Europe is under siege. But by whom depends on who you ask.

A migrant surge overwhelmed Spain’s Civil Guard in Ceuta. The President of the Spanish enclave puts the number of people who have arrived from Morocco in the last few hours at 60,000, with 43 reported dead, according to BBC.

Thousands swam or climbed the breakwater after the Tarajal border opened “under unusual circumstances,” Achraf Maimouni of the Moroccan Association for Human Rights told The Guardian.

For my non-European readers: this event is not isolated to Europe, it has global implications. But before I continue, take a look at this video featuring a truck full of people and a Moroccan police officer, which the Spanish Civil Guard lend credence to:

Source: Journalist Susana Bourgos

Following the migrant surge, Europe’s last major left-wing political leader Pedro Sánchez — staunch critic of Israël, hated by Trump, friendly with China — condemned what he called an attack and a violation of Spain’s territorial integrity.

What followed, instead of support, was an immediate attack on the Spanish government through both domestic and international criticism.

Domestic opposition called Sánchez’s response “weak.” The European Parliament’s largest political party, the centre-right EPP group, demanded “immediate action,” for what they called “uncontrolled borders.” All to push its draconian migration laws.

Politicians across Europe exploited the crisis to rally support for nationalist immigration policies, with leaders in Rome, Helsinki, Copenhagen, and The Hague even floating suspending Schengen with Spain.

This is despite the fact that Ceuta is in North-Africa, and travellers still need a passport and/or visa to travel from the enclave to mainland Europe, even though the area is technically in Schengen.

Trump piled on, telling Fox News, “This is how we’ll be in three years if the wrong side wins,” and predicting the same for the US if Democrats win in 2028.

Israel’s UN ambassador Danny Dannon taunted on X: “Spain lectures Israel but maintains colonial enclaves in Africa.” Spanish Transport Minister Óscar Puente replied, “Now it’s all becoming clear.”

Indeed, it seems like the far-right seems so emboldened as to barely hide their true intentions.

Deputy White House press secretary Anna Kelly told Europa Press Trump had long warned Europe about “far-left globalist” policies enabling mass migration, urging Spain to change course or face demise.

That same day, the State Department congratulated Morocco’s king on Throne Day, citing 250 years of friendship and reaffirming US support for Morocco’s Western Sahara autonomy proposal. Israel’s foreign minister had done the same the day before.

A day later — once migrants had flooded the Spanish territory — the genocidal far-right Israëli Minister of Security Ben Gvir put out a statement in Spanish congratulating Sánchez for his “commitment to immigration and diversity” calling it an “excellent opportunity” to contribute to diversity by opening “Spain’s doors and grant asylum to the residents of Gaza who apply to emigrate.”

Gvir’s quip was a twofer: humiliate Sánchez for his Palestine-support, and remind him that Israel controls both the narrative, and the borders. The State Department came out with a message condemning Spain’s government a little later:

The collective and one-sided media storm is noteworthy, especially after Netanyahu lamented the fact that Israël was not “winning the propaganda war, to put it mildly.” The most curious part? When Russia and Belarus flooded Eastern European states with migrants, Europe’s response was rapid condemnation and unquestioning solidarity with the targeted countries. Not coincidentally, these states are firmly within the US-Israëli camp.

Sánchez responded directly to the one-sidedness.

So, to sum up. Videos show Moroccan police unloading dozens of men from trucks. The numbers show migrant flows the size of minor cities (as of the 1st of August most have now returned to Morroco).

What’s less visible is that Ceuta is Spanish and EU territory, but not a backdoor into Europe: reaching the mainland from Ceuta still means clearing an identity check that doesn’t exist anywhere else within Schengen.

You’ve seen the statements by politicians. Now let’s see, other than the numbers and the video above, how this happened, and, probably, why this happened.

Was it planned?

Without context, Western politicians’ statements suggest Spanish authorities made a grave error in border enforcement. Perhaps that is true, but not in the way they suggest: they have crossed a boundary with the US-Israëli axis and Morocco, which is now weaponizing migration against the last left-wing government in Europe.

Critics tie the migrant surge to a Supreme Court ruling this month blocking immediate deportations of migrants intercepted at sea without legal process. Al Jazeera notes this doesn’t apply to land crossings.

Moreover, while there is obviously an economic incentive for migrants to attempt to flee to Europe, and the ruling might have accelerated crossings, this is only a necessary but not a sufficient condition for the surge to have occurred.

The Objective, a centre-right Spanish outlet, reported Guardia Civil agents at Tarajal said Moroccan gendarmerie “stood with their arms folded”, not just at the breakwater but on the nearest road, where migrants jumped fences and climbed onto rooftops.

Morocco has weaponized migration before. In 2021, it let ~10,000 migrants into Ceuta after Spain hospitalized Brahim Ghali, leader of the Polisario Front, Morocco’s adversary in Western Sahara

The timing is also notable. Eleven days before the crossing, Sánchez had been in Algiers, Rabat’s regional rival, pledging closer political ties and importing more Algerian gas, capping months of thaw after the 2022 rupture over Western Sahara. Algeria already supplies roughly a third of Spain’s gas and has cut it off before to punish Madrid for tilting toward Morocco.

Theories remain theories until conclusive evidence is presented, of course. But some theories are more quickly deemed plausible when they align with established political narratives, as can be seen by the statements from various world leaders. The individual actions of migrants can be explained by economic motivations, but the actions of the Moroccan gendarmerie and border guards cannot. Both causes can be simultaneously valid. In fact, the ruling may have been a necessary but insufficient cause. One thing is clear: for the flow to have been possible, there must have been a breach in security; based on the reporting, I tend to conclude that in the most benign reading of the situation, there was negligence on Morocco’s part.

Regardless of orchestration or not, the response by the right-wing internationalists is clear. Spain must be punished. So what did it do to deserve this reprimanding? The answer lies in Sánchez’s refusal to swear fealty to the US-Israëli axis.

Sánchez’s punishment

The statements from Israel and Trump make Spain’s position within the emerging right-wing order clear enough: it is an outlier, not a member. The muted response from Spain’s more liberal European counterparts is telling in its own right. It doesn’t have to show that they are in on the game, but it shows where the power relations lie: few governments are willing to spend political capital defending a state that has stepped outside the consensus. Whoever controls the dominant narrative around a crisis controls its political consequences, and Spain currently controls neither.

Since Trump entered the White House, Spain has been the naughtiest boy in Trump’s class and virtually the last left-wing leader in Europe. He has been vocal in his support for Palestine, and openly rejected Trump’s demand for a NATO-broad increase of defence spending towards 5 percent. Furthermore, he has strengthened Spain’s ties with China, visiting Beijing four times in four years, unlocking investments in Spain’s economy.

This has obviously irked Trump. But it goes deeper than that: Morocco has more closely aligned itself with the US-Israëli axis in recent years. Morocco’s 2020 normalization with Israel, brokered by Trump, turned Rabat into a regional proxy for US-Israeli priorities. Spain’s sovereignty over Ceuta and Melilla, long a Moroccan grievance, became a bargaining chip.

This pressure tactic has substantial evidence behind it. In April, a US House Appropriations Committee report explicitly described the Spanish-administered enclaves of Ceuta and Melilla as being “located in Moroccan territory”. This marked the first time an institutional legislative body in Washington questioned Madrid’s sovereignty over the North African cities. Israëli verbal aggression predates this change: in 2019, Benjamin Netanyahu’s son called for Arabs and Muslims to “free” the Spanish territories in North-Africa.

EDIT: 1st August 16:15

My analysis regarding Sánchez’s punishment from yesterday has been corroborated by the reactions of Sánchez and a hostile letter by other European states.

Sánchez wrote to Commission president Ursula von der Leyen and Council chief António Costa, accusing other EU governments of reactions “driven by prejudice, fake news, ignorance or political interest,” and called for an urgent meeting. In the same letter, he pointed to the EU’s rapid, unified response when Belarus and Russia weaponised migration against Poland and the Baltic states as the standard Spain is now being visibly denied, while he pointed to Spanish help to those member states which is now not being reciprocated.

Twenty-two EU leaders replied with a competing letter. It doesn’t name Spain, but expresses “serious concern” over Ceuta and calls for its own meeting, of interior ministers rather than heads of state. Twenty-two governments to Sánchez’s one is not a subtle ratio. Notable excpetions include France, Portugal, and Ireland. This shows evidence of an ideological bloc-formation within the EU, which this crisis aptly exposed. It can be read here.

In a Europe where leaders from Merz to Meloni kowtow to Washington while engaging in performative rebellion, Sánchez is the exception. The Ceuta crisis is his punishment, and Spain serves as an example of what happens when you defy the US-Israëli axis. Note the pattern more broadly: the US and Israel set the agenda, proxies enforce it, and Europe’s right-wing echoes it. The left loses the narrative, and Europe’s vassalization continues.

Migrants looking for opportunity are the victim and the means to the ends of the Western far-right, which has now successfully taken over internationalism from the liberals, and turned it into inter-nationalism.

Sánchez’s crime? Refusing to play along.

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In summer 2025, Donald Trump stepped up to the podium, crypto companies front row, to sign the GENIUS Act. With the stroke of a pen, the US President initiated a monetary blitzkrieg aimed at cementing “American dominance of finance and crypto-technology” and strengthening the dollar as a reserve currency “for generations to come.”

For decades, Washington treated dollar hegemony as a natural phenomenon. Now, for the first time in the history of the United States, the National Security Strategy of 2025 mentioned the role of the dollar in foreign policy.

Column’s Chief Economist and author of Hegemoney reads this as a tacit admission. “Policymakers are facing growing challenges to the dollar system,” she told me. “I think including it in the National Security Strategy was essentially an acknowledgment that the US has to step up and build what I’d call an offensive dollar strategy.”

Just like the state backing it, the greenback has no clear challenger, but is simultaneously in a more fragile state than ever. Net interest payments currently make up approximately 14–15 percent of total US federal budget expenditures. Since 2000, the dollar’s share of global foreign exchange reserves has fallen from 70 to 57 percent. Looking ahead, official projections suggest that under current law US federal debt will climb from roughly 100 percent of GDP today toward around 120 percent by the mid‑2030s, with deficits persistently in the 6–7 percent of GDP range and debt potentially approaching 170–200 percent of GDP by mid‑century under more realistic policy assumptions.

These issues are largely macro-economic in nature, and caused by the huge distortions in global trade that have been latent since the inception of the Bretton Woods system in 1944.

The long crisis of the dollar

“Bretton Woods signed the global economy into the dollar system — the World Bank and the IMF are both headquartered in the United States. Gold was pegged to the dollar, and everyone else pegged to the dollar,” says Hoversen. “In 1944, when we created this system, everyone essentially agreed: the US has the strongest economy, so it will lead us out. For the next eighty years, we all operated under an assumption of good faith. That paradigm has changed.”

Lead, she says — the vocabulary of a hegemon, a leader followed by consent. Trump’s own word, weeks earlier when he signed the GENIUS Act, was different. Not hegemony. “Dominance.” Leadership through consent, replaced by leadership through coercion. Whether he or his speechwriters chose the word deliberately barely matters; the shift it names took decades, not one election cycle.

I will trace how this shift happened in a future piece. For now, let me give you the short version.

The US created the conditions for its own relative decline through the way it shaped Bretton Woods. Keeping US markets open let it redistribute economic benefits to other countries in the form of industrial advances — West Germany and Japan first, later China — while strengthening its own finance and technology sectors. That created the perpetual US trade deficit — one reason Trump got re-elected, since deindustrialization and the trade deficit were twin-pillars of his campaign. He is a symptom of the system, and the GENIUS Act and the weaponization of cryptocurrency are its latest, most technologically sophisticated update.

The pattern unfolding now is eerily similar to 1944. The system was in crisis almost from the moment it was signed: a world obliged to settle in dollars it did not have — Europe, wrecked by war, had no way to earn them — under rules that assumed capital could be leashed while trade flowed freely.

Capital found its way around those rules anyway, moving offshore into the eurodollar market in London — dollars held beyond the reach of American regulators. Washington tolerated this at first, then came to encourage it.

Each crisis since — the collapse of the gold standard in 1971, the oil shock of 1973, the debt crises of the 1980s, 2008 — produced the same response: Anglo-American financial unilateralism, Euro-Japanese defensiveness, geopolitical recalcitrance from adversaries.

The system stabilized and destabilized at once: each fix bought temporary prosperity at the cost of the next crisis, strengthening some actors while weakening others. It was the dollar’s very strength that weakened it, literally and figuratively.

“The dollar has been the tip of the spear of US foreign policy for decades,” the former national security economist notes. “A first-resort tool, a way to avoid kinetic engagement, an alternative to war. It has worked. But the more we’ve leaned on it, the more our adversaries — and to some degree our partners — have looked for alternatives.”

As American power diminished in relative terms, revisionist powers grew bolder. And once leadership by consent gives way to leadership by coercion, the shift from hegemony to dominance is already underway.

The dollar’s erosion

It follows that there are two primary culprits for the dollar’s erosion. First, the narrative that Hoversen calls “lazy, because everyone already knows it,” but necessary to understand nonetheless.

