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On this week's episode of Yahoo Finance Future Focus, our host Brian McGleenon interviews George Lagarias, chief economist at Forvis Mazars, to explore the potential impact of Donald Trump’s presidency on banking deregulation in the United States.
With deregulation poised to expand credit availability, Lagarias explains how this could drive short-term growth in asset prices like stocks and real estate, while also creating significant risks for economic stability.
Lagarias highlights how deregulation often benefits asset owners, such as those holding equities, real estate, or gold, as these assets tend to gain value during periods of credit expansion.
However, he warns that the benefits are not evenly distributed. People relying primarily on wages, rather than investments, are most vulnerable when credit bubbles eventually burst, leaving them exposed to financial shocks.
Tracing the roots of financial fragility back to the 2008 global financial crisis, Lagarias explains how banks were forced to deleverage and governments took on historic levels of debt to stabilise economies. With government borrowing now at its limit, he argues that deregulation is emerging as a politically expedient way to stimulate growth — though it may lead to severe economic consequences.
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Lagarias also issues a cautionary note about the long-term impact of deregulation. He predicts that a "Minsky moment," or sharp financial downturn, could occur within five years of deregulation, followed by higher taxes and inflation as governments respond to the fallout.
While deregulation may spark a short-lived economic boom, the social and financial costs could be profound, particularly for households with limited financial resources.