Blain’s Morning Porridge, September 1^st, 2026 – What risk of a new financial crisis?

“Markets have no memory. When crisis hits the reasons are swiftly forgotten, and we have to relearn them all again.”

Is a financial crisis coming our way? US Debt, Inflation, Trade, Energy, AI concerns and the rest pushed the revealed wisdom of new Fed Head Kevin Warsh out the limelight last week. Bond yields continue to rise. There are now growing fears of slowdown, or worse. Cheer up! Not the end of the World. But if a financial crisis is coming it will reflect lessons from the past on liquidity, but to solve it we also must acknowledge how much the world has changed since the last one in 2008. This time it will be different!

LINK TO PODCAST

Key takeaways:

• The Fed is moving towards tighter policy
• Oil and trade shocks are rising – Warsh did well to iterate his thinking, but the real economy leads markets.
• The Fed and Treasury may be pulling different ways – if the market perceives it to be so, confidence will drop.
• AI is no longer the key factor driving markets – strong numbers don’t disguise rising doubts.
• What happens when US 10-year hits 5%?
• What role should China play in a global financial crisis?

I got taken to task by a Morning Porridge reader on Friday morning. He told me my negativity was getting repetitive and overly cynical. These may be fair comments… I shall take note – but I won’t want to change the style. I will keep telling it is as I see it. Other market commentators are available – although, to be fair… I am not reading much positivity elsewhere.

As for my negativity… I merely seek to alert readers to dangers and inconsistencies in markets. 40 years in capital markets has taught me markets are not smart, clever, wise and certainly not infallible. Markets often reach bad conclusions because they are simply the weighted votes of all participants – and people can be terribly excitable.

I was recently asked if I expect financial Armageddon. No… I don’t. What I do expect is for markets to keep getting it wrong. And that because there will always be repeating financial crises – which often occur for pretty much the same reasons time and time and time again… The coming one (if it happens) will be different, as is every crisis, because it reflects the particular issues of our particular time.

I don’t have a crystal ball. My own record in stock investing is poor – mainly because I think like a bond trader (concerned about repayment), rather than as a stock salesman who can happily believe six improbable things before breakfast (they buy into the potential upside).

However, I do reckon the next financial “event” is coming, and it will likely be a liquidity issue. My scenario would be rising US Treasury rates triggers a reassessment of AI spending, trigger a vicious negative feedback loop on US rates – perhaps sending US rates all the way up to 7%!! (which would have been low when I were a lad…)

Such an occurrence would switch off the copious (and manufactured) liquidity that has been fuelling the exceptionalism of the US economy through the tech sector for the last 20 odd years. That will open the market’s eyes to the reality that rates rose to reflect a changing global economy, shifting trade, new power relationships (geopolitics), de-dollarisation, and rising inflation. Perhaps the end of the American age – but if I say that I might sound cynical.

How might it happen? Maybe the 10-year T-Bond hitting 5%? It may be triggered on the back of the bubble in AI unravelling because the US buildout is unsustainable at its current pace, and AI competition from China just doesn’t seem to figure in the pitchbooks and imaginings of AI tub-thumpers. And on top of today’s overly exuberant market, you need to layer on top the “Trump” effect. Yes, I know… dull, boring politics, but they matter…

If a crash, a correction, or a slowdown occurs… that’s when to put your buying boots on. As sure as markets tumble, they get right back up again. If the market doesn’t wobble, then that’s a very different issue – nothing makes me look more of a fool than crying “wolf” too often. And to be fair… I’ve been negative on how low interest rates have fuelled the inflation of US financial assets (while the economy has withered) for a long-time now.

We’ve been here before…

Meanwhile, how is the structure of markets positioned for any coming “correction” or “event”?

Some men have greatness thrust upon them and define their era. Others are victims of their circumstances and are defined by the era. I rather suspect the recently installed Fed Head Kevin Warsh will be the latter.

Everyone wanted to know who Warsh is. Is he Trump’s man in the Fed? Does he have the central banking chops to lead the Fed through a period of turmoil? Will he prove to be an independent central banker able to guard his nation, growth, the dollar, the economy and particularly The Bond Market, from the perils of inflation?

His first “informative” comments on his role as Fed Chairman came at the much-scrutinised Jackson Hole gabfest and were generally received positively. He sounded genuinely hawkish – declaring the Fed will work to reduce inflation to the fixed 2% target and that employment is broadly full. The market took that as a sign of September rate hike – which will likely go down like the Hindenburg in the White House.

Warsh came across as a conventional central banker – although he doesn’t quite qualify for the “dull, boring and predictable” badge of honour yet. Ok, he isn’t that keen on “forward guidance”, trying to re-establish (if that is the right word) the Fed’s omnipotence in the setting of rates – getting the bond market to do its own work to understand how the economy is working, and remove the Fed as a primary source of volatility based on “he said, she said, but Trump said” news flow.

In an era when politicians and their minions believe they can play and manipulate markets (as Scotty Bessent tried to do with the yield curve) then the Fed staying in purdah may be a fine thing. The picture of a US Fed and US Treasury actively squabbling as to who controls interest rates would do more damage to confidence in US markets that most things – give or take the Trump effect.

Do extraordinary times require or produce extraordinary people? Generally, the history of financial crisis demonstrates how outcomes are never as bad as we fear – because markets, central bankers, treasury officials, governments and nations tend to gel around common cause to create solutions. We saw that happen at the national level during the Long-Term Capital Management crisis in 1998 and then most clearly during the international Global Financial Crisis of 2008.

Bank of England head and chair of the global Financial Stability Board, Andrew Bailey, was in the FT yesterday warning of cyber security risks to the global economy from disruption and “shared technology dependencies”. There is talk of “Bare Metal” financial systems, unconnected to digital connections, being readied for a crisis! Bailey also referenced the possible contagion risks to “fragilities” in sovereign debt markets should stretched valuations crash private capital markets. A very fair concern to have.

If a new global financial crisis to erupt today – how closely would all the moving parts come together to innovate solutions? That’s a big issue. In 2008 the Western economies were closely aligned, and the USA was the unquestioned global hegemon.

Today, we live in a very different World. Under Trump the USA has become backward looking, the administration promising to restore an economy that ended decades ago and now being exposed militarily in Iran. (That will be fixed!) The role of China in a global financial crisis is seldom considered – most conventional financial and markets thinkers put China outside the pale. Despite its clear manufacturing strength, it’s control of key tech commodities, and its position in developing global trade flows, China is seen as an externality rather than part of the whole.

Would it be a risk or a positive development if China was also part of the solution? Just asking for a friend…

Out of time, and back to the day job..

Bill Blain

Author of the Morning Porridge
CEO Windshift Capital
Advisor – Spitfire Strategic Capital

Meanwhile, don’t forget about my new book: The Battle for Hamble

You can read a review on the Society of Professional Economist’s website here.