“The ‘war on terror’ marked a shift in American foreign policy: we ramped up the use of financial sanctions,” Hoversen says of her time in the American government. For her, 2014 marked the turning point: after the illegal annexation of Crimea, the West threatened to cut the Kremlin off from the American financial system, at a moment when Russia had no real alternative for cross-border payments. Without access to the American financial system, a country can barely trade internationally anymore.

“That was followed by enormous efforts to devise alternatives. Ten years later, Russia and China have their own payment systems, and blockchain technology has created new possibilities for cross-border transfers.”

Second, and more importantly, Hoversen argues that the main pillars of dollar hegemony have eroded. For a long time, she says, the US maintained those pillars passively:

First, financial-economic: economic heft as the world’s largest economy deep and liquid capital markets (equity markets roughly five times the next-largest by market cap, even accounting for the concentration in the Magnificent Seven and big tech). Second, diplomatic and military relationships. Third, the inertia of network effects.

“Powerful pillars. We defended them, but didn’t take active steps to secure the dollar’s status going forward. The National Security Strategy acknowledgment is essentially Washington saying: we have to lean in and actively invest in policies that make the dollar both indispensable and attractive. I think the stablecoin legislation is part of that strategy.”

The GENIUS Act

The GENIUS Act regulates stablecoins. But they were already widespread. “What has fundamentally changed,” says author of Currency of Power and former head of Europe at Circle, is that Washington now recognises them as an instrument of its own policy: “stablecoins — which are a new digital form of the dollar — are recognised as dollars and can therefore be regulated.”

Having the power of your own currency, she argues, has always meant oversight of who exchanges it and where. “Let’s face it: today, if a transaction happens in dollars somewhere in the world between two countries that have nothing to do with the US, it is still under oversight of the US.” The GENIUS Act extends that logic to stablecoins.

The legislation also gave banks and asset managers the green light. “It’s no longer this thing that was completely outside the market with everyone asking ‘should we adopt them or not?’” Flament says. “Now it’s: yes, it’s okay for you to use this.”

Distributed ledger technology makes them a natural tool for the “offensive dollar strategy”: all you need to acquire one is money, a phone, an internet connection, and a crypto exchange, and they trade fast and cheap.

“If I send money to Curaçao today, it takes a week,” says , author of Crypto is Macro Now. “Every bank has to carry out mandatory anti-money laundering and identity checks, and that takes time.” A stablecoin moves directly from one person to another via a global network of computers, no bank in the middle verifying the recipient — which is why stablecoins are quickly replacing correspondent banking in cross-border transactions, remittances above all.

Stablecoins are a natural solution to both the macro-economic problems facing the US and the erosion of the dollar’s reserve status among central banks. The GENIUS Act mandates that issuers hold 100 percent of their stablecoin float in “high-quality liquid assets” — a category that technically includes a handful of instruments, but in practice means overwhelmingly Treasury bills, because nothing else is short-dated and liquid enough at the scale stablecoin issuers now operate. A trader redeeming a stablecoin needs their dollar back the same-day; only Treasuries, and instruments collateralized by them, can be sold in that volume without moving the market. So every dollar that flows into a stablecoin becomes, mechanically, a dollar that flows into US government debt.

Tether alone now holds more than $141bn in Treasuries and Treasury-collateralized instruments — more than South Korea. And because that money leaves the deposit base that the Federal Reserve acts upon and reappears as demand for government debt, it is fiscal authority, not the central bank, that gains firepower: a silent shift in monetary power toward the executive. The implications of which, and the reasons for why this is happening, I will come back to later in this series.

Acheson agrees: “What interests me is that we’re used to dollars coming from banks — stablecoins don’t come from banks. It looks like a rather subtle way for the fiscal authorities, the US Treasury, to take over money issuance from the central bank.” It’s therefore not difficult to see why Trump likes stablecoins. Treasury Secretary Scott Bessent argued that the stablecoin market, which currently sits around $300 billion, is projected to grow tenfold to $3tn in 2030.

Tether itself is proof of how lucrative that position has become: $13bn in profit in 2024, a 99% margin according to CEO Paolo Ardoino, drawn from roughly 500 million holders of a token now worth $183bn in circulation.

A product of the system

The instrument the US state is now weaponizing through the GENIUS Act has an ironic pedigree: stablecoins, privately issued cryptocurrencies pegged 1:1 to fiat, were for so long the refuge of exactly the libertarian, “cypherpunk” communities who shunned the state and traditional finance.

Tether, issuer of USDT, is one of the beneficiaries. Based in El Salvador and run mostly by Italians, the company was long thought beyond Western jurisdiction, and was used by states like Iran, Russia and Venezuela to escape US sanctions. That escape proved an illusion: Tether froze the wallets when the US government asked.

Izabella Kaminska, veteran financial journalist and author of The Peg and The Blind Spot, thinks the ambiguity was the point. “The other element to consider,” she says, “is the degree to which Tether is now, quite openly, an agent of the US Treasury.” A reversal she frames as a long con: “They’ve been running a long-term bait and switch, because a lot of authoritarian regimes genuinely believed Tether was an escape from dollar hegemony. We thought they were shadowy before; now they’re incredibly compliant, integrated into the US administration.”

Tether’s biggest shareholder, Giancarlo Devasini, made his initial fortune through regulatory arbitrage — VAT carousel fraud in electronics trade. The company grew its monopoly the same way he learned the trade: shady reserve reporting, dodging the law.

That shadowy character, Kaminska argues, is exactly what let the instrument grow powerful enough for the state to eventually want it for itself. Even she struggles to sort the actors involved: “it’s hard to tell whether people are white hats, black hats, or red hats, because everyone in that community is obsessed with intelligence and everyone is paranoid.”

The paranoia isn’t incidental, she argues. It reflects where these people actually come from. Crypto’s early figures orbit “both the official world and the world of casinos and gangsters”; she points to Craig Wright, whom she describes as a self-described polymath with a history in criminal networks and family ties to code-breaking

“My point is that these communities are all interlinked, because of the nature of internet cryptography, secrecy, funding, and black ops.” It is, in her telling, a Mr. Robot world where “you don’t know who’s a spook, who’s an informant, who’s representing shadowy interests,” and where intelligence and profit have never been strangers.

Internet cryptography, secrecy, funding, and black ops draw from the same pool of people, in her telling, a Mr. Robot world where “you don’t know who’s a spook, who’s an informant, who’s representing shadowy interests,” and where intelligence and profit have never been strangers.

When that profit, accumulated in a regulatory grey area, reached critical mass, it converted into political power: crypto companies spent $245 million collectively in the 2024 election cycle. Eighty-five percent of the candidates the sector backed won a seat in Congress, and Trump was elected.

Yet the alliance is not ideological, Kaminska warns. It’s rather an alliance of convenience. “Trump is a dollar man at heart,” a “personal vendetta” against banks, she says, tracing the turning point to JPMorgan debanking him after the Capitol riot.

This vendetta connects well to the president Trump likes to imagine himself as: Andrew Jackson’s — who fought the financial establishment of his time and abolished the Second Bank of the United States — which functioned as the central bank of the young US republic.

Pull the threads together: crypto’s founding culture prizes rule-breaking over rule-following. Stablecoins are pegged to the dollar, which suits Trump’s instincts perfectly, and pull deposits out of the banking system and the Federal Reserve’s orbit, routing them toward the executive instead. And Trump profits from all of it personally — what better way to convince a profit-minded dollar man to merge state and capital than through the literal merger of the two? The more than $2bn the Trump family has made from crypto since 2024 is tempting to dwell on, but it’s a symptom of late-stage dollar hegemony, not the issue itself.

The target

For every stablecoin backed by Treasury bills, someone is on the other side of the trade. An “offensive dollar strategy” implies someone else on the defensive — in some cases, relatively helpless. What looks like strategy to some looks like “digital imperialism” to Flament.

The target, primarily, is citizens in countries that “do not have the strong law- and enforcement capacities, and with unstable currencies,” says Jens van ‘t Klooster, associate professor of political economy at the University of Amsterdam. For someone in Turkey, Nigeria, or Argentina, a stablecoin can mean the difference between a full stomach and an empty one — choosing between a volatile lira, naira, or peso and a dollar stablecoin is not a hard choice.

According to Chainalysis, in Nigeria, where the naira has devalued sharply in recent years, USDT accounts for 7 percent of all crypto purchases, against 5 percent globally. In Brazil, more than 90 percent of all crypto flows now run through stablecoins; in Colombia, Argentina, and Brazil, stablecoin purchases make up more than half of all crypto trading on exchanges. Turkey tops the list: between April 2023 and March 2024, Turks bought roughly $38 billion in stablecoins which equates to 4.3 percent of GDP, the highest share worldwide, almost nine times the US figure of 0.5 percent. For Pakistan, with $35 billion in annual remittances, stablecoins have become a way to hedge inflation and pay freelancers.

Tether’s own marketing makes the pitch explicitly. In a slick promotional video, the company shows Kenyans using USDT to escape the volatility of the shilling — a story it says repeats across dozens of countries with weak currencies. CEO Paolo Ardoino framed it as “the greatest financial inclusion event in history.”

“Let’s be honest,” says Flament, “if you live in a country where your own currency is losing value — where life is already hard enough — you don’t have the mental bandwidth to think about whether this is good for your country or for the US.”

Control over your own monetary system is a key pillar of sovereignty. Once a citizen exchanges the home currency for a stablecoin, power is consequently transferred from the home-country to the United States.

“You can have all kinds of financial-stability risks in various ways, which means citizens can actually suffer greater losses on those stablecoins,” says van ‘t Klooster.

“On the other hand, it’s also true that for emerging economies it’s very difficult to mobilise sufficient financing for domestic investment, to levy taxes, to invest in the local currency. And if suddenly a large share of your citizens pull their money out of a local bank account and move it into a stablecoin issued by an American tech company, that really weakens the whole economy. Less money creation, less credit provision, and also less tax revenue — less to spend on healthcare and education. It’s actually a rather evil project, for a country as rich as the US, to shore up its state finances by creating that kind of product.”

Advanced economies

The distinction that matters is between spending and saving. In wealthy economies stablecoins are spreading as a way to move money; in poorer ones they are becoming a way to store it. Sovereignty leaks through the second door. The first barely leaks at all. A Dutchman who settles a bill in USDC has parked nothing; a Nigerian who holds his savings in it has quietly redenominated his life in dollars.

That leaves the advanced economies exposed rather than immune. Their currencies hold, so the pull is convenience where elsewhere it is desperation, and convenience runs one way.

Here the two Europeans I spoke to part ways. Jens van ‘t Klooster is sanguine. He sees MiCA, the bloc’s crypto regulation, as “a fort”, and no reason a Dutch consumer would ever choose to pay in dollars. Marieke Flament looks at the same wall and sees a Maginot line: costly, imposing, and easily walked around. The consumer, in her telling, never decides to abandon the euro. “The day Amazon offers a discount for paying in its own stablecoin, the rational consumer takes it.” And the consumer may soon be beside the point, she argues. A small but growing share of payments is already settled by AI agents — and an agent transacts in whatever clears fastest and cheapest, which is to say in stablecoins. In such an economy, the dollar does not need to take into account Euro-patriots, it simply needs to be the cheaper checkout button.

The American Paradox

Here is what I call the American paradox. The United States has never been stronger in absolute terms, and never weaker in relative ones. The same National Security Strategy put it aptly: “The days of the United States propping up the entire world order like Atlas are over.”

That is most concretely evidenced in the erosion of the dollar, which now has an explicit strategy. Greenback hegemony is no longer a natural phenomenon: forces of nature require no strategy, they just need the earth to keep spinning. And as Hoversen signals, a dollar that requires one is a dollar whose order is already unravelling.

Acheson cautions that the replacement will take time: “The bottom line is that commodities are going to be the basis of economies in the emerging monetary regime — the emerging, not the current, because we’re in an interregnum.”

To understand her projection, we need to understand how we got here. That is what the rest of this series is about.

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Content update

I’m incredibly grateful for the kind response to my recent work. If you haven’t yet, please do read my latest essay, A Civilisation Worth Defending. It’s a deeply personal piece reflecting on why I started specialising in what I do, and why I believe this European perspective is so vital. It was truly a labour of love, but in all honesty also concern — which is why I spent so much time on it.

What I am currently working on

I’m currently working on a huge project that requires sustained attention, which is why posting has been lighter than usual.

Some of you may have seen that Trump has earned more than $2 billion from his crypto ventures during his presidency so far. But I’d say focussing on this blatant corruption alone distracts from a much larger battle happening in the background: an oligarchical mode of governance that is, in fact, a natural outcome of the late-stage dollar system. Treating this purely as a crypto story does injustice to the history that got us here, and to the broader story of how the economy has become the driving force in global change in world order.

I’ll cut to the chase: the dollar’s power is eroding. The National Security Strategy of 2025 mentioned the dollar for the first time in 38 years — that alone should tell you how seriously policymakers are taking this. The US’s international position is paradoxical: in absolute terms it has never been more powerful, but in relative terms its position has severely weakened. Within this context, the US has departed from leadership through consent and shifted toward dominance through coercion. Crypto and financial innovation are part of the strategy to update the dollar system and shore up its strength — the linchpin of US foreign policy.

