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Economy
May 25, 2026
Analyzed by GPT OSS 120B

US Political Turmoil Fuels Looming Global Financial Crisis

AI Summary
The piece warns that soaring US debt—now over 120% of GDP—and a politically‑driven policy environment are steering the world toward a financial crisis that could dwarf the 2007 housing collapse. It highlights the risks of misguided responses, volatile bond markets, and global capital imbalances.

Executive Summary: Political Fault Lines Threaten Global Finance

The article warns that the United States, burdened by a debt level exceeding 120% of GDP and a politically‑driven policy environment, is steering the world toward a financial crisis that could eclipse the 2007 housing collapse.

Political Gridlock and Debt Accumulation Push US Toward Financial Shock

Current US politics, described as “practically guarantee[d] misguided policy responses,” are dominated by Donald Trump and a Congress aligned with his agenda. Former IMF chief economist Maurice Obstfeld is quoted saying “the political fundamentals are really bad.” The article outlines several plausible pathways, including a sharp correction in AI‑driven equity valuations and a sudden sell‑off of Treasury bonds.

Debt‑to‑GDP Surpasses 120% and Bond Market Volatility Signals Stress

  • Federal debt now stands at over 120% of GDP, a near‑unprecedented figure.
  • Recent market turbulence pushed Treasury yields higher after geopolitical worries (Iran war) and inflation concerns.
  • Historical reference: on 3 April 2025, Trump‑imposed tariffs caused a brief “tailspin” in Treasury prices.

Global Ripple Effects: China’s Capital Flows and European Vulnerabilities

The US’s need for foreign capital is met by China’s surplus‑driven investments, creating a feedback loop where Chinese earnings are reinvested in US Treasury securities while American dollars fund Chinese imports. The article also flags similar political‑driven fiscal risks in France, where a budget crisis and upcoming elections could amplify the global shock.

Possible Scenarios and the Likelihood of Policy Missteps

  • Investor panic leads to a mass sell‑off of Treasuries, spiking rates and forcing the Fed to purchase debt, which could reignite inflation.
  • Trump leverages control over the Federal Reserve to keep rates artificially low, undermining monetary credibility.
  • Absence of fiscal reform in Congress, as suggested by Obstfeld, leaves the debt trajectory unchecked.

In each scenario, the combination of high debt, politicised monetary policy, and strained international cooperation could produce a crisis “unlike anything the world has seen.”