warned that the world is losing trust in the US dollar, and the United States could suffer a financial crisis next year, as reported by Fortune.
Why is market trust in the US fading?
In a new opinion piece for Project Syndicate, Lachman describes how a mix of rising debt, political turmoil, and declining confidence in US institutions are spooking markets and driving the dollar to record lows, as per the report.
In Lachman's view, even before the start of US president Donald Trump's second term, the fiscal health of the nation was already beginning to show the pressure, according to Fortune. But matters have taken a very rapid turn as the sweeping new tax cuts recently signed into law are set to pile trillions onto the national deficit, as per the Fortune report.
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What's driving concerns about a crisis?
At the same time, Trump's hard-hitting tariffs and repeated pressure on the Federal Reserve to cut interest rates are fuelling inflationary fears and further rattling world confidence in the US economy, according to the report. He also pointed out that, 'Add to that Trump's apparent disregard for the rule of law, and markets see little reason to trust the US,' as quoted in the Fortune report.
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How is the US dollar performing?
According to him, this could be the reason that the US dollar fell 10% against other top global currencies in the first half of the year, marking the greenback's worst such performance since 1953, as reported by Fortune.
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What's gold telling us about investor confidence?
Lachman pointed out that gold increasing 25% this year is another sign of collapsing market confidence in the United States, as are Treasury yields remaining elevated despite market turbulence, according to the report.
Can Donald Trump pressure markets like he does politicians?
He said that, 'The problem for Trump is that, unlike politicians, markets cannot be pressured or primaried,' while referring to the threat of ousting disobedient lawmakers via primary elections, as reported by Fortune. Lachman added that, 'If he refuses to heed investors' warnings, as seems likely, the US should brace for a dollar and bond-market crisis in the run-up to next year's midterm elections. The days of the world letting America live beyond its means are rapidly coming to an end,' as quoted in the report.
Are others echoing these concerns?
While the fixed income portfolio manager at Capital Group, John Queen, recently wrote in a client note that, 'Many people have predicted that catastrophe is right around the corner and, someday, one of them is going to be right,' as quoted by Fortune. Queen added that, 'Unfortunately, they are just guessing, so I am not going to predict that. I am instead going to say that I think the market is good at pricing in those concerns,' as quoted in the report.
FAQs
Is the US heading toward a financial crisis?
It's possible, according to former IMF official Desmond Lachman, especially if current economic trends continue unchecked.
Why is the US dollar losing value?
Lachman says it's due to rising debt, inflation fears, and eroding trust in political and financial leadership, as per the Fortune report.
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