Paul Krugman Warns Trump's 'Cronies' Are Undermining Financial Stability: 'Getting Ready To Party Like It's 2008'

Economist Paul Krugman has raised concerns about the potential financial instability being fostered by allies of President Donald Trump.

Krugman's Warning

In his latest post on Friday, the economist said these allies are dismantling regulations established post-2008 to prevent future financial crises.

Krugman points out that the Trump administration’s allies are actively working to weaken bank supervision, a critical function of the Federal Reserve. Michelle Bowman, appointed by Trump, is advocating for the loosening of capital requirements for banks, which could increase their short-term profits but heighten the risk of another crisis.

GENIUS Act

Additionally, Krugman highlights the administration’s support for the crypto industry, particularly through the GENIUS Act, which promotes stablecoins. He warns that stablecoins, like those issued by Tether, are poorly regulated and could pose systemic risks similar to those of 19th-century private banking.

See Also: Dogecoin Still Trapped In ‘Third-Wave’ Deadlock? Meanwhile, Popular Analyst Sees This Level As ‘Main Resistance’

Krugman stated that while the motivations behind these actions may include free-market ideology and potential corruption, he cautioned that these moves could set the stage for a financial crisis reminiscent of 2008.

Dot-Com Parallels

Krugman also drew parallels between the current state of the AI market and the late 1990s dot-com boom, warning that investors might be misinterpreting the Federal Reserve’s signals. Krugman described the U.S. economy as “schizoid,” influenced by Trump’s trade policies and a surge in AI investment.

Krugman also critiqued Trump’s trade strategies, particularly his reversal on China tariffs, which he sees as a strategic retreat. In a recent newsletter, he noted that Trump’s tariff cuts on China mark a significant shift in trade policy.

Ark Invest's Cathie Wood recently countered the bubble narrative, asserting that the AI boom is just beginning. She emphasized the long-term potential of AI and cryptocurrencies despite current volatility.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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