All the signs say another financial crisis is coming. Here’s why we need to prepare for it now | Larry Elliott
Bad stuff happens in September. For some reason, it is a month that has had more than its fair share of financial crises, perhaps because problems that have been bubbling away come into sharper focus once the summer holidays are over. Britain came off the Gold Standard in September 1931. The pound was turfed out of Europe’s Exchange Rate Mechanism in September 1992. And 18 years ago this week, the collapse of Lehman Brothers plunged the global economy into deep recession.
This September, there are again reasons to be nervous. There are soaring oil prices, which are feeding through into higher petrol and diesel prices, adding to cost of living pressures. There is a sell-off in government bonds around the world. There is the warning from AI bosses that it would be wise to slow the pace of development in their industry. Mixed together, they are the ingredients for another troubled September.
Of course, it may all be a false alarm. It is now more than six months since the US and Israel launched their war against Iran and so far the impact of closing the strait of Hormuz has been far less severe than was expected back in the spring. It is possible the fear currently gripping bond markets will quickly pass, especially if the wars in Ukraine and Iran end soon.
The constant refrain from Donald Trump that oil tankers will soon be passing unhindered once again through the strait of Hormuz has limited the rise in crude prices. Growth has not been hit that much, and in both the US and the UK, AI has been part of that story.
There are, though, signs that the war in Iran is having an effect, albeit with a longer lag than originally expected. Markets no longer believe Trump when he says a deal with Iran is about to be clinched. As a result, the rise in oil prices to more than $100 a barrel in recent weeks has heightened fears of persistent inflation and of higher interest rates from central banks. And despite crude prices not escalating, the cost of petrol and diesel remains high, thanks to a shortage of refining capacity.
For months, share prices have been underpinned by the belief that there is no ceiling on the growth of technology stocks, particularly those involved in AI. That theory is now being tested and as far as Wall Street is concerned, the recent intervention by the AI bosses was spectacularly ill-timed.
Trump’s rejection of the need for tighter regulation on the AI industry speaks volumes. This is only partly to do with the US-China battle to win the technology war. Financial markets now look as fragile as they have been at any time since September 2008, and with US midterm elections looming, the president needs to prevent the AI-led stock market bubble from popping.
History never repeats itself exactly. There are similarities between September 2026 and September 2008, but there are differences too. The crash of 2008 was the result of banks over-reaching themselves to finance US real estate. The banks seem to be far less exposed this time, and while some of the investment in technology stocks may have been predicated on unrealistic assumptions about future profits, AI is clearly going to have a positive long-term economic impact in a way that the investment in housing pre-2008 did not. It is wrong to think all bubbles are the same.
That said, there are lessons to be learned from the events of 2008. One is that if a financial crisis morphs into an economic slump – as it did 18 years ago – then orthodoxy goes out of the window. There will be no more talk of interest-rate increases from central banks or of the need for finance ministries to slash budget deficits.
Indeed, the recent bond buybacks by the US treasury, which were designed to reduce the upward pressure on mortgage interest rates, car loans and credit card debt, were both an indication of how nervous the Trump administration is about the current state of financial markets and a taste of the more vigorous intervention that a full-blown financial crisis would prompt.
An even bigger lesson is the need to control what happens after a crash. Last time, the left was caught unawares and allowed the right to seize the initiative. Already there are signs in Britain of the same dynamic, with the chancellor, John Healey, coming under pressure to raise taxes or cut spending in next month’s budget.
This would be self-defeating, not least because it would run counter to Andy Burnham’s (to my mind, entirely correct) argument that 40 years of neoliberalism was a mistake that needs rectifying. It would also come at a time when – as this week’s TUC conference in Brighton showed – there is genuine support on the left for a comprehensive strategy to re-industrialise Britain.
A range of trade unions – Unite, RMT, CWU, GMB and Equity – made it clear at the conference that they wanted a much more interventionist approach, and a collection of essays, to which I contributed, has just been published, fleshing out what Burnham would need to do to make good on his re-industrialisation pledge.
If not now, then sooner or later there will be another financial crisis. People forget. They become complacent. They overlook the strains in financial markets that have been allowed to become too big and too powerful. So while recent events may blow over, it would also be sensible to plan for another September meltdown. Just in case.
