Geopolitical concerns: Robert Peston warns of potential global financial crisis

There is a risk that Donald Trump’s policies could cause a global economic crisis of a magnitude that would make the 2007 financial crisis look like a “tea party”. That was the sobering message Robert Peston, political editor of ITV News, delivered to delegates at the Airmic annual conference in Liverpool this week.

“We're not there yet, but this is a risk we have to be aware of. If we were to get to a situation where you had a Liz Truss-style crisis, because that is the framework which we understand in the UK, in America, where the US government was struggling to fund its own borrowing, it would be a financial crisis globally much worse than anything we saw in 2007.”

He explained in detail the reason for this view. He said US debt is beginning to push what is seen as acceptable limits, even for the US, a country that enjoys a high level of “exorbitant privilege” facilitating favourable debt financing.

He explained: “Historically, we have taken the view that the normal rules that apply to a country like the UK in terms of how big your deficits can be, don't apply to America because everybody, everywhere in the world, has to hold dollars as a reserve currency.”

That, he argued, has meant interest rates have been lower in the US than in other countries running similar deficits.

But, partly as a reaction to US tariffs and economic uncertainty, investors, instead of seeing the dollar as a safe haven, have been selling dollar assets. “We've seen this genuinely unusual phenomenon. We're not in crisis territory, but it has raised the spectre of, at some point, the world simply turning its back on America and simply saying: ‘We are not going to fund this level of fiscal recklessness’”.

He also attempted to offer an insight into the Trump presidency in other ways. He claimed that the “chaos is deliberate.” He reminded the audience of the distraction overload philosophy of Trump’s former political strategist Steve Bannon: “Flood the zone with shit.” He added: “That is indeed what we have seen hour after hour, just dizzying numbers of announcements, policies.

“His whole approach to the international rule of law is not to care a fig about it. He has completely changed the US approach to the economy and globalisation, whereby ‘might is right’ is how he approaches geopolitics. These are fundamental shifts. The problem is, I don’t know what the probability of a fiscal disaster is, but there is the potential for genuine fiscal disaster stemming from his approach.”

Turning to more domestic matters and speaking to the expertise of the audience, Peston said he has been fascinated since the global financial crisis in 2007 with how poor public sector regulators are at understanding risk.

“From that, I hoped for a broader understanding of the importance of protecting yourself against low probability but high impact of catastrophic risk. But one of the things that's been profoundly depressing since 2007 is how little progress governments have made.

“Brexit was one example of a massively high-impact event that the government did not prepare for. Global pandemics was something we'd all been talking about for years, but discovered, of course, that our NHS had prepared for the wrong pandemic when Covid struck.”

Yet he said that some of these other crises pale by comparison with the uncertainty the world faces now. “This feels a more uncertain world than I've lived through. We are living through history,” he said.

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