The next crisis?
Markets cycle back and forth between periods of calm when investors are at ease and periods of heightened volatility, usually when investors have taken by surprise. These surprises tend to fall into two categories, and it’s important to be able to distinguish between them.
This article was first published in The Australian on 29 May 2025.
The first is a sentiment shock. This is what we saw when Trump announced his Liberation Day tariffs. With sentiment shocks, after a period of fear, investors realise and accept the absence of contagion and move on. The second is a crisis. Crises can fall into five or six different categories including, economic (recession), market (liquidity), geopolitical (war, conflict), systemic (financial, interconnected, such as banking or credit market freezes), natural (acts of God), health (pandemic) and technology (cyber) crises.
With the U.S. national debt now at US$36.56 trillion, investors face a formidable challenge and the potential for a crisis, especially during periods of significant debt refinancing when liquidity is challenged.
“I’m the king of debt. I’m great with debt. Nobody knows debt better than me,” on 22 June 2016 Trump told Norah O’Donnell in an interview that aired on CBS This Morning. “I’ve made a fortune by using debt, and if things don’t work out I renegotiate the debt. I mean, that’s a smart thing, not a stupid thing.”.
One of the less recognised yet deeply harmful consequences of President Donald Trump’s first term was the dramatic surge in the U.S. national debt under his administration, the consequence of the 2017 Tax Cuts and Jobs Act, which reduced corporate tax rates from 35 per cent to 21 per cent, and US$3.1 trillion in COVID-19 stimulus measures.
According to Eugene Steuerle, then a prominent Washington budget expert and co-founder of the Urban-Brookings Tax Policy Centre, the annual deficit’s expansion during Trump’s first term marked the third-largest relative increase compared to the economy’s size among U.S. presidential administrations. But unlike George W. Bush and Abraham Lincoln, who saw greater relative deficit spikes, Trump has not had to manage two foreign wars or fund a civil war.
In 2019, the Congressional Budget Office (CBO) reported that pre-pandemic deficits had reached 4.6 per cent of Gross Domestic Product (GDP), nearly double the projected 2-3 per cent, reflecting structural fiscal imbalances.
The fiscal strain Trump imposed on the U.S. government at the time was – even back then – expected to cause long-term disruption, burdening future generations with substantial debt.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
