Every October, some 10,000 finance ministers and bankers from 190 nations around the planet assemble in Washington DC for the annual – and simultaneous – gatherings of the International Monetary Fund, the G7 group of the world’s richest nations and the World Bank.
The American capital is bathed in the russet and orange foliage of fall, but the streets are a sea of black limousines and anxious, dark-suited delegates.
There is the usual veneer of polished calm as the world’s most eminent money men settle down to business, but, as a veteran of almost five decades at these gatherings, I can smell trouble in the air.
Uncertainty is everywhere, from the quixotic behaviour of Donald Trump’s White House to febrile world stock markets which, on most measures, have lost all connection with reality.
There is uncertainty as to whether rich nations, including Britain, can continue borrowing huge sums to fund their lifestyles.
And there is fear about growing fissures in the private, unregulated loan markets which could prove as toxic as the American sub-prime mortgage scandal, the trigger for the great financial crisis of 2008.
Strip away the technical language and look into the eyes of key financiers and you can see the trepidation.
The financial world stands on the edge of a precipice. No wonder cautious investors and central bankers are hoarding gold.
Every year finance ministers and bankers from 190 nations assemble in Washington for the annual meetings of the International Monetary Fund and the World Bank
Kristalina Georgieva, boss of the International Money Fund, pictured during her speech at the event yesterday
Even the normally phlegmatic boss of the International Money Fund (IMF), Kristalina Georgieva, was moved to observe this week that ‘forces of change are making the global economy less predictable, and it is impacting people. People are anxious. They’re taking to the streets to demand better opportunities.’
Demanding economic progress is one thing, however. Achieving it is quite another.
I fear that it’s now too late for soothing words and hopeful promises. Events are moving rapidly – in completely the wrong direction.
And we should, instead, be preparing for a calamity so profound it could destroy savings, wealth, prosperity and living standards.
The first threat shaking the world economy is Donald Trump himself, the 47th President of the United States, and his determination to re-shape global trade to America’s advantage.
Even such a calm and trusted figure as his Treasury Secretary, Scott Bessent, is warning that America and China are being sucked into a debilitating trade war.
Beijing’s unexpected decision to impose a ban on the export of rare-earth metals poses a daunting threat to America’s defence, high-tech and electric vehicle industries. China controls 99 per cent of the world’s trade in processed rare earths, minerals which are essential when it comes to manufacturing sophisticated electronics.
Other nations are scrambling to catch up, but it will take them years, if not decades, to do so.
Still more dangerous is Trump’s response: a pledge of a minimum 100 per cent tariff on all Chinese goods entering the United States (raised to 130 per cent on some items).
This could prove even more destructive than the ‘Liberation Day’ tariffs he imposed in April which paralysed financial markets.
Uncertainty is everywhere, from the quixotic behaviour of Donald Trump ’s White House to febrile world stock markets which have lost all connection with reality, writes Alex Brummer
Analysts are also bracing themselves for a Bonfire Night explosion. November 5 is the date set by the Supreme Court to decide whether Trump had the right to impose tariffs – and declare a trade war on the world – without the approval of Congress.
Or whether, in relying on his own executive powers, the President exceeded his mandate.
No one is quite sure how an enraged Trump will react if he loses.
The second major threat facing the world’s financial system comes from the inexorable rise of share prices, American stocks in particular. These have been driven to record valuations thanks to the huge bets placed on the potential of artificial intelligence (AI).
It is fashionable to say that our futures rest upon AI which, it is claimed, will have the same revolutionary impact as the coming of the railways or the internal combustion engine.
But share prices for tech are plainly overwrought, particularly when you consider the incestuous nature of recent AI deals.
First, chip-maker Nvidia revealed it was investing $100 billion in OpenAI, the US firm which created ChatGPT. Then, days later, OpenAI disclosed it was forming an alliance with another high-value American chipmaker, AMD, worth tens of billions of dollars.
This cross-investment has led to fears of an AI bubble similar to the dotcom speculation which ended with such an almighty bang in 2000.
Valuations of the ‘Magnificent Seven’ tech companies (a list which includes Nvidia, Microsoft, Apple, Amazon and Meta, formerly Facebook) underpin equity markets right around the world, not to mention the savings of millions relying on pensions and savings trusts.
If American tech valuations were to go up in puff of smoke, we would all be doomed.
The American capital is bathed in the russet and orange foliage of Fall, but the streets are a sea of black limousines and anxious, dark-suited delegates
A third cause of alarm here in the American capital is the sheer scale of debt among the very richest countries.
The nature of the debt is concerning too, as much of it is underwritten by the ever-expanding ‘shadow’ banking sector.
The collapse of two players in the US motor industry, parts-maker First Brands and finance-supplier Tricolor, has set alarm bells ringing.
