The well-known think tank Chatham House warns of an unprecedented financial crisis, bringing to the forefront the "reverse Kindleberger trap," according to which the absence of a leading power to ensure global economic stability threatens to trigger a systemic crash. Indeed, as geopolitical tensions sharpen and markets lose their protective mechanisms, the international system faces the specter of an uncontrolled collapse. Specifically, according to the renowned think tank, a disturbing feature of the next major financial crisis is that there may be no dominant power capable and willing to stabilize the international economic order.
This would likely be the conclusion of the late economic historian Charles Kindleberger, who argued that the duration and depth of the Great Depression of the 1930s were due to the failure of either Great Britain or the United States to act as a responsible hegemon of the global economy. According to Kindleberger, a weakened Great Britain, as the declining hegemonic power, was no longer able to provide leadership, while the United States, as an emerging power, was unwilling to do so. From this contradiction arose the eponymous "Kindleberger trap."
Thus, the world found itself without an open system of international trade, without reliable coordination of economic policies, and without a dependable international lender of last resort. "When every country turned to protecting its national private interest, the global public interest was lost — and with it, everyone's private interests." Today, however, the new "Kindleberger trap" is somewhat different from the original. The danger now stems not so much from the unwillingness of the rising hegemonic power, Beijing, to contribute to stabilizing the system, but from the unwillingness of the existing hegemonic power, Washington. A "reverse Kindleberger trap," if you will.
The 2008 crisis
According to Chatham House, today we are experiencing something new, as unwillingness by no means characterized how the United States managed the fallout from the Lehman Brothers crisis in 2008. Back then, massive amounts of dollar liquidity were funneled through a network of collateralized lending mechanisms to global banks, particularly European ones, which had developed a heavy reliance on dollar financing. At the same time, the Federal Reserve's quantitative easing (QE) program provided immediate and massive support to the international financial system: more than half of the mortgage-backed securities purchased by the Fed originated from foreign firms. Additionally, fourteen central banks had access to significant amounts of dollar liquidity through the Fed's currency swap lines. By the summer of 2010, the Fed had injected a total of $10 trillion across various maturities. Of course, the United States acted out of its own self-interest as well. Had the Fed not provided this liquidity, European banks and global fund managers would have been forced to sell off their dollar portfolios at fire-sale prices. However, the effectiveness of American crisis management was overwhelmingly clear. And US credibility was rewarded with significant capital inflows into the US Treasury market, as these were viewed as a "safe haven": in the 12 months following the collapse of Lehman Brothers, foreign investors purchased nearly $1 trillion worth of US government bonds.
A crisis under Trump
A financial crisis under a Trump presidency, should it occur, will unfold under vastly different conditions. Three key problems stand out. The first is that a Trump administration, known for its strongly transactional approach, could prove highly selective about whom it chooses to support with liquidity. We have already seen this selectivity in action. In October of last year, the US administration provided a $20 billion currency swap line to the central bank of Argentina in an effort to stabilize the peso ahead of mid-term elections that could jeopardize President Milei's political standing. Earlier this year, the possibility of establishing a similar swap line for the central bank of the United Arab Emirates was also discussed. This is a paradoxical scenario — not so much because the UAE is a key US ally, but primarily because it is a country with exceptionally high dollar liquidity, despite the war with Iran. The second problem is the market's growing potential to question the status of US Treasuries as a "safe haven." In recent weeks, US Treasury Secretary Scott Bessent has twice revealed his reluctance to let the market freely determine the price of US debt. The first instance involved his attempt to support the Japanese yen, in a manner clearly aimed at preventing Japan from selling off part of its approximately $1 trillion in US Treasuries. Instead, he effectively directed Japan to use its bonds as collateral to borrow the funds needed to finance its intervention in the foreign exchange market. And Bessent's most recent announcement regarding increased buybacks of US sovereign debt also appears to be driven by fear that, if left unchecked, the market could impose interest rates on Washington's public debt that would put the administration in a difficult position. Such interventions run counter to full and unhindered "price discovery" by the market, which ought to be a foundational feature of a credible US Treasury market.
The high level of the dollar
The third, and related, problem concerns the elevated valuation of the dollar. Over the past 15 years, there have been massive capital inflows into the United States, driven by positive factors like US global tech dominance, as well as negative ones such as irrationally high fiscal deficits. During this same period, the value of US securities held by foreign investors rose from roughly $12 trillion to more than $37 trillion. As a result of these capital inflows, the dollar, in real terms—that is, inflation-adjusted and trade-weighted exchange rate terms—sits near its highest level in 30 years. All this means that a crisis in the US is highly likely to be accompanied by capital flight rather than inflows. Consequently, the dollar could decline significantly against other currencies. This would be completely different from what happened after the 2008 crisis, when the dollar strengthened. Such a development, however, might satisfy President Trump, who has repeatedly expressed a preference for a weaker rather than a stronger dollar. As he put it in July 2025, a strong dollar means that "you can't sell tractors, you can't sell trucks, you can't sell anything." A crisis environment could well reinforce this mindset. Just as Great Britain created the Exchange Equalisation Account in 1932 to keep the value of sterling low after departing the gold standard the previous September, it is entirely possible that a Trump administration would be more interested in keeping the dollar weak than in reinforcing its role as a global pillar of stability.
The rise of China
And what about the rising hegemonic power, China? Beijing's latest proposals on global governance, published in June, indeed reveal China's growing ambition to shape the international order. China may be willing, but it remains unable to act as a financial stabilizer: the renminbi (yuan) remains a relatively minor currency in the international monetary system. Overall, the risk facing the world in the next financial crisis is a "reverse Kindleberger trap": a scenario where the dominant power is unwilling to take on a responsible role in crisis management, while the rising power lacks the capacity to do so. No one should wish for the next financial crisis to be accelerated, given the economic disruption and poverty that will inevitably follow. Yet the prospect of a "reverse Kindleberger trap" should make us all fear the next crisis even more, Chatham House concludes.
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