The global economy and the next crisis

My take

Recessions rarely come out of nowhere. They build quietly, through debt that piles up, confidence that wears thin and shocks that land on economies already stretched. Today I see several of those pressures lining up at once. Excessive debt sits behind almost every major financial crisis, and government and household borrowing are both at levels that should worry us. The US economy has been more resilient than most expected, but its consumers are running on borrowed time. Meanwhile the oil shock from the Middle East is feeding straight into inflation, as major oil crises usually do. If a global downturn comes, I expect it to start in Europe, which is badly exposed to energy prices and has lived with weak productivity for years.

Why I see it this way

I was Deputy Prime Minister of Kazakhstan through the 2008 financial crisis, and steering an economy through it from inside government shaped how I've read every downturn since. The lesson that stayed with me is that confidence matters more than almost any number in a forecast. It drains faster than any model predicts, and rebuilding it costs far more than protecting it. So I put a lot of weight on credible institutions, and above all on central bank independence. A Fed that bends to political pressure might buy some short-term relief, but everyone pays more for it in the end.

What I'm watching

I'm watching how long higher oil prices keep feeding inflation, and whether central banks can hold their nerve without tipping economies into recession. I'm watching the Fed under Kevin Warsh, and whether markets come to believe in its independence. And I'm watching the AI investment boom. I don't think it's a bubble, but the risks around it are real, and if they're badly managed they could trigger sharp corrections.