Could the October surprise of 2024 be a financial crisis? If so, how would both Joe Biden and Donald Trump respond to such a situation? These questions may seem disheartening, given the already tumultuous political climate we find ourselves in, but they may be unavoidable.
The concern arises from a series of minor tremors that have rumbled through the global financial system over the past six months. However, no one can definitively say whether the threat of a major financial earthquake has subsided. The U.S. economy weathered the storm of Silicon Valley Bank’s collapse and the ongoing troubles at several other financial institutions. Europe has moved past the forced merger of UBS and a faltering Credit Suisse, and Britain’s markets have recovered from last year’s bond market chaos triggered by a policy dispute over tax cuts.
The good news is that despite these bumps in the road, neither the U.S. nor the global economy has experienced a disaster on the scale of the Lehman Brothers collapse in September 2008. Regulators have been quick to point out that post-2008 financial regulations have left banks much better capitalized than before the last major credit crisis. The Federal Reserve and other policymakers have also developed additional tools to address a panic should one arise. Their message to the public is clear: there’s nothing to worry about.
While we all hope this perspective holds true, hope alone won’t guarantee it. Some well-known financial risks still loom, with commercial real estate being a significant concern. Yet, there are other less-discussed risks, such as unpredictable fluctuations in exchange rates, which can have substantial effects on global capital and trade flows. Some risks may be entirely unforeseeable, like those stemming from the rapid growth of nonbank financial institutions like asset managers and hedge funds, which are increasingly replacing traditional banks as credit intermediaries.
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The passage of time without further major incidents since last year’s chaos in Britain or this year’s minor banking troubles provides little comfort. It’s easy to forget the lengthy buildup to the 2008 panic, which had its origins as far back as 2005 when mortgage delinquencies began to rise. The most severe phase of that crisis lasted around 15 months.
Considering the possibility of such an event in the future, it’s crucial to think about who should be your party’s presidential candidate if it happens next year—or who you’d want as president if a crisis unfolds in 2025. This question is especially pertinent for Republicans. During economic crises, the left, including much of the media, tends to pinpoint blame on “greedy bankers” and advocate for more regulation. However, such simplistic explanations often obscure the real policy failures behind most financial crashes, and excessive regulation can worsen economic conditions, including those on Main Street. If conservatives fail to present convincing spokespeople who offer voters a more honest assessment of economic situations, liberals can win by default, as happened after 2008 when President Barack Obama implemented destructive regulations like Dodd-Frank and established the Consumer Financial Protection Bureau.
This is another reason to carefully consider nominating Mr. Trump, given his handling and communication during the complex crisis of the COVID-19 pandemic, which many view as neither successful nor conducive to freedom, prosperity, or competence.
It’s equally important to pose these questions to other Republican candidates to determine if any of them might handle such situations better. At this point, it’s surprisingly difficult to discern their positions on economic matters. While the GOP has traditionally been strong on economic issues, discussions seem to revolve more around culture wars, which are undoubtedly significant for our society. The key is not to divert Republicans from cultural issues in favor of economic ones but to encourage candidates to address both. While you can choose your candidate, you can’t choose the issues that will shape a general election. It would be a political misstep for Republicans not to anticipate the possibility of a financial crisis that, if it does occur, may turn out to be one of the least surprising October surprises in recent memory.