What the project actually is

I’ve been researching this topic for months, and studying the dollar system for years. In recent weeks I’ve interviewed an ex‑CIA and Treasury official turned chief economist, a veteran journalist, an academic, and people who’ve spent years inside crypto and finance from both European and American perspectives. The material is far more than fits within a 2,500‑word piece for a regular outlet — so that’s what I’ll be sharing with you here over the coming weeks: a running series on the dollar system from a geoeconomic and historical perspective, focused on the recent revolution in financial technology and digital assets, and how recent US crypto legislation fits within its broader grand strategy.

I’ll start with an introductory piece on why and how the world order is changing, what the legacy of the old order has left us with, and how the resulting geoeconomics are shaping today’s global theatre of economic warfare. From there I’ll move into pieces on how the crypto sector has become a significant actor within the US domestic political economy, the specific mechanisms of US legislation reshaping the global monetary system, how other jurisdictions such as Europe are responding, and more.

I hope to have the introductory piece with you this weekend — but quality takes precedent over quantity with me. Thank you for your patience.

That’s all! Thanks for reading.

Best,

Elias

If I were to wake up tomorrow and discover that the state of the world had all been a dream, I would congratulate myself on my imagination — while at the same time worrying about the complexity of my nightmares.

Before I began studying International Relations in 2020, people often asked me why. Large-scale conflicts seemed a thing of the past. Had globalisation not made the world so interdependent that war was becoming ever less likely?

It turned out to be a remarkable moment to start that degree. A mysterious disease had spread across the globe at lightning speed. Suddenly face masks were unavailable, borders closed, and in the port of Rotterdam containers stood waiting for ships that never came. Global production chains proved far more fragile than anyone had imagined.

But what the pandemic revealed above all was a disease within the system itself. The world economy was deeply integrated; international politics far less so. States closed their borders, competed for scarce goods, and export restrictions proliferated.

The global openness that had contributed to the rapid spread of both the literal and the figurative disease had to be reined in. And the world market, which for decades had drawn countries together, was now driving them apart.

Two years later I was sitting in a lecture in The Hague. I could not concentrate. On what was then Twitter, I watched helicopters fly over burning Ukrainian homes.

After the lecture I walked to parliament, where Ukrainians were protesting in the drizzling rain. On their faces I read desolation. I wanted to help, but felt powerless. We stood at the edge of something vast that we did not understand — and that incomprehension was, in hindsight, our powerlessness. At that moment I wanted to understand how this could have happened.

Three years later Donald Trump began his second term as President of the United States, and I began a graduate programme in which I learned to situate the world economy within a geopolitical and philosophical frame. I started to notice a pattern: whenever a crisis exposes the underlying disease, the response is not action but reaction. A report is commissioned, a policy recommendation is produced, and on we go. But that is not the cure. A doctor would not treat each organ separately if the illness had afflicted the whole body.

For the pandemic, the war in Ukraine, the rise of Trump — they appear to be isolated incidents. In reality, they are symptoms of the same crisis: we built an order on the assumption that economic interaction could be decoupled from the social and political context in which it takes place.

The entire world order was organised around that logic — a project of the economic elite, who revelled in their belle époque. But the losers of the Cold War were licking their wounds and had no interest in reconciliation with “our” model.

That Achilles’ heel only became visible when the foundations began to shift. Central to the crisis is the role of America, which is no longer able to lead by persuasion — and whose retreat into coercion reveals its eroding authority. The National Security Strategy states it plainly: the days of the US carrying the world order “like Atlas on their shoulders” are over.

For Europe the consequences are immense. No region placed a deeper bet on this system: American security guarantees as its foundation, Russian gas as its fuel, China as its export market and subordinate producer. Now that all three pillars are wobbling at once, Europe faces a historically unprecedented moment: for the first time it must itself answer the question it imposed on the rest of the world through centuries of imperial domination — how do you avoid becoming a divided tributary?

China learned this lesson during its own century of humiliation, crushed under Europe’s imperial fist. The proud empire was weakened by unequal treaties and carved into spheres of influence. According to revolutionary leader Sun Yat-sen, China was not a “normal” colony, but something worse. A hypo-colony: not the possession of a single ruler, but exploited by many. China had no central enemy against which it could unite all its resistance, so it turned inward: warlords fought each other for central power. Without common identity and paralysed by internal fragmentation, more than a century of subjugation followed.

The End of History

The Western liberal world order carried within its victory of 1991 the formula for its own dissolution. The moment the bipolar struggle between the Soviets and the Americans transformed into a de facto American unipolarity, a “neocolonial hubris”, in ’s phrase, took hold in the West. The end of history was declared. According to the political scientist Francis Fukuyama, the overwhelming superiority of capitalism would turn the globe into one great democratic market. In Europe a comparable vision was shared, illustrated by the German Wandel durch Handel — the belief that trade with countries such as Russia and China would democratise them.

The scale of transformation was enormous. Around three billion “cheap” labourers were integrated into the global workforce. The world market would henceforth be governed by an empire of global value chains, in which short-term shareholder logic became sovereign in the West.

To facilitate this expansion, American planners doubled down on services and intellectual property, with the dollar as the world’s reserve currency. Factories relocated to Asia; profits stayed in New York and Silicon Valley.

Export-oriented economies became dependent on the American consumer market. They sold goods to America, parked the proceeds in US Treasury bonds, and in doing so financed the next round of American consumption.

China used that position — made possible in part by large-scale European investment — to build an increasingly autonomous economic base, supported by its grip on industrial supply chains and by closer ties with commodity exporters such as Russia.

The US used that position to fund military primacy and build the world’s most powerful financial market — through which it influences global markets and practices financialised industrial policy.

And Europe? We enjoyed the geopolitical holiday: access to American demand, practically free information technology1 and cheap Chinese production, while American military dominance made the security order seem self-evident. And so we grew addicted to cheap Russian gas, and failed to grasp the geopolitical necessity of the energy transition.

The gains were unevenly distributed. Western shareholders and Asian industrialists profited enormously; Western workers lost ground. That pent-up resentment sought an outlet: in Washington it stormed the Capitol, in Brussels it fed the populists who hollowed out European cooperation from within.

With the West at war with itself over the spoils of its own order, Moscow smelled blood. China — with its newfound technological base and booming industrial economy — offered the economic lifeline, and Xi Jinping knew it: “There are changes happening that we haven’t seen in 100 years,” he said to Putin in 2023. “And it is we who are driving these changes together.”

But in reality, the system’s logic was driving the change itself. The Pax Americana had always rested on three interlocking pillars: geopolitical dominance, enforced through both hard and soft power; dollar hegemony and an open consumer market, which drew the world’s exports in and recycled the proceeds as American debt; and a domestic social contract, which promised broad prosperity in return for popular consent.

The logic of the second pillar gradually consumed the other two. The industrial base that underwrote American power was offshored in pursuit of “cheaper” production; the prosperity that underwrote popular consent was captured by shareholders rather than shared with workers. What remained was the financial market — which had devoured the order it was meant to serve.

The stability the order had provided made predictable capital accumulation possible — but once political preferences started diverging, predictability was no longer in the interest of the United States. And when stability is no longer in the interest of the stabiliser, crisis becomes its preferred tool to maintain dominance.

When all three pillars began to crack at once, the foundation on which Europe had coasted for decades evaporated. Such moments of disruption are not new.

The Interregnum

During the interwar period, the Italian philosopher Antonio Gramsci tried to understand what was happening to a world order that was similarly in flux. The commonalities of Gramsci’s time with the modern day are not accidental. Globalisation had reached its first zenith under British hegemony, the Spanish Flu had spread through massive, rapid movements of troops during World War I, political extremism was escalating — both on the left and the right. Writing in captivity under fascist rule, he observed:

“The crisis consists precisely in the fact that the old is dying and the new cannot yet be born; in this interregnum a great variety of morbid symptoms appear.”

Like in Gramsci’s time, we are currently not in a “new world order” as many like to wishfully think, we are in an interregnum.

After Gramsci passed away, the interregnum remained unresolved until after the second World War. Albert Camus, who witnessed the inhumanity, horror and destruction, understood what was at stake. He took up his human duty to defend justice in the resistance. Denied a rifle when the Nazis marched on Paris — his lungs too fragile from tuberculosis — he took up the pen as his weapon and started writing in the French resistance newspaper Combat. He started a conversation with injustice in his Letters to a German Friend.

In his characteristically French absurdist manner, he did not refute the German interpretation of nihilism that had triumphed temporarily over Europe. Instead, he refused it. A world governed purely by force, he saw, is not just unjust — it is hollow. It destroys the very thing worth defending. The Nazis reduced Europe to territory, granaries, and subjugated peoples. Camus rejected this material conquest. For him, Europe could only exist if spiritually united. Not through tanks and artillery, but through shared identity and values. “I love my country too much to be a nationalist,” he wrote.

At the same time, Camus was anything but naive. The Nazis’ brutality had taught him that “the spirit can do nothing against the sword.” Yet he concluded that “the spirit united with the sword will always triumph over the sword drawn for its own sake.”

“That is why,” he wrote, “we have now accepted the sword, after making sure that the spirit was with us.”

Camus did not call for naive pacifism but for principled resistance. The humanist spirit could win if it armed itself with the right strength. Schuman and Monnet, architects of the European project, understood this: by pooling the raw materials of war — coal and steel — they united the spirit of European integration with the sword. Centralised power in Europe became not an enemy of freedom but its condition.

That civilisation worth defending was their creation. What their successors built was a market with a flag. The spirit was separated from the sword — and without the spirit, the sword has nothing to defend.

God Is Dead

When the post-mortem of the world order is conducted, all signs point to a failed project of the economic elite. The balance of power on which Western hegemony rested was disrupted by its own greed. The proclamation of the end of history marked a simultaneous peak of the neoliberal order in idea and in fact — the moment its ideology and its material dominance reached their zenith together. But just as perfect competition marks the beginning of monopoly, that convergence was the moment decline began. Henceforth, the logic of the system dictated that the liberal ideal of a flat world started diverging from material reality — in which power started concentrating.

The fall of the Wall was, for the neoliberal, the coming of the Messiah: market logic could inherit the earth. Trump’s second term is its crucifixion. Now God is dead.

The neoliberal may mourn. For them, the current upheaval is a deserved reckoning. Yet it is ordinary citizens who appear to pay the price. The same elite who profited from the failed project of globalisation still calls the shots and has no intention of relinquishing the profits it extracted on the back of failed foreign policy.

They now demand collective resilience while practising economic individualism. They preach democracy, yet citizens lack any material say. We arm ourselves against the Russians while cutting spending on the most vulnerable. History teaches us that this feeds political extremism. And who will fight for a country in which they have nothing left to defend?

The struggle for Europe is therefore not waged in Brussels or on the battlefield — it is waged in our minds. For integration does not stall through a lack of political will, but through the structural contradictions of modern liberalism itself. Especially when that so-called “liberalism” is in reality nothing more than a form of economic nationalism.

This has always been the case, unfortunately, but it is worth examining why it took so long to break this illusion — and why so many still, hopelessly, cling to the idea, while the far-right surges as liberals either fail to grasp the problem at hand, or consciously sell false promises. Because economic liberalism, in reality, is not an ideal end-state that is able to be achieved — it is instead a phase that can only work under certain historical conditions. There was a time where the model seemed to work — the idea was alive. But the truth is it was never fully realised. In reality, maybe God never existed.

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The Belle Époque

Ever since the signing of the Treaty of Rome in 1957, trade and capital moved freely across European borders, but fiscal and industrial policy remained national. This worked for the political constellation of the period. Europe was recovering from the Second World War, could export to American markets, and the Americans provided the security umbrella. This was of course not without self-interest, as the Americans needed a thriving bulwark against communism.

Europe was still in a stage of economic integration that tapped the benefits of comparative advantage and scale, but left states with the autonomy to adjust exchange rates and run independent central bank policy. When Maastricht enshrined that asymmetry in 1992 — removing the last monetary safety valves without building the fiscal architecture to replace them — it didn’t complete the European project. It perverted it.

Nonetheless, this went unnoticed for a while. After the demise of the Soviet Union and the reunification of Germany, neoliberal hubris broke through like water from an overfull dam — sweeping away every barrier to the unbridled market, with planetary distortions as the consequence.

The production of imbalance, and its consumption in the Eurocrisis

“In order to comprehend German fascism, we must revert to Ricardian England,” wrote Karl Polanyi in 1944 — for it was there that the hegemon had forged the logic of free markets that would eventually consume it. So too, to understand the crisis of European liberalism, we must return to the fall of the wall and German reunification: for it was there that Europe’s ordering power forged the imbalance that would eventually consume it.

Between 1990 and 1994, formerly state-owned East German enterprises were sold off at extraordinary speed. Sales almost exclusively went to West German and foreign buyers, usually at prices below any reasonable valuation. The buyers were often less interested in running the businesses than in eliminating competitors, acquiring real estate, or extracting whatever value remained.

