The Prime Minister’s appreciation for the American economic model might prove problematic as potential banking and stock market crises loom in the United States. The Conservative economic narrative consistently praises the US for its rapid growth, resilience in the face of the pandemic, and ability to weather geopolitical events like Russia’s invasion of Ukraine, considering it a blueprint for the UK.
However, a neoliberal Conservative analysis focuses on tech, innovation, and an entrepreneurial spirit, overlooking the risks associated with the US economy’s reliance on inflated stock market valuations and off-balance-sheet accounting practices reminiscent of pre-2008 financial crisis years. These habits could lead to significant repercussions, similar to the 2008 crisis, in the near future.
While Europe openly grapples with the consequences of deindustrialization, an aging workforce, and substantial welfare and state subsidies, the US conceals many of its problems. One significant concern is an impending insurance crisis highlighted by Bloomberg analysts, involving millions of homeowners switching from private insurers to a state-run insurer as a “last resort” in areas affected by climate-related disasters. This off-balance-sheet exercise has grown substantially, surpassing $1 trillion in liabilities by 2022.
The looming banking crisis in the US presents a more challenging situation to contain. The International Monetary Fund (IMF) recently warned about the vulnerability of US banks to high interest rates affecting the value of commercial property, particularly office blocks facing financial difficulties due to decreased demand caused by remote work trends. This scenario could lead to a crisis similar to the 2008 financial meltdown, with concerns raised about a subgroup of banks in trouble and the potential for a broader loss of confidence in the sector.
The credit rating agency S&P has also expressed worries about high interest rates, suggesting that rising debt bills could lead to numerous corporate failures in the US next year. Furthermore, there are concerns about exuberance in US stock markets, raising questions about whether the recent surge in share values constitutes a speculative bubble and if a market downturn is imminent.
Despite his admiration for the US, Rishi Sunak’s push for the UK to follow in Washington’s economic footsteps by loosening constraints on financial companies and banks, prioritizing profit over public services, and increasing dependence on foreign investment and imports from countries with less stringent regulations poses potential risks. The UK, in this scenario, appears to be growing more vulnerable to various shocks, including those related to health, finance, and trade.
