A financial crisis could turn Trump's unchecked authority into an instrument for rescuing his economic allies.
According to Atlas Diplomacy, an article titled “Democracy Tested by the Next Financial Crisis,” authored by Sarah Bloom Raskin and published in The Atlantic, examines the potential risks associated with the collapse of the artificial intelligence bubble, the expansion of the U.S. government’s emergency powers, and the weakening of congressional oversight over financial bailout mechanisms. The article explores the relationship between economic crises and the concentration of political power. The following is a summary of the article.
Signs of declining investor confidence in the artificial intelligence industry have heightened concerns about the possibility of a financial crisis. In September, Oracle invoked force majeure provisions to delay a debt payment related to a data center, a move that led to a decline in the company's share price. In addition, a substantial downward revision in OpenAI's revenue projections and a sharp drop in the share price of CoreWeave are among the other indicators of deteriorating financial conditions in this sector. Meanwhile, growing investor demand for credit default swaps (CDS) suggests that market participants are preparing for the possibility of rising credit risk.
In recent years, the artificial intelligence industry has expanded through extensive borrowing, massive capital investments, and the development of costly infrastructure. Financial and commercial interdependencies among companies operating in the semiconductor, cloud computing, data center, and AI model development sectors have transformed the industry into an interconnected network of financial obligations. Under these circumstances, a decline in asset values or the inability of a major company to repay its debts could trigger financial contagion across other segments of the industry. Consequently, the potential collapse of the AI bubble represents more than a threat to technology companies; it could also affect credit markets, investment activity, and ultimately the broader U.S. economy.
However, the central issue is not merely the possibility of a financial crisis, but also how such a crisis would be managed and the extent of the authority available to the federal government to intervene in the economy. The 2008 global financial crisis marked a turning point in the expansion of the powers of U.S. economic institutions. In its aftermath, the Federal Reserve and the Department of the Treasury gradually acquired broader authorities to address financial emergencies. Such interventions have generally been justified on the grounds of preventing the collapse of the financial system, protecting the public interest, and maintaining economic stability. At least in principle, congressional oversight has served as one of the mechanisms for ensuring accountability in these interventions.
Nevertheless, the concentration of emergency powers within the executive branch could have different political implications if a crisis were to occur during Donald Trump's presidency. The concern is that the administration could use its existing authorities to implement large-scale financial bailout programs without meaningful congressional involvement. Under such circumstances, the criteria governing the allocation of public resources could shift away from economic necessity and the public interest toward political considerations, personal relationships, and the interests of the administration's allies. As a result, companies and executives who themselves contributed to the emergence of the crisis could become the primary beneficiaries of government financial assistance.
These concerns become particularly significant given the position of wealthy individuals and influential business executives within Trump's inner circle. Their influence over government decision-making, including the determination of executive branch priorities, reductions in federal agency budgets, and shifts in industrial policy, raises the possibility that financial bailout mechanisms could also be shaped by their interests. Under such circumstances, even before a crisis materializes, vulnerable companies and economic stakeholders could seek government support by approaching senior officials, including Scott Bessent, Secretary of the Treasury; Kevin Warsh, Chair of the Federal Reserve; or the president himself.
Another decisive factor is the role of the U.S. Supreme Court in overseeing the government's emergency powers. The presence of a judicial majority that may be reluctant to intervene in emergency decisions made by the executive branch and the central bank could make judicial scrutiny of such measures more difficult. Consequently, the combination of extensive economic powers, potentially weakened congressional oversight, and constraints on judicial review could create conditions in which public resources are allocated without adequate transparency and accountability.
Overall, the primary risk lies not only in the potential collapse of the AI market or the spread of a financial crisis throughout the U.S. economy, but also in the possibility that an economic crisis could become an opportunity for further political power consolidation and the selective distribution of public resources. If financial bailout mechanisms are placed beyond the effective oversight of democratic institutions, instruments designed to safeguard economic stability could instead become levers for strengthening the political and economic influence of groups closely aligned with those in power. In such circumstances, the costs of the crisis would be borne by society and taxpayers, while the benefits of government assistance could accrue to a limited group of wealthy investors and influential corporations./ Source
