Former International Monetary Fund deputy director Desmond Lachman has warned that a major financial crisis could be on the horizon for the United States before the 2026 midterm elections. In a Project Syndicate opinion post, Lachman makes the case that there is a sharp decline in international confidence in the US currency, which might lead to significant economic unrest as early as next year, according to Fortune.
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Why Is Confidence in the Dollar Declining?
According to Lachman, the main causes of market trepidation are growing national debt, unstable political environments, and waning trust in American institutions. The nation’s financial situation was already beginning to deteriorate before Donald Trump took office for a second term. It is anticipated that recent massive tax cuts will increase the budget by trillions more, escalating already-existing worries.
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What’s Fueling Fears of a Financial Crisis?
Trump has increased concerns about inflation with his aggressive trade measures and constant pressure on the Fed to lower interest rates. In addition to Trump’s “disregard for the rule of law,” as Lachman puts it, international markets are growing more pessimistic about the U.S. economy.
Dollar Takes a Hit
The U.S. dollar has lost 10% of its value versus key international currencies so far this year, which is the worst since 1953, according to Fortune. According to Lachman, this is a glaring indication that investor trust is eroding.
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Gold Prices and Treasury Yields Sound the Alarm
Gold’s 25% increase this year is a classic sign that investors are running for cover. Despite market volatility, elevated Treasury yields serve as more evidence of the lack of confidence in the financial crisis of the United States.
Market Forces May Not Yield to Trump
Lachman cited Trump’s propensity to pressure lawmakers into line, saying, “Unlike politicians, markets can’t be pressured or primaried.” According to Lachman, the United States may see a full-blown dollar and bond-market crisis in the run-up to the midterm elections if Trump disregards the market’s warning signals.
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Are These Concerns Shared?
Not everyone has raised the alarm yet. John Queen, a Capital Group fixed-income portfolio manager, advised against panic. He said in a client note, “Many have anticipated disaster—and one day, someone will be correct.” “But at the moment, markets do a fair job of pricing these risks.”