Read the full story at The Guardian ↗
War, AI disruption and markets in turmoil: the warnings are all there. But lessons from the 2008 crash could help us. Continue reading
This lens runs the verified story through Cinnamon's AI — wired in the next step.
Bad stuff happens in September. For some reason, it is a month that has had more than its fair share of financial crises, perhaps because problems that have been bubbling away come into sharper focus once the summer holidays are over. Britain came off the Gold Standard in September 1931. The pound was turfed out of Europe’s Exchange Rate Mechanism in September 1992. And 18 years ago this week, the collapse of Lehman Brothers plunged the global economy into deep recession.
This September, there are again reasons to be nervous. There are soaring oil prices, which are feeding through into higher petrol and diesel prices, adding to cost of living pressures. There is a sell-off in government bonds around the world. There is the warning from AI bosses that it would be wise to slow the pace of development in their industry. Mixed together, they are the ingredients for another troubled September.
Of course, it may all be a false alarm. It is now more than six months since the US and Israel launched their war against Iran and so far the impact of closing the strait of Hormuz has been far less severe than was expected back in the spring. It is possible the fear currently gripping bond markets will quickly pass, especially if the wars in Ukraine and Iran end soon.
The constant refrain from Donald Trump that oil tankers will soon be passing unhindered once again through the strait of Hormuz has limited the rise in crude prices. Growth has not been hit that much, and in both the US and the UK, AI has been part of that story.
There are, though, signs that the war in Iran is having an effect, albeit with a longer lag than originally expected. Markets no longer believe Trump when he says a deal with Iran is about to be clinched. As a result, the rise in oil prices to more than $100 a barrel in recent weeks has heightened fears of persistent inflation and of higher interest rates from central banks. And despite crude prices not escalating, the cost of petrol and diesel remains high, thanks to a shortage of refining capacity.
For months, share prices have been underpinned by the belief that there is no ceiling on the growth of technology stocks, particularly those involved in AI. That theory is now being tested and as far as Wall Street is concerned, the recent intervention by the AI bosses was spectacularly ill-timed.
Trump’s rejection of the need for tighter regulation on the AI industry speaks volumes. This is only partly to do with the US-China battle to win the technology war. Financial markets now look as fragile as they have been at any time since September 2008, and with US midterm elections looming, the president needs to prevent the AI-led stock market bubble from popping.
History never repeats itself exactly. There are similarities between September 2026 and September 2008, but there are differences too. The crash of 2008 was the result of banks over-reaching themselves to finance US real estate. The banks seem to be far less exposed this time, and while some of the investment in technology stocks may have been predicated on unrealistic assumptions about future profits, AI is clearly going to have a positive long-term economic impact in a way that the investment in housing pre-2008 did not. It is wrong to think all bubbles are the same.
That said, there are lessons to be learned from the events of 2008. One is that if a financial crisis morphs into an economic slump – as it did 18 years ago – then orthodoxy goes out of the window. There will be no more talk of interest-rate increases from central banks or of the need for finance ministries to slash budget deficits.
Indeed, the recent bond buybacks by the US treasury, which were designed to reduce the upward pressure on mortgage interest rates, car loans and credit card debt, were both an indication of how nervous the Trump administration is about the current state of financial markets and a taste of the more vigorous intervention that a full-blown financial crisis would prompt.
An even bigger lesson is the need to control what happens after a crash. Last time, the left was caught unawares and allowed the right to seize the initiative. Already there are signs in Britain of the same dynamic, with the chancellor, John Healey, coming under pressure to raise taxes or cut spending in next month’s budget.
This would be self-defeating, not least because it would run counter to Andy Burnham’s (to my mind, entirely correct) argument that 40 years of neoliberalism was a mistake that needs rectifying. It would also come at a time when – as this week’s TUC conference in Brighton showed – there is genuine support on the left for a comprehensive strategy to re-industrialise Britain.
A range of trade unions – Unite, RMT, CWU, GMB and Equity – made it clear at the conference that they wanted a much more interventionist approach, and a collection of essays, to which I contributed, has just been published, fleshing out what Burnham would need to do to make good on his re-industrialisation pledge.
If not now, then sooner or later there will be another financial crisis. People forget. They become complacent. They overlook the strains in financial markets that have been allowed to become too big and too powerful. So while recent events may blow over, it would also be sensible to plan for another September meltdown. Just in case.
