The biggest surprise of the past year is not that global asset prices have risen so sharply but that investors have shown so little concern about risk, apart from a brief scare following US President Donald Trump’s “Liberation Day” tariff announcement in April. The question now is whether 2026 will break the spell.
One might expect that, after three years of extraordinary returns, markets would start worrying about the inevitable crash that follows periods of sustained euphoria. AI may be full of promise (at least for firms, if not always for workers), but the long history of transformative technologies – from railroads and internal combustion engines to the internet – has been marked by booms and busts. Early entrants often collapse spectacularly, only to be replaced later by second-generation firms that “get it right.” And while a few companies may come to dominate, as IBM once did in computing, that does little to reduce uncertainty, since longevity is never guaranteed.
As investors struggle to assess how AI will affect growth and corporate profits, the odds of a global stock-market crash in the next few years appear uncomfortably high. Does that mean it is time to sell? Not necessarily, as stock prices can continue to rise long after warning signs start flashing red. That is what happened in 1996, when then-Federal Reserve Chair Alan Greenspan – drawing on the work of future Nobel laureate Robert J. Shiller – warned of the stock market’s “irrational exuberance.” Greenspan and Shiller were ultimately proven right, but their timing was off: the dot-com bubble did not burst until March 2000, after stocks had more than doubled.
The same thing could easily happen now. Yet the pressures on the system are becoming increasingly harder to ignore as we head into 2026, starting with the geopolitical uncertainty looming over the global economy. Even if Ukraine and Russia reach a ceasefire agreement, Europe’s eastern frontier will probably continue to simmer for years. Meanwhile, China is expanding its naval fleet at a breathtaking pace, and no matter how many drones the United States plans to buy – one million, if recent reports are to be believed – China will almost certainly produce more, and better, ones.
Then there is Trump, whose return to the White House has been deeply disruptive. Health permitting, he is likely to be just as ambitious – or heavy-handed, depending on who you ask – in 2026 as he was in 2025.
Trump’s predecessor, Joe Biden, also presented himself as a transformative president in the mold of Franklin Roosevelt, but his macroeconomic policies were largely predictable, aside from his perplexing open-borders approach. The policy debate during his term centered on whether his agenda would boost GDP growth or drive up consumer prices.
With Trump, by contrast, each day brings a new surprise, setting the stage for an extended period of policy volatility. Adding to the uncertainty is the end of Jerome Powell’s term as Fed chair. Trump has made it abundantly clear that he expects Powell’s successor to cut interest rates, even at the risk of stoking inflation.
Trying to capitalize on volatility turned out to be a losing proposition in 2025, as many investment products that claimed to offer insurance against sharp market swings failed to deliver. The coming year is shaping up to be far riskier, as global indebtedness and equity valuations are increasingly out of line with economic fundamentals.
Moreover, the negative impact of Trump’s tariff and immigration policies will be felt more acutely in 2026. Structural reforms typically take years to bear fruit, which is why politicians often avoid them despite the long-term payoff. But this reality cuts both ways: dismantling or undermining key reforms can inflict serious long-term damage, even if the short-term effects seem benign. As markets begin to sense that growth is slowing, possibly accompanied by rising inflation, today’s euphoria could quickly fade.
The European Union faces its own moment of truth in 2026. The best-case scenario would be a decisive move toward a fiscal union, at least among a subset of member states. Failing that, any serious reform will require major treaty changes, beginning with the elimination of the unanimity rule that paralyzes the bloc’s decision-making. Imagine if the US could pass laws or wage war only with the unanimous consent of California, Mississippi, and Texas. As I argue in my recent book Our Dollar, Your Problem, should Europe finally get its geopolitical act together, the euro could play a much larger role in global finance.
Japan is another wildcard. No one knows how far the Bank of Japan will go in raising interest rates or how quickly the unwinding of the yen carry trade – whereby investors borrow in yen to invest in higher-yielding assets, fueling the surge in global prices – will unfold.
One potential stabilizing factor is the likely depreciation of the dollar, which remains substantially overvalued despite modest declines against some of America’s main trading partners in 2025. A weaker dollar tends to support global stability by making dollar-priced exports cheaper relative to domestic alternatives.
Still, there’s a high likelihood that investors will wake up on New Year’s Day to a far more volatile global economy than they experienced in 2025. And when that realization suddenly hits, don’t be surprised if the instability feeds on itself.
