Desmond Lachman, a former IMF official, warns of a potential US financial crisis before the 2026 midterms, fueled by declining trust in the dollar. Rising debt, political turmoil, and eroding confidence in US institutions are spooking markets. Trump's policies, including tax cuts and pressure on the Federal Reserve, exacerbate inflationary fears and further diminish global confidence in the US economy.
, 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.
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.ALSO READ:
Bitcoin hits $121,000 - Rich Dad Poor Dad author Robert Kiyosaki urges newcomers: Reflect before it’s too lateAt 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.
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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Air taxi revolution? Joby Aviation doubles output, investors react fast, stock skyrockets 7%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.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.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.
It’s possible, according to former IMF official Desmond Lachman, especially if current economic trends continue unchecked.
Lachman says it's due to rising debt, inflation fears, and eroding trust in political and financial leadership, as per the Fortune report.