The result was the destruction of East German industry on a massive scale — employment in the former East collapsed, and entire industrial regions were effectively deindustrialised within a few years. The so-called “Treuhandanstalt” closed in 1994 having accumulated debts of around 270 billion Deutschmarks, which were socialised onto the German public. This created a dual pressure on the German elite.

The cost of reunification was enormous, and rather than raise taxes on capital or wealth to cover it, the burden was shifted onto workers and welfare recipients. The mass unemployment in the East created a vast reserve of cheap labour that suppressed wage bargaining power across Germany as a whole, with Eastern workers desperate for any employment that undercut Western wage standards.

High unemployment numbers set the stage for the infamous Hartz reforms under Schröder. The reforms cut unemployment benefits and shortened how long they lasted, while deregulating temporary work. Workers could no longer afford to hold out for decent wages, unemployment had been made too costly.

Real wages fell, corporate profits rose, and the resulting surplus that German workers could no longer spend at home went abroad as exports. And into this already compressed economy, generating larger surpluses year by year, the Euro arrived in 1999. The euro removed the last adjustment mechanism for European states with “weaker” economic fundamentals, or a lesser desire to exploit their workers. Before it, a country running a large trade deficit with Germany could at least devalue its currency — making German exports more expensive and its own exports cheaper, gradually correcting the imbalance. The euro made that impossible.

Surplus German capital needed outlets. It flooded into mortgage-backed securities in the United States, and was pressed onto the periphery — Spain, Greece, Ireland — as cheap credit that financed the consumption booms Germans could no longer afford at home. When those bubbles burst in 2008, what could have been the catalyst for genuine European federation became an opportunity for creditor states to seize assets and export blame. Northern governments called it a crisis of southern profligacy. It was a crisis of northern surpluses.

Integration that might have resolved the imbalances — common debt, fiscal transfers, an EU-wide unemployment insurance that would have sustained demand where it collapsed — was refused. Not because it was economically impossible, but because it was politically inconvenient for those who held the upper hand.

Instead, when the eurozone crisis struck, German ordoliberals rushed to plug peripheral ears with beeswax, binding their hands to the mast of fiscal consolidation. They forced debtor countries to slash public spending, cut wages, and sell assets to service debts they had largely accumulated financing German exports. Like Odysseus’s crew, peripheral nations found themselves restrained: they were denied the very tools that might have enabled convergence with the core.

Core states quietly practised industrial policy — calling it thriftiness — while stripping others of economic sovereignty, whom they called lazy for their strong labour protections. In reality, behind the mask of liberal equilibrium lurked the predatory face of economic imperialism.

The result that emerged from the crisis was the worst of both worlds: the idea of liberalism institutionalised in the rules of the common market, room for economic nationalism within it. What Camus had called the spirit united with the sword had become a spirit divided against itself: preaching solidarity in its treaties while practising extraction in its politics, invoking union while enforcing division. The spirit had been separated from the sword — and without the spirit, the sword had nothing left to defend.

While we fought ourselves

While Northern European policymakers were preoccupied with defending austerity with religious fervour, external rivals recognised the window of opportunity presented by this ideological naivety.

Ironically, China had perfected the art of state-led industrialisation — a model that German aristocrats, most notably Bismarck, had pioneered two centuries earlier. Europeans had enthusiastically boarded the vessel of global neoliberalisation, riding its waves thinking market forces would bring them ashore. Yet when the iceberg loomed ahead, they found themselves unable to change course.

To keep competition within the single market fair, Brussels had long forbidden member states from subsidising their own companies. A national subsidy in Germany would, after all, disadvantage a competitor in France. This rule was the legal embodiment of the liberal conviction that governments had no business picking winners. But as we have seen, the core practised industrial policy by other means: through wage suppression, the terms of reunification, the architecture of the euro itself.

The prohibition bound the hands of those without such workarounds. But it also left Europe as a whole unable to mount the kind of coordinated industrial response that its rivals were building. The continent’s hands were tied to the mast of state-aid restrictions and austerity: self-imposed constraints designed to resist the siren call of “inefficient” state-led economics, and held there by a polarised society too divided to demand otherwise.

From the East, China had patiently built the industrial base Europe had outsourced and forgotten. Chinese trade surpluses with European countries are now hitting record highs, threatening widespread deindustrialisation that and called the China shock 2.0.

In Ukraine, Russian artillery shells ended the era of cheap energy on which European competitiveness had rested.

From across the Atlantic, Washington under Biden abandoned the fiction of free trade with the Inflation Reduction Act, and its successor now intends to vassalise the continent.

Everything was moving. Europe was not.

Hemmed in by a hypercompetitive China, undercut and beat down by American subsidies and tariffs, and starved of the cheap energy that Russia had once supplied, Europe finally surrendered to massive state aid. But the model of free trade imperialism would not be replaced by an equitable industrial policy.

When Brussels finally permitted state aid — first as a “temporary” crisis exception, then as a permanent strategic necessity — it did so without joint financing.

The subsidy race that followed (which has still not been resolved due to recalcitrant “free-marketeers”) was the most perverse outcome for what started out as a peace project. It is is now occurring in plain sight: rich and large states are buying their way into the industries of the future, while smaller ones are left behind.

The internal market fragmented through the very instrument designed to unite it. Draghi’s reform agenda already names the cure. What is absent is the will to share the costs of administering it.

The failure of European liberalism

The failure of liberalism is not a failure of understanding. It is rather due to a lack of societal change.

Its pathologies run through the entire Western sphere of influence: in educational institutions that ignore social and geopolitical dimensions, in media that reduce complexity to digestible oppositions, in governments that treat citizens as homo economicus. Europe’s case is simply the most extreme expression of what has shaped the West as a whole.

Take rare earth metals: China came to dominate that market not through superior market forces, but through decades of strategic planning — and is now holding Europe hostage in trade negotiations. Liberal societies thought in terms of comparative advantage, welfare analysis, and “optimal” models. By the time they realised that economic dependence was a security risk, and that power could not be modelled, it was too late. This was not market failure, but a failure of thought.

But ways of thinking do not change in a vacuum. The old order has produced interest groups, international and domestic alike, who profit from European powerlessness. That predicament calls for pessimism of the intellect and optimism of the will: seeing clearly what is wrong, and acting nonetheless.

Europe offloaded every element of the old world order that hindered profit and created moral revulsion, and thought it could export the costs abroad indefinitely. Defence to the Americans; cheap labour and supply chains to the Chinese; energy and commodities to Russia, the Middle East, Latin America, and Africa.

Cheap to us, that is. Dear to them. But the bill is now due, and Europe is paying.

The winners of European globalisation, mostly the upper and middle classes, were lulled into satisfaction. Regulation kept the dirtiest production, such as mining and fossil-fuel extraction off European soil. The right enjoyed the profits of outsourcing; the left enjoyed the clean conscience.

In reality, this was an unholy marriage: the centre-left supplied the ideological consent, the centre-right took the profit, and both looked away from the vulnerable logic that made the model run. The end of history implied a convergence of norms and values that never came. The fantasy endured only as long as American power could guarantee the system and the Chinese rise did not disturb the balance.

That story has now definitively collapsed. The resurgence of the extremes is the failure of the centre who believed it.

The price of all this, is therefore our solidarity — the one thing integration required. We now have no dominant financial sector, no unified foreign policy, no serious military and no domestic supply of critical materials. What little leverage our supply chains afford, we cannot exercise, because exercising it would demand the institutional solidarity we never built.

Across Europe, governments acknowledge our problems rhetorically, then balk the moment the finance minister speaks. The Dutch cabinet is typical: geopolitical awareness must “resonate across all areas of policy”, the coalition agreement declares — until a higher standard of living turns out to be “too expensive”, and higher wages “bad for business”. That ignores the fact that Europe’s dependence on the American market stems precisely from too little domestic demand, as the German example above so aptly shows.

So without translation into the material, the rhetoric is an empty shell. European governments are playing card games while the world plays Risk. A tax break here, a subsidy there, traded across the table to maintain the short-term consent of dominant groups, while young people disengage and see a future without an affordable home. That erodes the social base the geopolitical transition requires.

The New Must Be Philosophised

The solution demands a societal transition that carries every citizen with it — a new social contract that creates a civilisation worth defending.

Europe has done this before: from the rubble of two world wars it forged European integration itself. For order in Europe has always carried the logic of its own dissolution. War forced taxation, bureaucracy, and the state itself into being — “war made the state and the state made war,” as the sociologist Charles Tilly put it. Westphalia ended a century of religious slaughter and built the modern state system; Napoleon’s wars laid down the legal architecture of the continent; integration rose from the ashes of 1945.

Each settlement resolved the crisis before it and seeded the one after. Every peace carried the seeds of the next conflict; every order the logic of its own undoing. Europe made war, and war made Europe. Our peace project was so successful that we believed the cycle was over. Out of naivety, we forgot the lessons of our own history.

Now it is time we relearn it, and make our own history rather than letting others write it for us. Europe, after all, is the birthplace of every political language in which the modern state still speaks. Every philosopher cited in this essay came from 20th century Europe. And ironically, it was Tilly, an American, who formulated how we got here.

The diversity of our continent, the interplay of competition and cooperation among its nations and peoples, is precisely the force that kindled that capacity for both its destructive force and its creative capacity. But therein lies the challenge: a civilisation with twenty-four official languages must, in effect, resolve its own Tower of Babel, channel its power of diversity rather than use it for the historical suffering it has caused, and learn to speak with a single political voice.

This Herculean task will succeed only if every citizen is carried along, unlike what happened during the rabid rampage of the neoliberal. Great ordering moments in history — such as the postwar Bretton Woods system — did not succeed because they were theoretically perfect, but because they anchored a social compromise that was broadly shared. Europe needs the same: an order in which citizens do not merely receive the bill, but also see the benefits. Do not only sell messages of hope; deliver them. Ultimately this serves the interest of the elite too, yet many remain fixated on the rear-view mirror of quarterly earnings results, losing sight of what is bearing down on them. This too, is a problem of liberal capitalism.

Yet the ordinary citizen is no pitiful victim; they too have much to answer for. In 2022 I stood powerless outside parliament. Now I understand: the powerlessness was not only outside me. What goes wrong in the world goes wrong because people let it happen, and then complain afterwards as though it had nothing to do with them. And from those same people I hear, all too often, that they would rather not concern themselves with politics and the news. I used to show understanding, but seeing the state of the world, for them I have no reconciling words: to be uninformed is a privilege, and that privilege can be lost.

This lethal dialectic of elite recalcitrance and popular indifference is what is killing us. And for many in the Global South, that takes on a literal meaning in the form of poverty, war, and famine. Indifference is the dead weight of history. It works passively, but it works. And whoever later murmurs that they could not have known is mistaken: they did not want to know.

For those who count themselves engaged inhabitants of the earth, it is a duty to understand what is at stake and to act on that knowledge. Activism is not watching a documentary and donating to a good cause to absolve yourself of your human duty.

For democracy is at once our greatest strength and our greatest vulnerability. An elite that preaches resilience while entrenching inequality squanders the very support base it needs, and fosters imperialist conflict. A citizen who looks away gives it the room to do so. Those who feel ownership of their society defend it. Those who feel excluded vote against it. The old order has died. We must cure our sick world, and give birth to a more humane one.

This essay took weeks to write. Years of study are behind the argument.

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In September 1980 Saddam Hussein launched an invasion of Iran, calculating that revolutionary Iran was weak and disorganized. His gambit paid off. Eight summers later, after a long and bitter struggle, Ruhollah Khomeini — the first Supreme Leader of the Islamic Republic of Iran — accepted a ceasefire with Iraq he despised. Ending the war with Iraq, he said, was more deadly than drinking poison. Ayatollah, in the same fashion as Socrates’ being sentenced to death, drank “the poisoned chalice” anyway, because the war could no longer be won. Less than a year later he died and a new republic with Ali Khamenei ruled over Iran for more than three decades.

Thirty-eight years on, Damon Golriz, Iran expert and author of , makes the analogy that the chalice changed hands. This time it is not a Supreme Leader, but an American president who drank the poison: conceding Tehran’s terms to preserve the regime’s survival — and maybe even strengthening it.

The regime changed. But it was not a regime-change. “The regime is in the process of metamorphosis,” says Golriz to explain the Kafkian situation Iran faces. With the elimination of the Supreme Leader Khamenei, a transformation is underway from inside a structure that has survived.

The regime — a theocracy with competing power factions drifting toward military supremacy — is projecting power from the Persian Gulf to the Eastern Mediterranean through Lebanon. The deal leaves Israel to operate within the terms Washington conceded to Tehran — sanctions relief among them — while Tehran keeps what it has taken. “Iran will never give up its authority over The Strait of Hormuz without force,” he told me.

Damon Golriz (1981, Tehran) is a strategic Iran analyst at The Hague Institute for Geopolitics and a research-lecturer in the synergy of geopolitics and technology at The Hague University of Applies Sciences. He is a political commentator appearing in global Persian, Dutch, and English outlets.

Damon Golriz is insistent on the distinction: Iran is not Venezuela. It is not Iraq, and it is not Syria. “Iran is a civilisational nation. That is far more than a nation-state.” It is, he argues, one of the few states on earth carrying a continuous identity across millennia, through invasion and revolution and sanction and war. “A survival mechanism that goes back a hundred generations. The idea of Iran.”

