Market's Trust in US Policy Declines
As the dollar continues to depreciate throughout the year, confidence in US policies is visibly declining in the international market. Former Deputy Director of the International Monetary Fund, Desmond Lachman, recently stated that the current weakness of the dollar and the strong rise of gold reflect unease in the financial markets regarding the economic policies of the Trump administration. If these policies do not adjust, the US might face systemic financial risks ahead of the 2026 midterm elections.
Lachman noted that the dollar has depreciated against major currencies by more than 10% this year, marking its worst performance in half a century, while gold has surged over 25%. These signals are not coincidental but are votes from global capital concerning the future economic stability of the US.
"Great Again" Bill Might Increase Deficit Risks
Lachman particularly pointed out that while the recently signed "Make America Great Again" bill is politically appealing, it may have long-term impacts on the fiscal deficit. The bill will increase government spending by trillions of dollars without clear revenue sources. This move could exacerbate concerns over the sustainability of US finances and prompt further selling of the dollar.
He emphasized that the US is already under pressure from high debt and a fiscal deficit, and adding large-scale spending projects might accelerate the trend of global capital "fleeing." "Markets are unlike voters; they cannot be persuaded. Investors can only express their positions through capital flow."
Tariffs and Inflation Expectations Stir New Waves
In addition to fiscal policies, Trump's frequent pressure on the Federal Reserve and massive tariff policies have also caused financial market fluctuations. Although Trump maintains that the tariff measures have not significantly increased prices and can generate up to $300 billion in revenue, experts believe such policies might trigger imported inflation risks.
Lachman analyzed that US interest rates should function to support the dollar, but amid current uncertainty and market distrust, the traditional mechanism has failed. Skepticism over the safety of US Treasury bonds is increasingly prominent, and despite high bond yields, funds continue to flow into safe-haven assets like gold, indicating that this structural change is already occurring.
Experts Call for Immediate Policy Reassessment
Apart from Lachman, former US Treasury Secretary Summers has also sharply criticized Trump's policies. He pointed out that the current combination of "strong stimulus + high deficit" is untenable both theoretically and empirically. "Without political coloring, no objective economist would say this bill is beneficial for the economy."
Summers further stated that the debt pressure caused by the bill might exceed any tax reform, greatly limiting future fiscal policy room for adjustment. If the US continues to expand debt to sustain growth, it will further undermine the dollar's dominant position in the global monetary system.
Market Warning Signs Growing Stronger
Market behavior has issued warning signals in advance. The dollar depreciating despite still holding interest rate advantages demonstrates that global investors are no longer simply focusing on interest rate differentials but are more concerned with macroeconomic risks and policy stability. Lachman bluntly said, "The trust foundation of the dollar system is loosening."
He believes that if global investors collectively reduce their allocation of dollar assets, the US financial market could undergo significant adjustments, potentially affecting the global capital flow structure.
Future Policy Direction as a Key Variable
Although the White House currently shows optimism or even disregard for market concerns, the ongoing depreciation of the dollar and the soaring gold prices suggest the market is already pricing in a potential crisis. Whether the US government adjusts its policies in the coming months to stabilize market confidence will be crucial in avoiding a financial crisis.
