The world is losing faith in the dollar, and the U.S. could suffer a financial crisis next year, according to Desmond Lachman, a former deputy director of the International Monetary Fund\u2019s Policy Development and Review Department.<\/p>\n
In a Project Syndicate column<\/a> on Monday, he noted that the U.S. fiscal situation was already shaky before President Donald Trump began his second term. <\/p>\n But his tax cuts in the megabill that was just signed into law will add trillions to the deficit. Meanwhile, his tariffs and pressure on the Federal Reserve to lower rates have further weakened confidence in the dollar by stoking inflation concerns, Lachman, a senior fellow at the American Enterprise Institute, explained.<\/p>\n \u201cAdd to that Trump\u2019s apparent disregard for the rule of law, and markets see little reason to trust the US,\u201d he added.<\/p>\n In his view, that\u2019s why the dollar sank 10% against other top global currencies in the first half of the year, marking the greenback\u2019s worst such performance since 1953.<\/p>\n The plunge came despite the tariffs and the wider premium between U.S. rates and those of other top economies, which would normally boost the dollar.<\/p>\n Gold\u2019s surge of more than 25% this year is another sign of collapsing market confidence in the U.S., as is Treasury yields remaining elevated despite market turbulence, Lachman said.<\/p>\n That all adds up to a very clear vote of no confidence from financial markets in the Trump administration\u2019s economic policies. <\/p>\n \u201cThe problem for Trump is that, unlike politicians, markets cannot be pressured or primaried,\u201d he said, referring to the threat of ousting disobedient lawmakers via primary elections. \u201cIf he refuses to heed investors\u2019 warnings, as seems likely, the US should brace for a dollar and bond-market crisis in the run-up to next year\u2019s midterm elections. The days of the world letting America live beyond its means are rapidly coming to an end.\u201d<\/p>\n To be sure, many on Wall Street have been sounding alarms about tariffs, inflation, widening deficits, unsustainable debt, the dollar and demand for U.S. Treasuries.<\/p>\n