Venezuela, Iraq and Syria are all, in different ways, fragile constructions — states whose borders and identities were imposed from outside rather than grown from within. Iraq and Syria are the direct products of Sykes-Picot, the 1916 colonial carve-up in which Britain and France divided the Ottoman ruins between themselves with a ruler on a map and no regard for the diversity of peoples living there.

Venezuela’s fragility is of a different origin, but the pattern holds: where the state is an artificial vessel and has historically been subservient to great power politics, it breaks under pressure. Iran has been pressured for a century and has not broken. Because Iranian history is longer than anyone else’s. Hegel located the beginning of history with the Persians. Persia was the birthplace of historical consciousness, he said: the first empire broad enough to govern many nations at once and durable enough to last as a civilization, rather than a nation-state.

For Golriz, this long history is not just aesthetic. It is part of the reason the United States and Israel failed. The failure is not just caused by the geography of the vast country bigger than Western Europe — or the significance of the Strait of Hormuz, but mostly in that civilisational inheritance which resonates in the Iranian people’s spirit.

That is not due to the cleverness of the regime governing forcefully and brutally over them, says Golriz. When the country was attacked, the population did not turn on its rulers, even though most of them oppose those rulers and have said so in the streets. Fear of being killed accounts for part of it. Something older accounts for the rest. “The credit belongs to the idea of Iran, and to the Iranian people themselves.”

But the idea cuts both ways. The same people who would not turn on their rulers under bombardment are the ones who reject those rulers in peacetime. When and if external pressure disappears, the regime will have to deal with the internal pressure.

They won the war

Nevertheless, for now the regime has some respite in its triumph. In January 2020, hours after Soleimani’s assassination, Trump reached for a line that seemed to settle the matter: “Iran never won a war, but never lost a negotiation.” Today, echoing Naftali Bennett’s own assessment, the verdict has been reversed. Iran has not only won a war — it has won the negotiation that followed, shaping the terms of the MoU largely on its own ground.

The new leadership in Tehran reads this as a momentum the revolutionary state can transform into a normal, responsible power capable of crafting the rules of engagement in the region and beyond. Its grip on the Strait and its role in brokering the South Lebanon ceasefire are two of the levers it now holds. Gaining authority over the Bab-el-Mandeb — the Red Sea chokepoint connecting Asia to Europe via Suez — is sharply in Tehran’s crosshairs.

Yet, the regime has to take a breath to shoot steady. And its lungs are the Iranian people. Because to win the peace, the regime has to win the hearts and the minds of its own people. And therein, also, lies the failure of the US.

There was a moment when Washington could have backed Iranians from within at a fraction of the cost of the failed war — Golriz cites a reported Reuters claim that Musk offered the Pentagon Starlink coverage for all of Iran for around a hundred million dollars a month, which the Pentagon refused, and which both sides have since denied. This would have given Iranians the means to communicate for a potential uprising.

A four-month military campaign was launched instead, and it strengthened the regime it was meant to weaken. Iran’s conventional navy may be obliterated, but its control of the Strait has only increased. It was ultimately the pressure on global energy reserves that drove the US to accept Tehran’s terms, as Trump admitted: “we run out of reserves in about four weeks.”

Whether the lack of choice for the Starlink intervention was blatant stupidity or was due to willful ignorance and different intentions than those stated, remains a question that is unanswered.

What Iran intends to become

The victory abroad is the beginning of a larger ambition. Golriz describes an Iran that means to position itself as a Hinge Power between the Eurasian bloc of China and Russia and the Transatlantic world, anchored from the Strait of Hormuz to the Mediterranean through the Red Sea.

This means that its proxies Hezbollah and the Houthis will have to play a different role than only to disturb and create conflicts. A new security architecture, with Tehran at its hinge and the global powers next to regional actors including Israel should find a modus operandi according to shared interests. Ironically, this is also what the US Vice President, today unprecedentedly critical of Israel, and who is in charge of the Iran negotiations, is pointing to in his recent statements.

The instrument of Iranian ambition is geography, and it is shaping a novel constellation that I have anachronistically called the Concert of Hormuz.

This is what Golriz means by a world power built on something other than missiles. Iran has shown it can throttle the world’s most important oil corridor through its grip on Hormuz.

It is uncertain however how long Iran is able to leverage this chokepoint. Workarounds are being developed. Saudi Arabia’s Petroline and the UAE’s ADCOP pipeline both bypassed the Strait entirely and have been running at full capacity since the closure. Iraq has revived dormant pipeline routes north to Turkey.

Winning the peace with Iranians

The idea of Iran as a civilizational state saved the regime in war and has strengthened its position externally as described above — the love for Iran as a civilization was stronger than their hatred of the regime. In peace, this falls away. And a chokehold on the external theatre does not conquer the internal battlefield.

This is the part of Golriz’s argument that cuts against regime-triumphalism. “They may win the war in the region, but they also need to win the peace with the Iranian people,” something that Golriz thinks is harder to do. After the bloodiest mass killings of peaceful protesters in Iranian history, with at least 5,000 and up to 20,000 being killed according to the UN Special Rapporteur, with exile and opposition media claiming numbers up to 36,500 in two days, in January 2026, the regime cannot move forward without genuine national reconciliation.

Next to economic development of the country under almost triple-digit inflation, with a population of 100 million averaging 35 years old, Tehran should recalculate its governance. America and in particular its Transatlantic ally in Europe — experienced with nation-building through integrating post-Soviet states into its union — could play an effective role in this transition, according to Golriz.

Winning the peace demands two things simultaneously, according to Golriz. The first is domestic: genuine reconciliation with the Iranian people and a serious reckoning with their long-suppressed demand for good governance. The second is regional: a modus operandi that treats Israeli national security not as an obstacle to be managed, but as a durable fact of the Middle East that any credible regional order must accommodate.

The population retains the capacity for a national uprising. “You cannot suppress that indefinitely with internet shutdowns and executions. The mathematics of repression demands absolute triumph, but the popular uprising needs to win only once. In this calculation the regime that only oppresses can win the battle of repression, but it won’t win the war of survival.”

The facts about the balance of power between the Iranian people and the regime are unforgiving. Roughly 80 percent of Iranians despise the system. With a median age of younger than 35, Iran is a post-revolutionary society that did not choose this order and has spent a decade fighting it in the streets. The mass killings of peaceful protesters in January shattered whatever remained of the social contract.

No credible pluralistic opposition exists to channel the majority, so the burden of resolution falls on the regime itself. Its old modus operandi of ruling with systemic corruption and structural repression, and ideological coercion, will be difficult to maintain. The ideal is a civilisational reckoning: a genuine national dialogue with real prospects for reconciliation, moving Iran from revolutionary cause to a state at peace with the world and its people.

What should follow, he argues, has to be a national reconciliation. And here he sees an opening for Europe that he does not expect Europe to take. The bankruptcy of American hard power leaves room for European soft power to triumph, of the kind that has, with some success, drawn authoritarian states toward democracy through integration in the post-Cold War era. The model is there. The capacity, in his judgement, is not. “I am afraid Europe does not have the courage, the will, or the ambition to do this. Nor the institutional means.”

So the chalice changes hands, and it changes nature as it goes. Trump must drink the poison: sanctions lifted, the blockade gone, Hormuz reopened on Tehran’s terms. That much Golriz expects. But the regime has a domestic chalice of its own waiting. It won the war on the strength of an idea older than the regime, and the regime cannot keep what the idea has won unless it makes peace with the people who carry it.

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Previously in this series:

“Iran is back in the game,” says Michel Don Michaloliákos, geopolitical analyst and co-founder of . A rabid Israel, a rudderless and receding US, and a neo-Ottoman Turkey now see the re-entry of an Islamic Republic that came out of the conflict “stronger than ever before”.

“At no point since the Second World War has the US accepted a hostile power controlling such a strategic sea lane,” Andrew Gawthorpe told me earlier in this series — a sign, he said, of the end of US hegemony.

A Washington that will not risk Hormuz will not intervene anywhere the strait can be used as a counter-threat. For every theatre in this piece the calculus has shifted. This means that rather than bringing rest to the region, this peace will likely sow the seeds for further conflict.

The credible threat of American military power, the force that underwrote the regional order for decades, is now contingent on Iranian restraint at a chokepoint Washington cannot replace. Iran knows this. Every other power in the region knows it too. There will be no winged-hussars coming to relieve the siege.

The implications of the outcome are as of yet severely understated in mainstream media. What is too rarely grasped is that this is not merely a regional story. The Caucasus, the Middle East, the Horn of Africa, the eastern Mediterranean and the Indian Ocean littoral form one interconnected geostrategic theatre. A shift in any one part reverberates across the rest.

The settlement now taking shape should therefore not be read as the start of peace. It is the start of a broader reordering, and one that may well produce more conflict before it produces less. As Polanyi noted in 1944, “it is a commonplace that to ensure peace one must eliminate the causes of war; but it is not generally realized that to do so the flow of life must be controlled at its source.”

A concert of Hormuz is forming, but one without a single stabilizing hegemon. The 19th-century balance of power maintained relative peace not through the balance itself, but through the institutional structures that sat above it, and those are precisely what now seems to be missing. What follows maps the new regional order that Iran’s return and America’s supposed retreat has set in motion, theatre by theatre, through a balance-of-power logic that has not been seen in this part of the world since the Concert of Europe.1

The lead up

The shift, ironically, began on the 8th of May 2018, when Trump tore up the Joint Comprehensive Plan of Action that Obama had negotiated with Iran in 2015. Hostility followed, but the relative balance held — yet it was upset by Trump’s action. It was only between 2023 and this year that it tilted decisively towards Israel and the US, as Iran’s proxies were dismantled one by one.

The turning point that started the current episode was October 7th. Michaloliákos reads Hamas’s attack as an Iranian-sanctioned “emergency button” — an attempt to stir the Arab street against the Gulf monarchies and halt their rapprochement with Israel. This backfired, and in the years since, Israel severely weakened the “three H’s” (Hamas, Hezbollah, the Houthis) along with the dismantlement of the Assad regime and Iran’s militias in Iraq. Iran’s strategic depth collapsed. And, as Michaloliákos puts it, “there’s always a trade-off between strategic depth on the one hand and nuclear weapons on the other.” It seemed like Israel was marching towards regional hegemony.

The reversal

“The war has turned everything on its head,” Michaloliákos says. Iran’s position had been weakening. America felt emboldened at the negotiating table. Now it’s clear Washington didn’t achieve its objectives and the Islamic Republic survived. “From what I can establish based on the current proposal, it’s mainly America that has made concessions.”

As a result, a new security logic has taken hold across the region. In a recent paper, The Hague Institute for Geopolitics describes it as a shift from strategic realignment to strategic hedging: rather than forming durable alliances against a common threat, states now pursue contradictory policies simultaneously. This means engaging economically and diplomatically with all sides while simultaneously taking out military insurance against each of them. There is no clear ordering power, and no relationship that outlasts its immediate usefulness. Alliances are competitive, pragmatic, and will be abandoned the moment jumping ship offers a better hedge.

Relevant Quote

“Therefore I say that it is a narrow policy to suppose that this country or that is to be marked out as the eternal ally or the perpetual enemy of England. We have no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow.” — Lord Palmerston in the British House of Commons, describing the shifting alliances of great power politics in 1848.

In that context, the rest of the Middle East must now reposition around an Iran that seems more powerful than ever before.

Two regional axes — the Saudi-Turkey-Pakistan bloc and the Emirati-Israeli bloc — had been competing mainly with each other, both operating under an American security umbrella that is now visibly fraying. What is fraying it is Iran’s return. The US-Israeli axis, arguably weakened permanently both militarily and diplomatically by total defeat in the war, now faces a third pole it cannot contain.

On the geopolitical front, Iran’s demonstrated chokehold over Hormuz has kneecapped American willingness to intervene. On the diplomatic front, popular revulsion at Israel’s genocide in Gaza combined with elite frustration over false promises, namely that regime change was achievable, that strategic objectives were within reach — have severely eroded the alliance’s cohesion.

The gamechanger: US-Israeli split

Whether the break proves permanent is for the future to tell. But as Michaloliákos sees it now, Israel’s standing in Washington has weakened “definitively”. Support has slipped across Republicans, Democrats and independents alike, narrowing the room politicians have to back Israel unconditionally. And Israel’s demands run against the promises made: a month or two ago JD Vance lashed out at Netanyahu “you promised the regime would fall, and yet we don’t see that happening,” Michaloliákos paraphrases.

The deeper problem, Michaloliákos argues, is strategic, and he sets the moral question aside deliberately to isolate the obviously inhumane Israeli actions from the strategic mistakes: Israel has, on several occasions, harmed America’s own strategic interests. Washington now wants to prevent that, and a new balance has set in. Whether it is one to welcome is another matter, because it means other powers have grown more influential. Under the “Trump regime”, Michaloliákos argues, countries like Pakistan, Qatar and Turkey suddenly hold real sway over the president.

When Erdoğan recently attacked Netanyahu and a journalist put it to Trump, Trump reached not for Israel but for Turkey: “I have a great relationship with Erdoğan. He is a great leader,” Michaloliákos paraphrases.