Kenneth Rogoff, a former chief economist of the International Monetary Fund, is Professor of Economics and Public Policy at Harvard University and the recipient of the 2011 Deutsche Bank Prize in Financial Economics. He is the co-author (with Carmen M. Reinhart) of This Time is Different: Eight Centuries of Financial Folly (Princeton University Press, 2011) and the author of Our Dollar, Your Problem (Yale University Press, 2025). Copyright: Project Syndicate, 2025. www.project-syndicate.org
9 Comments
I think two big things are occurring
AI - The Thinking Game https://youtu.be/d95J8yzvjbQ
Demographics - Birth Gap https://youtu.be/m2GeVG0XYTc
At the same time China is trying to become the number 1 economy (sadly saddled with too much debt),
Consumer based capitalism will not survive AI
Suspect you're familiar with Cory Doctorow. This quote came across my radar y'day:
So I re-iterated the book’s thesis: that the AI bubble is driven by monopolists who’ve conquered their markets and have no more growth potential, who are desperate to convince investors that they can continue to grow by moving into some other sector, e.g. “pivot to video,” crypto, blockchain, NFTs, AI, and now “super-intelligence.” Further: the topline growth that AI companies are selling comes from replacing most workers with AI, and re-tasking the surviving workers as AI babysitters (“humans in the loop”), which won’t work. Finally: AI cannot do your job, but an AI salesman can 100% convince your boss to fire you and replace you with an AI that can’t do your job, and when the bubble bursts, the money-hemorrhaging “foundation models” will be shut off and we’ll lose the AI that can’t do your job, and you will be long gone, retrained or retired or “discouraged” and out of the labor market, and no one will do your job. AI is the asbestos we are shoveling into the walls of our society and our descendants will be digging it out for generations.
https://doctorow.medium.com/https-pluralistic-net-2025-09-27-econopocal…
Maybe, AI seems good at predicting the 3D format of folded proteins...
My worry is two fold, people who have no jobs, and the fact that AI replacing jobs does not consume food, movies, beer at pubs, it does not need holidays or cars etc, so if AI replaces 30% of jobs its like this massive hit on tax and consumption, I do not think current financial structures will survive this, perhaps why metals are bid.
Its like unlimited immigration replacing jobs....
AI does not need right now to do all your job, if it can replace 20% of your job (maybe the boring note taking or summation of conversations etc...) , then your team is about to see 20% job reduction....
Do you think we will ever make this issue political, or will it be more basic human response via revolution...
I'm reasonably focused on what can be done here and now (which I already use) and looking at what others have been doing in what I call "magic box" solutions - mainly used in the commercial space. In terms of innovation in science, commerce, and social, I don't see any sentient solution yet. All I see is applications that do functional things.
I'm finalizing a contract today for a B2B strategy project. Competing with plenty of AI solutions that cannot deliver.
200 years ago we didn’t have electricity, cars, machines, planes, batteries, computers, phones, etc. All were massive tech shifts that could have taken all the jobs but didn’t. They created wealth and enabled different jobs. AI could be different however as its usefulness is pretty far reaching.
Trying to capitalize on volatility turned out to be a losing proposition in 2025, as many investment products that claimed to offer insurance against sharp market swings failed to deliver.
I'm not sure I agree; those who invested in precious metals as a hedge against uncertainty did extremely well.
Most people did not invest in PMs as a hedge against uncertainty Dr Y. The degenerate end of the crypto spectrum the most volatile major asset class in 2025, with realized volatility far above equities, bonds, or traditional commodities.
Yday, Nvidia agreed to pay about USD20 billion for Groq’s AI chip technology, in what is described as its largest acquisition or licensing deal so far.
https://groq.com/newsroom/groq-and-nvidia-enter-non-exclusive-inference…
this is very good re an AI bubble
What Everyone Gets Wrong About the AI Bubble
“he expects Powell’s successor to cut interest rates”. This is the stuff hyper inflation is made of. A dictator that thinks they can run the system better than the system can. If he genuinely follows through with rate cuts no matter what, the result could be disastrous for the US and probably the world.
Yes, Trump is great at destroying the US.
Taking liberties I’ve pasted the latest update from Willem. Apologies if this site administrator disapproves, however the current precious metal action is potentially a risk to the financial system. Precious metals manipulation is a policy that very few are prepared to discuss.
Silver Short Squeeze Update, Willem Middelkoop, Dec 25, 2025
Willem Middelkoop: I have spent decades researching the systematic suppression of precious metals prices by central banks and their bullion bank proxies. What I have learned is that the deep and liquid future markets in the US (COMEX) have been used to sell massive amounts of 'paper' gold and silver positions, in order to influence the price discovery mechanism. (=lower prices)
This chart you see here, from GoldChartsRUs, is one I have followed closely for years. It shows the concentration of short positions in the CFTC Commitments of Traders (COT) reports, measured in "days of world production" needed for the largest traders to cover their shorts.
Look at it: for agricultural and base metal commodities like rough rice, crude oil, wheat, corn, cocoa, copper, cotton, sugar, soybean oil, coffee, and soybean meal, the red bars (4 largest traders combined) and green bars (8 largest) hover between near-zero and perhaps 20-30 days at most. Normal hedging activity.
But then we reach the precious metals: gold, palladium, platinum, and especially silver. The bars explode, silver topping 140 days, platinum over 100, palladium around 90, gold nearing 80. This is not natural market behavior. For me, this is blatant evidence of decades-long manipulation.
I first learned about this anomaly in the late 1990s from two tireless warriors in this fight: Bill Murphy, founder of the Gold Anti-Trust Action Committee (GATA), and Ed Steer, whose daily newsletters and weekly updates of precisely these charts have educated thousands. Bill and Ed showed me how the COMEX paper market, dominated by a handful of bullion banks acting as "commercials", has issued naked short positions far exceeding annual global mine production.
