'Financial Crisis' Trigger: What Midterm Elections Will Do To Markets | Steve Hanke

The upcoming midterm elections likely signal a Democratic sweep, creating a divided government that could curb legislative overreach but potentially trigger foreign policy escalations. Current economic growth is heavily concentrated in AI investment, which accounts for 96% of recent GDP gains; however, this sector suffers from a 58% revenue shortfall and circular financing, elevating the probability of a financial crisis to 40%. Meanwhile, European economies, particularly Germany and France, face recessionary risks due to energy-intensive manufacturing struggles and unsustainable debt-to-GDP levels. Persistent inflationary pressure remains a concern, as the money supply continues to grow at 7.4%, well above the 6% threshold required to maintain price stability. Professor Steve Hanke highlights these structural vulnerabilities, noting that the "wealth effect" from potential asset price declines could significantly dampen consumption, further threatening the broader U.S. economy.