Balance-of-power politics

Seen in that light, contemporary Middle Eastern balance-of-power politics bears a worrying resemblance to 19th-century Europe, but without a key instrument I reveal later in this article. As Europe has become increasingly pacified over the last century, the new Talleyrands, the new Metternichs, the new Bismarcks are now born in the Middle East.

Michaloliákos locates part of the explanation in diplomatic culture: statecraft run as court politics, where access is bought with flattery and warmth rather than treaties. The Trump administration is uniquely susceptible to this, it has no interest in liberal internationalism and a strong preference for the transactional. Arrive in Islamabad, he says, and you are pampered; it is well understood in diplomatic circles that Pakistan wins visitors over through sheer lavishness, and that its officials know how to work transactional figures on their own terms. Turkey has a different but equally effective attribute: “they have this sort of macho culture that really plays well with the Trump clan.”

The fact I said “worrying resemblance” is deliberate. The 19th-century balance of power kept conflicts relatively modest and isolated, and avoided a general conflagration, but only under certain conditions Polanyi identified in 1944. Two prominent ones that are relevant to our modern era are as follows:

First, bloc formation had to remain fragmented and loosely connected, and a powerful hegemon had to hold the system together. As Polanyi wrote, “The Pax Britannica held its sway sometimes by the ominous poise of a heavy ship’s cannon, but more frequently it prevailed by the timely pull of a thread in the international monetary network.”

A rudderless America, one that had to give up reopening the Strait on its own terms, because as one analyst put it, “you cannot print molecules” (referring to the financial hegemony of the US), no longer reliably provides either. Crucially therefore, there is an apparent bifurcation between American military hegemony and American financial hegemony. The cannon is holstered. The monetary thread still runs, but it has become entangled by drones and landmines in the Persian Gulf, where the Eagle has found its graveyard. And the bloc formation, as the following theatres will show, is in the process of crystallization.

But in the Concert of Europe, it was also in the interest of high finance to keep the blocs fragmented. Relative peace served their balance sheets; isolated wars could even provide opportunities for profit. So too in the contemporary age. A good example is the de-facto Turkish takeover of Syria. After Assad fell, Turkish capital moved in to swoop up $11bn in reconstruction contracts.

The main risk, both for international commerce and the stability of the system, is therefore that these multipolar blocs crystallize into bipolarity — as they did before 1914. It is in the interest of international capital to prevent that: fragmented blocs serve profit better than a general conflagration.2

Whether that interest translates into stabilizing force is another matter. As Polanyi observed: “Interests, however, like intents, remain platonic unless they are translated into politics by the means of some social instrumentality.” That social instrumentality is precisely what is missing now that the US is retreating from a region dominated by Western intervention for the better part of a century. For now, therefore, the question is how bloc formation is actually developing in this vacuum.

Shifts in secondary theatres

The two axes are not fixed alliances, and neither leads everywhere. Which bloc dominates depends on the theatre, and a state’s alignment in any given one is dictated by threat perception which differs from capital to capital. For Riyadh the overriding enemy is Iran. For Abu Dhabi it is Iran and the Muslim Brotherhood. For Israel, Iran — also, above all. Indeed, this seems dangerously close to bipolar bloc formation, but there are also rivalries that make the situation more complex.

According to Michaloliákos, the Saudi axis tends to build and prop up nation-states; the Emirati-Israeli axis tends to fragment them, backing sub-state actors it can shape to its advantage.

To see why the Emirates behaves as it does, you have to understand its founding trauma. Michaloliákos calls the Muslim Brotherhood a “Pandora’s box,” an organisation Europe has been naïve about for decades.

Founded in the early twentieth century to “keep the Islamic world Islamic” and push the West out of it, the Brotherhood pursues a strategy that would have drawn Antonio Gramsci’s admiration for its successful war of position strategy. It targets not the disadvantaged, as jihadist groups do, but the cleverest. They target intellectuals, institution-builders, the people who can “burrow deep into the capillaries of society.”

When the Emirates grew suddenly rich on oil in the 1970s and imported Arab professionals to build a state apparatus, some of those it brought in were Brotherhood members who had been expelled from Egypt and Sudan. A coup was very nearly staged in 2012-13. The wound that this gambit inflicted left a permanent scar: Abu Dhabi still treats the Brotherhood as an existential threat, and because Turkey is the Brotherhood’s foremost patron, the Emirates and Turkey collide across theatre after theatre. What follows is a quid-pro-quo where the Israelis and the Emiratis unite against Turkey in whatever battle is happening, in an alliance of convenience.

Syria

Until Assad fell, Russia and Iran were dominant, the twin pillars of his regime. After al-Sharaa, better known as Abu Mohammad al-Julani, “a former IS and Al-Qaeda associate,” in Michaloliákos’s words, took power with Turkish backing, Syria slid almost entirely into Ankara’s orbit. Israel watched with displeasure and moved to secure its own position.

In the brief vacuum it demolished virtually the entire Syrian army, “almost all military capabilities, air defences, even fighter jets.” Michaloliákos says he understood the strategic logic: with al-Sharaa “you don’t know what you’ve got,” and you are “better off clipping his wings in advance.” Israel also tried to secure a foothold in the south and east through the Bedouin and the Kurds, to deny any land corridor running from Iraq through Syria to the Mediterranean.

The turnaround in al-Sharaa’s fortunes is remarkable. The man who once carried a ten-million-dollar American bounty on his head was given a red-carpet treatment at the White House in November 2025.

Washington paused Caesar Act sanctions and Damascus joined the US-led coalition against Islamic State. That this happened at all, Michaloliákos notes, runs against Israel’s interest.

So, who arranged it?

Erdoğan.

And Saudi Arabia backs al-Sharaa too, if with reservations, which is one more sign of Riyadh and Ankara creeping warily towards one another. Meanwhile the reconstruction spoils have flowed to Turkish capital. Now Iran is back in the game, and how and if it re-enters Syria, where al-Sharaa is now an established power, remains to be seen.

Lebanon

Lebanon sat largely within Iran’s orbit through Hezbollah, until Israel began dismantling the movement “enormously successfully and ingeniously,” through the exploding-pager operation and much else. Israel and the United States worked with the civilian government to disarm it, though they were not completely successful. Hezbollah is, as Michaloliákos is careful to note, an organisation with its own agency and ownership over its conduct — not a simple instrument. But the hierarchy is still there, and Iran’s leverage over it is now likely increasing: a Washington that will not risk Hormuz will not intervene in Lebanon either, which means the ceiling on what Iran can demand of and deliver through Hezbollah has risen considerably.

Lately Hezbollah has been reviving, and Israel has responded by flattening much of southern Lebanon and striking around Beirut. This includes, pointedly, an attack on Hezbollah targets in the city in the hours before the ceasefire was due to be signed, which prompted Iranian threats to walk away from the deal. Michaloliákos suspects the deeper aim is a buffer zone that would make Israel hard to attack from the north.

As of the time of writing on the 17th of June, Israeli strikes on Southern Lebanon are still being reported.

Iran insisted Lebanon be part of any deal precisely because strategic depth is in its interest, and the Hormuz leverage made that insistence credible. A Washington that could not force open the Strait of Hormuz on its own terms, was in no position to tell Tehran what its security perimeter could and could not include.

What Lebanon really exposes is a test of whether that leverage holds. With the deal in hand, Iran can turn to Washington and say: you promised Israel would withdraw, so keep your vassal in check. If you cannot, then you are either an unreliable party, or Israel has broken loose from the leash. And if so, “are you then a worthy negotiating partner for us?” That, Michaloliákos argues, is precisely what Iran is now probing.

The Horn of Africa: Somalia and Somaliland

Nowhere is the state-building-against-state-breaking split clearer. Turkey backs the central government in Mogadishu, sending drones and soldiers and securing a concession to prospect for gas and oil just off the Somali coast. This is a clear example of moneyed interests and geopolitics colliding, which I will explore further in a future piece.

On the other hand, predictably, the Emirates and Israel back the breakaway republic of Somaliland, which Israel formally recognised in December 2025, the first state in the world to do so, framing it openly in the spirit of the Abraham Accords. Two specks on the map, as Michaloliákos puts it, until you notice they carry the active backing of the United States, of Ethiopia (which is keen for access to water) and of India.

India’s presence needs explaining, and Michaloliákos offers three reasons. First, the “bromance” between Netanyahu and Modi. Second, Israeli military technology that Delhi wants. Third, the increasingly dense Emirates-India relationship built on oil and a vast Indian diaspora in the Gulf. Hence the shorthand I2U2: India, Israel, the United States, the United Arab Emirates. This is a novel axis assembled to counter the Turkey-Pakistan one. The prize in the Horn is the Bab-el-Mandeb, the southern gate to the Red Sea, and Puntland (an autonomous region in Somalia) may be the next piece to break away.

Sudan

Saudi Arabia and Turkey, alongside Egypt, back the Sudanese Armed Forces, the internationally recognised army under Abdel Fattah al-Burhan. The Emirates back the Rapid Support Forces under Hemedti, chasing gold, a stretch of the western Red Sea coast, and a route into the Sahel. The bitter irony is that al-Burhan and Hemedti once worked together to topple Omar al-Bashir; now they are at each other’s throats, and the war has curdled into an underreported genocide. Neither side, Michaloliákos is careful to add, has clean hands. Ethiopia backs the RSF as well, betting that a fragmented Sudan yields it influence, and reportedly the SAF answers by supporting the Tigray, the minority Addis Ababa is at odds with.

Yemen

Yemen is where the Saudi-Emirati split is most apparent. Mohammed bin Zayed, the UAE’s ruler, and Mohammed bin Salman, Saudi Arabia’s crown prince, were once close but Yemen broke them. Both threw their forces into the war to roll back the Iran-backed Houthis, and both largely failed, achieving little beyond famine in Yemen while the Houthis endured.

At that point they split. The Emirates pulled back, took over the island of Socotra, and backed the Southern Transitional Council, a secessionist movement in the south, against Riyadh’s explicit wishes. The Saudis stayed with the internationally recognised government. Iran, meanwhile, kept arming the Houthis, who survive as Tehran’s lever over the Red Sea, and watched its two main rivals fight over the carcass of a war they had both lost.

The Concert of Hormuz

The point that ties all of this together is that the battlegrounds are wired to one another. As Michaloliákos puts it: “If Turkey supports Pakistan in Kashmir, India will support Armenia with weapon exports.” And indeed Armenia is already the single largest market for Indian arms. The Caucasus, West Asia, the Horn of Africa and the eastern Mediterranean are not separate stories. They are one four-dimensional chessboard, where any move in one corner is mirrored by a move in another.

This is what I therefore call the Concert of Hormuz — and unlike its 19th-century predecessor, its conductor has decided to leave before the orchestra has finished playing.

Where is Europe?

The irony is that Europe is arguably the original perpetrator of the instability that now plagues the Middle East. They created Israel. They laid the modern contours for Middle Eastern states through Sykes-Picot. Europe, the birthplace of the very balance-of-power politics that now dominates the Middle East, is a conspicuously absent player in a Concert where many of its strategic interests lie.

Instability in the Middle East has direct consequences for migration flows, commodity flows, and strategic advantage of an increasingly powerful (yet fragile) alliance between Russia, China and Iran.

What is perhaps telling is that this is a civilisation that has stood the test of time and resisted European colonialism. As Damon Golriz, the following guest for this series aptly quoted the German philosopher Hegel: “In Persia first arises that light which shines itself and illuminates what is around... The principle of development begins with the history of Persia; this constitutes therefore the beginning of history.”

And so, Persia continues to be a central player in the development of history. What unfolds in the following chapter, is a question that is still being answered.

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Previously in this series

Edit: A previous version of this article said “A Washington that had just conceded toll-free passage through the strait”. This is as of yet too strongly worded. I have rectified it and replaced it with “A Washington that could not force open the Strait of Hormuz on its own terms.”

A brief thought

I am unsure whether to find this thought comforting or frightening. What Polanyi meant with “the flow of life” is the social, economic, and political processes that make states function and dynamically move. Such things include population pressures, dynastic disputes, trade wars, nationalist movements and even the silting of an estuary.

These processes move constantly according to the laws of life and the system we live in. Think for example of the rise of China, its large population was a source of its power and industrialization — its population decline will likewise now be the cause of instabillity in both the world economy and, likely, geopolitics. These processes continuously move, and must therefore be anticipated to prevent them from causing conflict.

What Polanyi therefore means with “must be controlled at its source” is that peace requires an intervention in this upstream section of the vitality of nations — the internal political and social life, before grievances or imbalances crystallise into interstate conflict.

What Polanyi describes in this chapter is how a complex system for maintaining relative peace took shape in the aftermath of the Napoleonic wars and the Congress of Vienna in 1815. The underlying mechanism was the balance of power — the principle, as Polanyi puts it, that three or more power units will always combine the weaker against the strongest. But the balance of power, left to itself, produces survival through war, not peace.

There had just been a revolutionary wave that had haunted the aristocracies of Europe. They had every interest in general peace and stability. But as Polanyi noted: “Interests, however, like intents, remain platonic unless they are translated into politics by the means of some social instrumentality.” The interest in peace was not enough, for the movement of “the flow of life” was continuous. Intervening institutions were therefore required.

