The odds of financial crises are rising. Will the US be there to help?

The Congressional Budget Office’s latest report on the trajectory of the U.S. federal debt paints a bleak picture. The debt load will surpass $56 trillion by 2036, or 120% of gross domestic product, with no apparent will by either major party to curb its growth. Reflecting market concerns, yields on 10-year U.S. Treasury have risen over the past six months, even though the Federal Reserve cut short-term rates.

Simultaneously, the global political order is breaking apart. The U.S. is at war with Iran, picking fights with stalwart NATO allies, and escalating frictions with countries in the Global South. Tensions with China are rising, and Russia is still waging war in Europe. Taken together, these fractures raise the risk that the cooperation and trust needed to resolve a future financial crisis will be considerably more difficult than in the past.

I have served in the federal government at the nexus of economics and geopolitics. As economic advisor Henry Kissinger on the National Security Council, I observed firsthand how tightly intertwined they are. If one deteriorates, the other is almost certain to do so as well, with deleterious consequences.

Domestic debt-related financial stress, coupled with the degradation of so many cross-border economic relationships, can have serious economic, political, and security consequences. They can inflame internal and external tensions and foment uncertainty. They can also lead to the weaponization of economic policies, such as punitive tariffs, currency leverage, and investment barriers. In such instances, cooperation and trust suffer. Over time, mutual prosperity is jeopardized.

It is difficult to predict when the size of the U.S. deficit will cross the red line of danger, but it is moving rapidly in that direction rather than away from it. This week, the CBO added $2 trillion to its forecast for the total federal deficit over the next decade after the Supreme Court struck down many of the president’s tariffs.

Signals that the U.S. may be entering the danger zone come from abroad. Through declines in the value of the dollar over the past year, other countries are communicating their discomfort with the dysfunction of the U.S. governance process—for example, last year’s 43-day government shutdown, the president’s challenges to the longstanding independence of the Fed, the unpredictability of his tariff policy, and the strident political partisanship in Congress.

None of these developments in themselves constitute or necessarily foreshadow a crisis. Nor should they suggest that other countries don’t have similar problems, including too-high debt and political acrimony. But the very fact that they do share those challenges means that any crisis that does emerge, especially from the largest economy with the world’s dominant currency, could spread rapidly. A crisis from a sharp and prolonged increase in oil prices from the war in the Gulf could do the same.

Collectively, these developments serve as a warning against complacency. Yet complacency, undergirded by the remarkable strength of the stock market, is precisely what U.S. leaders are showing.

Along with America’s mushrooming debt, international political forces cast a troubling shadow over the seemingly comfortable and stable market picture. The most important of those forces is the dramatic erosion of trust among countries whose collaboration has been essential in sustaining a well-functioning global economic order and in pulling the world out of previous financial crises.

The financial crisis of 2008-09 created awareness of the need to coordinate recovery efforts not only among the Western democracies in the Group of Seven, but also a wider range of participants in the global economy. The first G20 Summit was held in Washington under the leadership of President George W. Bush; in 2008, there was little, if any, debate about the U.S. chairing the gathering and the recovery coalition.

It was widely assumed that the U.S would use its power to produce constructive solutions to the financial crisis. There was an underlying trust that the U.S. wouldn’t simply serve its own interests but would uphold its obligation to preserve and strengthen the international financial system for the common good. Interest rate cuts were coordinated, as were swap lines between the Fed and other central banks. Unconventional monetary tools were offered and adopted for the betterment of the global financial system.

“This exemplary cooperation will go down in history as the first time that governments representing billions of men and women were able to work together to tackle a global danger,” Dominique Strauss-Kahn, former managing director of the International Monetary Fund, later wrote about the G20 coordination of 2008.

My concern now is whether such coordination can still occur and if recognition of a common global interest still exists. The concept of “the common good” has been badly damaged as the world divides politically, economically, and ideologically.

And yet, as history shows us, we are unlikely to escape another economic crisis indefinitely. A critical question is whether the U.S. is prepared to, has the will to, or enjoys the international trust to lead a recovery effort when it finally happens.

The U.S. will need to work with its allies, several of which, including Canada, France, and Germany, have heads of state with considerable financial experience. The U.S. will also have to work with the world’s second largest economy, China, which played such a constructive role in overcoming the last financial crisis, and with countless countries in the Global South that collectively play a much greater role in the global economy today than they did in 2008.

President Donald Trump has an opportunity to pull such a coalition together. To do so, he needs to begin now. He must explain to the American people why collaboration among allies, friends, and even adversaries on these matters is needed.

As time goes by, we may be forgetting that friends and allies aren’t just important in war but also in peace and certainly in a financial crisis; that, in such circumstances, even countries that are competitors may be needed as vital partners to solve problems that affect the lives of Americans; and that middle-level countries may be essential players in solving enormously high-level problems.

Unless we restore trust and patterns of mutually beneficial economic and political cooperation with a wide range of countries—even ones we don’t fully agree with on other matters—managing the next financial challenge will be extremely difficult. We will all suffer the consequences.

About the author: Robert Hormats is a visiting lecturer at Yale University. He is the former Undersecretary of State for Economic Growth, Energy, and the Environment and former Vice Chairman, Goldman Sachs International.