Read the full story at The Guardian ↗
Bad stuff happens in September. For some reason, it is a month that has had more than its fair share of financial crises, perhaps because problems that have been bubbling away come into sharper focus once the summer holidays are over. Britain came off the Gold Standard in September 1931. The pound was turfed out of Europe’s Exchange Rate Mechanism in September 1992. And 18 years ago this week, the collapse of Lehman Brothers plunged the global economy into deep recession.
This September, there are again reasons to be nervous. There are soaring oil prices, which are feeding through into higher petrol and diesel prices, adding to cost of living pressures. There is a sell-off in government bonds around the world. There is the warning from AI bosses that it would be wise to slow the pace of development in their industry. Mixed together, they are the ingredients for another troubled September.
Of course, it may all be a false alarm. It is now more than six months since the US and Israel launched their war against Iran and so far the impact of closing the strait of Hormuz has been far less severe than was expected back in the spring. It is possible the fear currently gripping bond markets will quickly pass, especially if the wars in Ukraine and Iran end soon.
The constant refrain from Donald Trump that oil tankers will soon be passing unhindered once again through the strait of Hormuz has limited the rise in crude prices. Growth has not been hit that much, and in both the US and the UK, AI has been part of that story.
There are, though, signs that the war in Iran is having an effect, albeit with a longer lag than originally expected. Markets no longer believe Trump when he says a deal with Iran is about to be clinched. As a result, the rise in oil prices to more than $100 a barrel in recent weeks has heightened fears of persistent inflation and of higher interest rates from central banks. And despite crude prices not escalating, the cost of petrol and diesel remains high, thanks to a shortage of refining capacity.
For months, share prices have been underpinned by the belief that there is no ceiling on the growth of technology stocks, particularly those involved in AI. That theory is now being tested and as far as Wall Street is concerned, the recent intervention by the AI bosses was spectacularly ill-timed.
Trump’s rejection of the need for tighter regulation on the AI industry speaks volumes. This is only partly to do with the US-China battle to win the technology war. Financial markets now look as fragile as they have been at any time since September 2008, and with US midterm elections looming, the president needs to prevent the AI-led stock market bubble from popping.
History never repeats itself exactly. There are similarities between September 2026 and September 2008, but there are differences too. The crash of 2008 was the result of banks over-reaching themselves to finance US real estate. The banks seem to be far less exposed this time, and while some of the investment in technology stocks may have been predicated on unrealistic assumptions about future profits, AI is clearly going to have a positive long-term economic impact in a way that the investment in housing pre-2008 did not. It is wrong to think all bubbles are the same.
That said, there are lessons to be learned from the events of 2008. One is that if a financial crisis morphs into an economic slump – as it did 18 years ago – then orthodoxy goes out of the window. There will be no more talk of interest-rate increases from central banks or of the need for finance ministries to slash budget deficits.
Indeed, the recent bond buybacks by the US treasury, which were designed to reduce the upward pressure on mortgage interest rates, car loans and credit card debt, were both an indication of how nervous the Trump administration is about the current state of financial markets and a taste of the more vigorous intervention that a full-blown financial crisis would prompt.
An even bigger lesson is the need to control what happens after a crash. Last time, the left was caught unawares and allowed the right to seize the initiative. Already there are signs in Britain of the same dynamic, with the chancellor, John Healey, coming under pressure to raise taxes or cut spending in next month’s budget.
This would be self-defeating, not least because it would run counter to Andy Burnham’s (to my mind, entirely correct) argument that 40 years of neoliberalism was a mistake that needs rectifying. It would also come at a time when – as this week’s TUC conference in Brighton showed – there is genuine support on the left for a comprehensive strategy to re-industrialise Britain.
A range of trade unions – Unite, RMT, CWU, GMB and Equity – made it clear at the conference that they wanted a much more interventionist approach, and a collection of essays, to which I contributed, has just been published, fleshing out what Burnham would need to do to make good on his re-industrialisation pledge.
If not now, then sooner or later there will be another financial crisis. People forget. They become complacent. They overlook the strains in financial markets that have been allowed to become too big and too powerful. So while recent events may blow over, it would also be sensible to plan for another September meltdown. Just in case.
Read the full story at The Guardian ↗
This lens runs the verified story through Cinnamon's AI — wired in the next step.
- War, AI disruption and markets in turmoil: the warnings are all there.
- But lessons from the 2008 crash could help us.
- Continue reading