In the first half of the century, there was the Holy Alliance, underpinned by a clergy that reached into every parish and an aristocratic kinship network that cut across borders. The hierarchies of blood and grace, as Polanyi calls them, could suppress the conditions for conflict at the level of social organisation itself, before grievances crystallised into interstate war.

In the second half, the Concert of Europe lacked those tentacles entirely. It was, at best, a loose federation of sovereign states meeting occasionally and eyeing each other with jealousy. And yet it maintained peace on a far larger scale than the Holy Alliance ever had. The explanation, Polanyi argues, was haute finance. International banking houses, the Rothschilds above all, functioned as the only supranational link between political government and economic life. They had no interest in general war, which would destroy the monetary foundations on which their business rested. By controlling credit, tying governments to the gold standard, and in some cases administering state finances directly — as when the Dette Ottomane was established in Constantinople after Turkey’s 1875 default triggered immediate military conflagration — haute finance reached into the internal life of states and shaped their political options before those states could generate destabilising moves.

It was, in other words, the social instrumentality the Concert of Europe itself could not be.

But once the balance of power was upset, this system too could no longer function.

“In 1904, Britain made a sweeping deal with France over Morocco and Egypt; a couple of years later she compromised with Russia over Persia, and the counteralliance was formed. The Concert of Europe, that loose federation of independent powers, was finally replaced by two hostile power groupings; the balance of power as a system had now come to an end. With only two competing power groups left, its mechanism ceased to function. There was no longer a third group which would unite with one of the other two to thwart whichever one sought to increase its power.”

While pondering the closure of the Strait of Hormuz, this quote came to mind. If there is a more literal metaphor for controlling the flow of life at its source, I would love to hear it. Unfortunately, the fertiliser crisis that is coming is going to lead to food shortages in poorer countries, but the economic interests of energy were probably even more important.

It also got me wondering whether we are lacking a similar binding social instrumentality today. The instability we are seeing is a crisis in the social fabric of world order itself. Political systems have become too divergent in character, and their leaderships increasingly find it difficult to speak to one another across that divergence. Finance now seems to be split between blocs, and it does increasingly seem that on the global scale, there is an emerging bipolarity, which is a worrying sign to me.

I had this chapter in the back of my mind while editing tomorrow’s interview on the Middle Eastern balance of power. Stay tuned for that!

Brief publication update

I have decided to stop making this a weekly thing — I will publish this format when the moment calls for it. The publication has momentum right now, and that momentum is pulling me toward larger pieces. Better to follow the energy.

Tomorrow’s piece will be worth your time. The analyst I interviewed appears regularly on Dutch television and knows the Middle East as well as anyone I have spoken to. Once there is more clarity around the deal, I will also publish a conversation with an Iran expert.

By the time I wake up tomorrow, this publication will likely have crossed 3,000 subscribers. I am genuinely thrilled. In the way where you keep refreshing the page slightly embarrassed at yourself. Thank you for reading, and a particular thank you to my 73 paying subscribers. Once that number hits a hundred I get a verification badge, which will give me a little dopamine hit.

A practical note: once the partial paywall goes up, the price of paid subscriptions rises to €8 per month and €80 annually. Those of you who have subscribed before that point keep the current price permanently — as long as you stay subscribed. It is a small thank you for the early trust, and I mean it.

The eagle once flew powerfully above the Euphrates, with predatory eyes. Now it has found its graveyard in the Persian Gulf. How could this have happened? Though Trump is a symptom of longer-simmering tensions within the US, he is the proximate cause of the rot inside the American state. That is the conclusion I drew from a long conversation with , a historian of US foreign policy at Leiden University, and author of the substack .

American unipolarity found its most prominent expression — rhetorically and physically — in the Middle East at the turn of the century. Bush captured it in a single maxim post-9/11: “Every nation, and every region, now has a decision to make. Either you are with us, or you’re with the terrorists.” This speech was followed by thunderous applause. With the same thunderous sound, bombs would drop in the Middle East the following decades.

“History has called us to these responsibilities,” said Bush in 2002. “And we accept them. America has always had a special mission to defend justice, and advance freedom around the world. Whatever the difficulties ahead, we are confident about the outcome of this struggle. Tyranny, and terror, and lawless violence, will not decide the world’s future. The future belongs to the free.”

Contrast that with the words of President Donald J. Trump two decades later. “A whole civilization will die tonight, never to be brought back again.” Those words sound hollow. Bush’s wars invite their own moral and strategic scrutiny. But there is a fundamental difference in the rhetoric. It does precisely the opposite of projecting power. These words are drenched with weakness — the flailing spasms of a crumbling empire.

That weakness has now manifested in what Trump — in his hollow real estate language — calls a “deal”. The Memorandum of Understanding that seems poised to be signed looks like total capitulation if we are to believe the details put forward by the Iranians. It is telling that we now sooner believe the horrendous Iranian regime on the details than the United States.

It is uncertain what the “deal” will look like, but numbers that circulate from the Iranian side are $300 billion in reconstruction commitments from the US and allies, $24 billion in released frozen funds, half before negotiations even start, and the complete lifting of the naval blockade within 30 days. Hormuz would reopen, but under Iranian arrangements, meaning Iran keeps management of the strait. Iran’s deputy Foreign Minister called it “total victory”.

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Total US defeat

For this series I interviewed three experts, Iran-expert Damon Golriz, Middle-Eastern geopolitics specialist Michel Don Michaloliákos, and the expert for this article: Andrew Gawthorpe. They all agreed that this is for now indeed, total victory for Iran, and total defeat for the US. The only question that remains is whether this will remain.

I asked Gawthorpe whether this was the end of US hegemony. He would not be hurried into calling it that, but he came close.

“What really matters for the US in the Middle East is the free flow of oil, which means the Strait of Hormuz staying open,” he told me. “At no point since the Second World War has the US accepted a hostile power controlling such a strategic sea lane. That has been a fundamental principle. So if Iran solidifies its control of the Strait, yes — I could come around to calling it a step towards the end of US hegemony. So much so that I struggle to see how the US can accept it in the long term.”

So you think this will reignite the conflict? Will it continue to simmer?

“There is now an announcement of some sort of agreement, but in reality not much would actually change. There will be ups and downs, ups and downs. But this doesn’t end without the US either using military force to reopen the Strait of Hormuz or definitely calling it a sign of the end of American hegemony — because that would mean accepting something they have never accepted before, and it has a very real strategic impact.”

Indeed, much stays uncertain as of the time of writing. The two sides both need to sell this as a victory. Part of the problem, Gawthorpe thinks, is that there is an asymmetry of information on both sides of the negotiating table.

It felt like the Iranians needed to throw Trump a bone before he accepted anything. Is that the way you’d look at it?

“It can’t just be throwing him a bone. The reason they haven’t been able to reach a peace agreement yet is because on each side, it seems that they feel they have the upper hand right now.

“Iran feels it has more leverage to push the conflict, and it’s not in a position to give Trump what he needs. Trump tends to lean towards doing whatever he thinks he can get away with, and billing it as the greatest diplomatic achievement in the history of the world.

“In a position like this, it’s hard to see what would allow him to frame this as a victory. It’s not a worry, it’s just a factory-made stalemate.”

Outside of the US, everyone seems to think that the US is losing. Why does Washington not see it that way?

The establishment does, Gawthorpe says — the Pentagon understands the war has been a disaster. Trump does not, and that is a function of who he hears from.

“He has constructed a bubble to such an extent that he doesn’t really hear from objective or external voices, only from people who are part of his family or personal circle,” he told me. Those voices tell the President that Iran has been gutted and its new leadership is weaker than the last. “He just won’t admit it was a disaster. You’ll never see him put out a statement that truly reflects where things stand, because that would be to admit defeat.”

The only thing Trump has seemed successful at is the manipulation of financial markets. Oil is currently trading as if the Strait has already reopened, while mines still have to be cleared and tankers need to reroute.

I asked Gawthorpe if Trump is conscious of what he is doing. He doubts the manipulation is purely strategic. Trump, he says, is “just an unfiltered stream of consciousness with very loose connections to reality.”

He does acknowledge the market-narrative pressure exists — “that element is there too” — but thinks it is incidental rather than calculated. “It’s so transparent, right? He’s saying every day there’ll be a deal tomorrow, or a deal on Tuesday, or whatever.”

My guess is that it’s an uncoordinated outcome of Trump’s personality and his desire to keep oil prices low — which would explain recent reports that Iranian negotiators have started treating him like a mentally ill patient.

The Iranians running out the clock

My reading was that the Iranians are running out the clock — slowing the negotiations deliberately, waiting for Trump’s impatience to force a mistake. Gawthorpe thought the picture was simpler than that.

“What the Iranians want is formal recognition of control over the Strait of Hormuz, rights for their nuclear programme — including maintaining enrichment capability — and keeping their missile arsenal. Their aim is to stay in the diplomatic process just long enough to get the Americans to concede, or until Trump realises there is nothing he can do about it.”
The military option, he said, has effectively been taken off the table — the cost of reopening the Strait by force is simply too high. What Iran is waiting for is the moment when the current situation hardens into the new order of things. “The Iranians at every point seem to be fairly successfully daring Trump to start the war again, and that’s been very effective. They really don’t look like people who are on the back foot.”

A new security architecture is being laid down in the Middle East and Iran is its principal driver. Can you elaborate on that?

“I mean, two things are really important. One is Iran’s control of the Strait of Hormuz — it’s now using that lever to give it leverage over other states in the region, as well as the United States. What I find really interesting about this is that a Middle East regional order in which Iran is able to call the shots to this extent is exactly what the hawks used to say they were worried about if Iran got a nuclear weapon. They used to say: if Iran gets a nuclear weapon, it’s going to be able to bully its neighbours, bully Israel, and there’ll be nothing we can do about it. But that world is basically now coming into existence — and Iran doesn’t even have a nuclear weapon. They just showed they control the choke points. That’s basically what it is. They don’t even need a nuclear weapon — they can do what they can do to the Strait of Hormuz.

“I think a few things logically follow from this in the long run. First, the Gulf states are in a very bad position. They basically allied themselves with the US and Israel, buying into this idea of an anti-Iran military containment strategy — and that’s falling apart now. The Gulf states, due to geography, are still sitting right next to Iran, basically absorbing its missiles. If the US annoys Iran, Iran attacks the UAE. It’s a really difficult position for the Gulf states to be in, and it’s hard for me to believe that in the long run they’re not going to have to reach some accommodation with Iran and essentially shift into its orbit. Because at the end of the day, America is really far away and has a lot of other things to worry about. So I think Iran has a pretty good shot at establishing some new rules in the region — unless the Americans are willing to re-escalate this war to a very high level and do more damage to Iran.”

I think it’s safe to say that the US has gone from hegemony through leadership towards dominance through coercion — but what you’re describing would be a structural break, not just a Trump incident. Could you say Trump has permanently damaged the US’s strategic position?

“I want to be careful about answering in such finite terms. If the Strait remains under Iranian control, people will develop workarounds — pipelines are already being built, alternative routes. What I do think is that Trump has effectively ceded the Strait of Hormuz, and in doing so demonstrated a real weakening of American power in this era. In itself it’s not necessarily the absolute end of American power — I don’t think it can be called that yet — but it is significant. It will make it significantly harder for Americans to maintain their position in the years to come.”

Does this change the rules of international relations, or continue them?

Gawthorpe resisted the word “new,” but he was clear about what the war exposed. “Global competition today is about chokepoints and supply chains,” he said. “It’s not so much about territory and population any more, it’s about controlling these key geoeconomic nodes.” Trump went to war over a twenty-year-old anxiety about an Iranian bomb and ended up fighting over a choke point in the global economy. “That’s an old way of thinking colliding with new realities.”

It’s weaponised interdependence, I said.

“Yes, exactly.” What gets him is how avoidable the lesson was. “Literally twenty years ago, it was just common knowledge that if you go to war with Iran, they will close the Strait of Hormuz. For as long as an American attack on Iran has been debated — twenty years — it’s been there. The complete ignorance of that point is mind-blowing to me. He’s not drawing on expertise, he’s not drawing on people who know what they’re talking about, and it’s very dangerous at this moment.”

I told Gawthorpe I had overestimated the administration at first. Previous Presidents delegated tasks on which they had little competency. This administration seems different: Trump is too dominant, and the capable people around him, a Bessent or a Rubio, either lack the influence or the will to check him. I asked him why.

“They bring this decision-making dynamic — you can see where, at the end of the day, all that matters is what Trump thinks and does. Rubio also wants to be president after Trump, so he can’t afford to put too much distance between himself and Trump. He has to stay in the good graces of the MAGA movement. So they’re all operating under very real constraints. In some senses it’s not a rational political system — it’s the one Trump has built.”

Would you say the internal politics of the Washington elite are shaping how foreign policy gets made right now?