Both companies relied on finance from unregulated private lenders. Yet, because the vast $4.5 trillion private credit markets fall outside the tough regulation and scrutiny imposed on banks since the financial crisis of 2008, it is only now that the scale of the debts has been exposed.
These bankruptcies reach deep into the heart of the world’s formal banking system, too.
Switzerland’s UBS and investment bank Jefferies were both lenders to First Brands. JP Morgan has acknowledged a $1 billion exposure to Tricolor.
As one senior regulator told me, ‘The drains need to come up’ – meaning that the system needs to be flushed out before we can really see what’s going on.
The world’s most powerful commercial banker Jamie Dimon, chairman of the mighty JP Morgan, put it a different way when he suggested that these unwelcome corporate failures were like ‘cockroaches’: when you see one, you know that more will be lurking.
Anyone who has encountered this particular pest – prevalent in Washington – knows that they creep into every crevice and are ferociously difficult to eliminate.
Dimon’s colourful analogy sent tremors through the financial system.
Politicians might try to blame the regulators for problems in the financial markets, but they cannot escape the financial crises of their own making.
The Group of Seven (G7) richest countries – America, Canada, Japan, Germany, Britain, France and Italy – can no longer hide from levels of public debt, which have reached heights not seen since the aftermath of the Second World War in 1948.
Germany aside, debt levels in these economies have climbed to 100 per cent or more of national output – and the totals continue to rise.
November 5 is the date set by the Supreme Court to decide whether Trump has the right to impose tariffs – and declare a trade war on the world – without the approval of Congress
Britain owes some £2.9 trillion. America is a staggering £28 trillion in the red. No one believes it is sustainable.
To my mind, the doom-laden atmosphere here in Washington is terrifying, as is some of the language used by top officials.
The list of risk factors cited by the IMF’s global stability chief Tobias Adrian was remorseless. He accused Wall Street, London and other world financial markets of ‘being complacent as the ground shifts’ beneath their feet.
The atmosphere in Washington felt much like this when Britain was ejected from the Exchange Rate Mechanism in September 1992 and the Bank of England temporarily raised interest rates to 15 per cent in a failed attempt to defend the pound from speculators.
The humiliation would eventually sweep John Major’s Tories from office.
We could feel the gathering storm in October 2008, too. Lehman Brothers had just collapsed and the foundations of world finance were subsiding.
A top British monetary official confided to me then that the United Kingdom was at the start of something disastrous.
In the event, Gordon Brown launched a near £1 trillion package to bail out Britain’s financial sector. The taxpayer is still paying off those bills today.
It was also here in Washington that short-lived Chancellor of the Exchequer, Kwasi Kwarteng, was swept up in the whirlwind of the Liz Truss mini-budget in 2022.
Standing 6ft 5in, the lanky Kwarteng received a dressing down from diminutive US Treasury Secretary Janet Yellen as the pound slumped and bond yields (the interest rate the government pays to its lenders) soared.
Kwarteng was ordered home to face the mounting chaos, but by the time his ‘red eye’ flight arrived at Heathrow, he had been sacked.
Today, once again, Britain is in trouble. Labour’s great promise to ‘fix the foundations’ of the economy has come to nothing.
By my count, Rachel Reeves’s budget on November 26 will be her fourth major attempt at solving the UK’s problems in the short time since she took office.
Britain’s reputation on the bond markets – the ultimate diviners of fiscal credibility – is no better than after the Truss implosion.
The world’s financial markets have less faith in Britain than in any of our G7 rivals – and that’s despite the severe budgetary problems of our competitors.
Indeed, IMF officials are considering a special study into why Britain’s bond yields are perennially higher than those of all other nations.
Prime Minister Keir Starmer and his Chancellor are skating on very, very thin ice.
The promise to achieve best growth in the G7 was crushed by Labour’s destructive increase in employers national insurance, which is also causing unemployment to climb.
Britain is an outlier in inflation, too, with consumer prices soaring by 3.7 per cent. It is hurting the very working people that Labour says it wants to help.
And all of this has created a ‘doom loop’, with a great hole in the public finances opening up once again.
Reeves is keen to create a bigger financial buffer to protect the UK from the coming global train wreck – yet has no means of doing so aside from damaging the economy with yet more tax increases.
None of this can end well. Trump, tariffs, overheated equity markets and the gathering storm in private credit markets all portend a financial crisis of the kind which destroyed the governments of Callaghan in 1979, John Major in 1997 and Gordon Brown in 2010.
Today, the pressure is building relentlessly, yet Starmer – lacking leadership, strategy and understanding of economic policy – seems powerless to act.
Sacking his chancellor could save Starmer’s skin in the short term. But the British electorate never forgives economic failure especially if it robs them of
savings, pensions and a comfortable retirement.
From what I’ve seen here in Washington, we should be in no doubt at all: a crash is coming. And when it does, our nation is in terrible jeopardy.