Again for silver, the 4 largest traders alone hold shorts equivalent to over 100 days of world output; the 8 largest push it to 140. To cover those, they would need to buy back metal produced over months, if not years. In any other commodity, such concentration would trigger alarms at the CFTC. Yet in precious metals, it has persisted for decades, week after week, as Ed Steer dutifully charts and Bill Murphy denounces.
Why is this open interest so grotesquely large only in precious metals? Because gold and silver are not just commodities, they are money and the anti-dollar, since at least August 1971. They are ultimate competitors to fiat currencies. Buying gold or silver is a vote aginst the paper dollar system. This explains why banks will never, ever, advice you to invest in precious metals.
Since the closure of the London Gold Pool in 1968 and Nixon's abandonment of the gold standard in 1971, Western central banks have waged a quiet war on gold to protect the dollar's reserve status and enable unchecked money printing.
As I detailed in The Big Reset, this involves leasing central bank gold at absurdly low rates to bullion banks, who then sell it into the market, creating artificial supply to cap prices, while shorting futures on COMEX to drive prices lower on demand spikes.
The result? Prices suppressed for decades, discouraging mining investment and keeping real interest rates artificially low to fund government deficits. Circumstantial evidence abounds. Whistleblowers like Andrew Maguire, a London trader, predicted exact takedowns of gold and silver prices around economic data releases in 2010, informing the CFTC in advance, yet no action followed.
JPMorgan inherited massive short positions from Bear Stearns in 2008 and has dominated the COMEX shorts ever since, paying billions in fines for spoofing and manipulation without admitting wrongdoing. Central bank gold leasing programs, admitted in the 1990s by figures like Alan Greenspan, flooded the market with "paper gold" claims far exceeding physical stockpiles. GATA's Freedom of Information requests revealed Fed discussions on intervening in gold markets.
This rigged structure has created the perfect setup for the current short squeeze we are witnessing in late 2025. Physical demand, driven by relentless central bank buying (over 1,000 tonnes annually now, led by China and emerging markets), industrial silver use in solar/AI/EVs, and retail/ETF inflows, has finally overwhelmed the paper shorts.
As vaults in London and COMEX drain, lease rates spike, and delivery demands rise, the big shorts must buy back at ever-higher prices. Silver, with its tiny above-ground stocks relative to demand, leads the charge, up over 130% in 2025 alone, while gold, platinum and palldidium now follow. Now, the manipulators are cornered: covering accelerates the squeeze, exposing the fraud.
Looking to 2026, the squeeze could enter explosive stages. What can we expect?
- Continued physical tightness forces more standing for delivery on COMEX, draining eligible stocks below critical levels and spiking basis spreads. The bifutcation of silver prices, leads to a growing arbitrage opportunity between the East and the West.
- Industrial users, unable to source affordably, could start to bid directly from miners, bypassing paper markets and rendering COMEX pricing irrelevant.
- Risks for a full-blown default cascade, as banks fail to deliver physical against contracts, echoing the Hunt brothers' corner in 1980 but this time with banks on the wrong side.
- If central banks halt leasing or demand repatriation, the shorts collapse entirely.
In the extreme, we could see the end of COMEX precious metals trading altogether, just as the New York Mercantile Exchange permanently closed its Maine potato futures contract after the 1976 scandal. There, Idaho processors like J.R. Simplot massively shorted paper contracts, failed to deliver, defaulted on nearly 1,000 contracts (50 million pounds of potatoes), and destroyed confidence in the market. The exchange survived, but potato futures did not, trading ceased forever.
If COMEX shorts default en masse in 2026 amid undeniable manipulation evidence, regulators may shut down gold and silver futures to prevent systemic contagion. Prices would then explode in physical markets (we think we have just seen the start of this in China), forcing a true revaluation, and perhaps accelerating the monetary reset I have long warned about.
The war on gold and silver is ending ..
Merry X-mas indeed
You should reference your links. And cutting and pasting whole text is wasteful.
The update was in an email which Willem sent to subscribers. See link to his Patreon if interested.
FWIW Willem is also interested in cryptocurrencies however I'm not. Bitcoin and probably others did well when the PM prices were well controlled by the bullion banks. I'm guessing that the increase in PM prices over the last say 12 months has led some bitcoin holders to exchange some of their holdings for PM's, and bitcoin has struggled since then. Pure supposition...
tp
dp
DP
Taxes do not fund government spending. Spending is approved by parliament and created by the reserve bank on instruction from Treasury. The newly created 'reserves' - as they are called - are then transferred to the accounts that commercial banks hold at the reserve bank and from there as deposits to accounts of individuals and entities in the private sector. The government does not use taxes, bonds or private sector savings to complete its spending commitments.
https://www.mmt.works/mmt-taxes-do-not-fund-government-spending/
Some reserve banks such as the Bank of England spell out the true nature of money creation - https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/20…
Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/20…
Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits.
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