As an economist, I am not naturally inclined to optimism. The chaos of the world, masked by appearances of stability, prompts me to be vigilant. A financial crisis is looming, insidious and silent, which makes it all the more formidable. And its eruption will surprise all those who failed to hear the portentous rumbling.
I fear that this crisis will be systemic, inevitable, and impossible to diversify, as it will be based on the explosive combination of two factors: the US public debt, which has probably become unsustainable; and the fragility of the dollar itself, the shaky pillar of the international financial system. Both factors could be corrected, but Donald Trump’s rhetoric is based on a headlong rush toward economic growth through future tax cuts, and thus an increase in US public debt. A financial crisis is therefore inevitable.
The financial fragility of the US is the main factor explaining the aggressiveness of the Trump administration, which seeks to compensate for internal vulnerabilities with a belligerent stance on the international stage. At the heart of this fragility lies the explosion of US public debt. Fuelled by a chronic budget deficit and exacerbated by stimulus policies and massive tax cuts, it could reach up to 140% of GDP, according to projections.
Its viability depends entirely on the US’s ability to impose the dollar as the global reserve currency. But this confidence is gradually eroding. In a multipolar world marked by competing powers and growing US isolationism, the dollar’s hegemony is increasingly being challenged – as evidenced by the downgrading of its sovereign debt outlook, which directly points to US fiscal policy as a major risk factor.
International tensions are pushing the US to maintain high levels of spending, while internal polarisation is blocking any fiscal reform. This is pushed by a backlash against liberalism, with the emergence of geoeconomics. Under Trump, this has translated into measures aimed at weakening the industrial hegemony of rival nations while protecting US financial dominance, but at the risk of global fragmentation.
The US public debt cannot be controlled, not because of a lack of technical solutions but because the political elites, obsessed with a populist race, refuse to pay the price, turning the debt into a symptom of an unresolved political pathology.
Added to the risk of US public debt is a second, even more decisive factor: The fragility of the dollar. The growing politicisation of monetary policy, which is now subject to electoral considerations, directly threatens the stability of the dollar. A loss of confidence in the institutional and fiscal strength of the US could trigger a depreciation of the dollar, leading to devastating chain reactions: competitive devaluations, soaring global inflation, and market panic.
Far from being hypothetical, this scenario is already being sketched out by the de-dollarisation efforts of emerging economic blocs. The combination of excessive debt and a weakened dollar would fuel widespread mistrust, making a crisis almost inevitable.
The consequences of such a crisis would be global. A risk premium on US debt would push yields higher, forcing other central banks to follow suit. Emerging market currencies would depreciate and equity markets would undergo a severe correction. The US economy itself would face record financing costs.
This risk is all the greater as regulatory safeguards have been dismantled. Weakened protection laws and the prospect of relaxed prudential rules make the US banking system more vulnerable. This regulatory divergence widens the resilience gap and makes a new financial crisis under Trump’s presidency not only likely, but imminent. His strategy is to shatter the postwar world order.
With the dollar as the reserve currency, the US imported what it no longer manufactured, having shaped a colonial-style trade globalisation. Today, it wants to extricate itself from this, accusing former colonised nations of stealing its jobs to turn them into vassals. Everything Trump does is moving in this direction: tariffs, diplomatic threats, and withdrawal from international organisations.
The dollar, which has dominated the global monetary system since 1944, is backed by the US military. But today, the US is withdrawing from conflicts, abandoning its allies, and conceding areas of influence. Under Trump’s presidency, a thriving nationalism is emerging, weakening the dollar, whose credibility for sustainable investment is waning. There will come a time when the dollar will no longer have sufficient guarantees to ensure its credibility. This is the twilight of the dollar. The US legal system has become an instrument of economic hegemony, subjecting foreign companies to its extraterritorial jurisdiction, eroding sovereignty and competition.
Faced with these challenges, Europe is fading into the background. Without governance or technology – as well as its dependent and aging population – the bloc lacks boldness. We are frozen by our contradictions.
Bruno Colmant is an economist and a Member of the Royal Academy of Belgium. He served as CEO of the Brussels stock exchange and is a professor at ULB and UCLouvain. He has published numerous books about economics, most recently ‘Donald Trump: The spectre of digital fascism’.
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