“A few concrete things. One is the deconstruction of the National Security Council system, and of the interagency process by which experts across the foreign policy departments debate what US policy should be. That process is simply not functional. Instead it’s Trump tweeting, talking to the people he takes advice from, and making decisions, with a degree of non-consultation that is unbelievable for the modern presidency. In the run-up to the Iraq War in 2003 — whatever you think of that war — there was almost a year of public preparation, internal debate, sourcing allies. With the war on Iran, Trump just went and did it. Nobody was informed.

“Another piece that doesn’t come up enough: what happened to the US military’s institutional voice? Previous administrations had a strong Joint Chiefs of Staff who would tell civilian decision-makers plainly — no, you cannot do that, we don’t have the resources, that’s not a proper strategy. They’d comply or resign if overruled, but they were willing to push back. In this case many of the top military leaders were sacked, and the chairman of the Joint Chiefs, Dan Caine, was a junior officer with no independent power base and no political standing of his own. He’s proven completely pliable. It’s insane that someone in that position could allow the expenditure of five years’ worth of interceptor missiles on this conflict without objecting on military grounds. They systematically undermined those institutions, and so nothing was left to push back.”

This is a point I’ve seen Gawthorpe make more often on his substack. Not only has this war had a disastrous outcome on US influence in the Middle East, it is reshaping multiple theatres of war through the rapid depletion of military equipment.

Interceptors are in desperate demand everywhere at once: Ukraine, the US presence in Europe and the Indo-Pacific, Taiwan. The Iran conflict has burned through something like five to ten years’ worth of stocks that were already considered dangerously low, and it will take another five to ten to replace them. Long-range strike capability — Tomahawks and the like — has gone the same way, and all of it is precisely the inventory needed to fight a war with China. “They’ve essentially taken a whole bunch of capability from the European and Indo-Pacific theatres and burned it in the Middle East.” Factor in ground troops, or simply holding forces in the region, and the bill runs to tens or hundreds of billions — money meant for rebuilding the military to face China. “Here we are again, just like the Bush years, getting bogged down in the Middle East while China is quietly getting its act together in the Indo-Pacific.”

Stay tuned for a new interview tomorrow.

As SpaceX stock hits escape velocity, and Musk is now the first trillionaire in history, I had an urgent thought I want to share with you.

The AI bubble is engineered. That’s my thesis, at least — a new spin on an old classic, but more sophisticated than ever, and the revolutionary thing about it is that this time around we’re all paying for it, on a scale larger than ever before.

Here’s the short version, so you know where I’m taking you. The bubble is deliberate. The Fed and Treasury are inflating it to vacuum in capital from the whole world — your grandma included — and channel it into the AI race. When it pops, America will be left holding the best AI infrastructure on earth while everyone else is too deep in recession to fund the catch-up. Short term profit was never the point. Winning the new cold war was. The rest of this piece is how that works, and what it means for the rest of us.

I’ll start with a little folk story to set the stage. Gather round people!

Once upon a time, there was a booming US economy.

Big firms were spending big money on electronic equipment, which they bought from all over the world. To make all that equipment, factories needed raw materials: oil for energy, copper for anything related to energy, lithium for batteries, you name it.

And so, as the story proceeded, commodity prices started climbing too. Developing countries that sold them were happy. Even though some countries were spending too much money, their earnings were growing rapidly. Money flowed across borders at paces it had never before.

After all, a commodity supercycle was underway. Rich people were happy, because the firms they owned were worth a fortune, and everyone was spending money like they were in Vegas just before becoming exclusive with the person they’re dating. Dollars were pouring abroad at a rapid clip. Who cares? We’ll pay it back at some point.

Money is plentiful, so everyone gets a loan. You get a loan, your mom gets a loan, your pet fish gets a loan. Wall Street is happy anyway, graph goes up means world more gooder.

The foreign firms selling all that electronic equipment want to buy American assets, because they’re busy exploiting their own workers — workers who, as a consequence of said exploitation, have no money to spend on the very products they make, and the big bosses need to park that surplus somewhere, right? So the money flows back in a circular motion: they invest it in the profitable firm in America they just sold their stuff to.1

Rich people are happy everywhere, because everyone gets to exploit their own population equally. The US government is happy too, because it gets to finance its military with foreign money, and any country that wants access to dollars has to play by the rules it sets: capital account liberalisation, light regulation, deference to credit rating agencies. And because the rest of the world keeps buying American assets with its export dollars, the US gets to run deficits more or less indefinitely — it is, in effect, being lent back its own money.

Tout est bien qui finit bien. All’s well that ends well. End of story.

Just kidding.

Inflation starts to pick up, because the economy is overheating. Anti-inflation people get angry. Interest rates rise. Loans that looked attractive at first suddenly look a little yucky… Capital flows back to the US chasing higher yields, and the dollar rises. The US economy starts to slow — and with it, global demand for raw materials.

This is where it gets ugly for everyone, but for some more than others.

A lot of the development finance that funded the commodity supercycle — the mines, the pipelines, the ports — was borrowed in dollars. That made sense when commodity prices were surging and firms were seeing greenbacks rolling in.

But now nobody wants electronic equipment, and that means nobody wants commodities either. So revenues crater. And because the dollar has appreciated due to interest rate increases and flight-to-safety, every loan repayment costs more in local currency.

This is a disaster. Wages, taxes, and government budgets are all paid in local currency that is now worth less. The countries that were riding the supercycle suddenly find themselves earning less in the currency they owe everything in, and paying more in the currency they actually use.

When the crisis hits, or the bubble pops, the financial sector turns predatory. Back when the economy was booming they seemed almost powerless, everybody could get a loan; now that money is scarce, suddenly everyone wants a loan.

You move back into your mom’s basement, mom moves into a smaller house, and now you’re living in the dogshed. The only one who’s winning is your pet fish — it used the loan to short the NASDAQ and is now chilling in the Bahamas eating caviar. Wait…

Your grandma, who just YOLO’d her retirement money plus a personal loan into SpaceX, is getting margin called and has to liquidate — and the bank is ready to swoop in and scoop up the asset for itself.

Now multiply that by an entire country. “Knock knock. Who’s there? It’s us, your favourite lender-of-last-resort, the IMF!” Men in suits are standing there, briefcase in hand, US Treasury on speed dial. The deal: we’ll lend you the dollars you desperately need, but the ports, the pipelines, the utilities? Those belong to us now, buddy.

And it’s not just the IMF, this is just how creditor-debtor relations work under modern capitalism. And to be clear, it’s not really the IMF either. Most of the people working there are well-meaning economists who genuinely think they’re helping. The problem isn’t the individuals, it’s the system they’re operating in. Every commercial bank, every pension fund, every sovereign creditor that lent you dollars when times were good is now structurally on the other side of the table. You need their currency. They wipe their asses with yours. The dollar system doesn’t need to be conspiratorial to be coercive. When the mission mandate of the enforcing institutions is to “safeguard the stability of the system”, it just has to be what it is.

People lose their jobs. People are sad. The wise priests of the market call it bearish. But every few years the cycle repeats, people become happy again, and the market priests start calling it bullish. This is folk wisdom that has been told many times before, and forgotten just as often.

Print it into your goddamn brains, and tell it to your kids once they’re old enough to start YOLO’ing their money, so you don’t end up old and sad like grandma. Not all of us know when to go short like pet fish. I know, because I was a victim myself, somewhere between the ages of 18 to 20. But if I hadn’t been a victim back then, I wouldn’t be here to tell you this story.

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Financialised industrial policy in boom-bust cycles.

“What today we call economic globalization — a combination of rapid technological progress, large-scale capital flows, and burgeoning international trade — has happened many times before in the last 200 years. During each of these periods (including our own), engineers and entrepreneurs became folk heroes and made vast fortunes while transforming the world around them. They exploited scientific advances, applied a succession of innovations to older discoveries, and spread the commercial application of these technologies throughout the developed world. Communications and transportation were usually among the most affected areas, with each technological surge causing the globe to “shrink” further. But in spite of the enthusiasm for science that accompanied each wave of globalization, as a historical rule it was primarily commerce and finance that drove globalization, not science or technology, and certainly not politics or culture. It is no accident that each of the major periods of technological progress coincided with an era of financial market expansion and vast growth in international commerce. Specifically, a sudden expansion of financial liquidity in the world’s leading banking centers — whether an increase in British gold reserves in the 1820s or the massive transformation in the 1980s of illiquid mortgage loans into very liquid mortgage securities, or some other structural change in the financial markets — has been the catalyst behind every period of globalization. If liquidity expansions historically have pushed global integration forward, subsequent liquidity contractions have brought globalization to an unexpected halt.”

Michael Pettis wrote that in 2009.2 Before the word “AI” had entered the mainstream conversation about technology, and fifteen years before anyone would describe a $75 billion IPO as a geopolitical financing event.

The pattern he described back then already tells you something important that most AI commentary entirely misses: technology isn’t in the drivers-seat, money is.

This piece came together in a single afternoon, and it wasn’t a coincidence.

On the 12th of June, I was riding the train back from Amsterdam. That morning, I had read on Musk as a human ponzi scheme. I had also just published a piece on the AI bubble — the FT ran a similar analysis today, but without references to market manipulation.

On the train I picked up an FT article about SpaceX raising “$75 billion in world’s biggest IPO.” Then I read this: “We’re embarking on a massive new growth phase and we need capital for that,” Musk told JPMorgan Chase chief executive Jamie Dimon last week during an IPO roadshow event. Musk added that “doing AI data centres in space” would be “another massive capital endeavour” but also the best way to overcome energy limitations on Earth.

I took advantage of my ADHD-fuelled hyperfocus and worked out a line of thought I had previously speculated on, which also came up in a conversation with a subscriber (shoutout to ).

*Drum roll* …..

It’s that the bubble is here on purpose. The snake-oil salesman bit IS THE POINT. This is financialised industrial policy under US capitalism.

The birth of the US tech-military-industrial complex

Orthodox economic theory has a blind spot: under competitive markets, firms don’t invest in hugely expensive projects with uncertain payoffs and massive upfront costs. So in previous eras, the state did it instead. DARPA is the obvious example — the US military was behind the internet and touchscreens. It is common knowledge in the political economy literature that these innovations were then handed to private firms to commercialise — which is also why the US became the primary enforcer of intellectual property rights through the WTO: that hierarchy allows it to command higher profit rates than economies based on industrial production, which in turn underpins the dollar and finances the imperial apparatus through persistent deficits, and allows it to manipulate global financial markets to its advantage by engineering booms and busts. Remember the folk story? This is the institutional enabler.

But then, as an off-the-record bird once chirped into my ear — the benefit of closed-door government-backed industrial policy disappeared. Development largely became open-source, and open-source broke the DARPA model: if the code is public, you can’t quietly hand a proprietary advantage to your chosen commercial partner. Basically, a few sweaty nerds locked in a room couldn’t compete with thousands of sweaty nerds out in the wide world — and more importantly, you couldn’t keep the fruits of their work just to yourself anymore.

But you also couldn’t give your rivals a strategic advantage in knowing which company was doing the real work. So the CIA found another way to do it secretly in the open. It founded In-Q-Tel to seed a massive number of companies with money, most of them being decoys, had them win government contracts, and circulated the chosen ones through Venture Capital networks — letting the “free market” do the selection work while the state determined who got to play. This is what created companies like Palantir.

The post-2008 prototype

As I described in my previous essay on AI, post-2008 liquidity injections by the Central Bank that were meant to “save” the system, while austerity was being practiced on the many, pushed banks to loan massive amounts of money to basically the only creditworthy industry in town that also coincidentally needed massive capital investments: big tech.

Tech scaled up with this money, laid the basis for another new booming industry in the US boosting profitability to new heights and strengthening the power of the dollar, while also entrenching “allies” into this system. In effect, a new parasitical layer of control and information-gathering was installed across the globe — information systems designed by Google, Amazon, Meta, you name it, we all use them. You are currently probably reading this from a chrome browser with a website hosted by AWS and are going to share this article on instagram or facebook, or if you are European, via whatsapp (please! I want to make this my main job!).

As friend and foe were lured by the attractive siren call of this revolutionary novel technology, they were unwittingly sailing into the giant rock that was the merger of US state and capital that is currently occurring.

The Great Reversal: from buyback machine to capex behemoth

Like the internet before it, AI requires massive upfront capital investments that are not profitable to finance for small individual firms. Luckily, the US has giant corporate monopolies. These so-called “hyperscalers” perform a unique role in the US political economy, a function that the European political economy is unfortunately lacking. Their role is to extract rent from the global economy through digital layers and absorbing crucial private functions. With their massive monopoly rents, they are able to finance enormous capital expenditures that cannot be rivaled by adversaries.

But here comes the problem, and it is a problem on the demand side. After Big-Tech saturated their markets — everyone already had Instagram, everyone already had a smartphone — there was simply no one left to sell to. Decades of upward redistribution have hollowed out the American consumer: the top 10 percent now own roughly 90 percent of financial assets and account for nearly half of all consumer spending, while a large chunk of the country lives paycheck to paycheck. When income concentrates that heavily at the top, the majority simply doesn’t have the purchasing power to absorb ever more product — and firms, in turn, have little reason to invest in producing more of it.

This is the same suppressed-demand dynamic from the dollar story above, just pointed inward. So the money didn’t flow into the real economy. Big Tech was left sitting on enormous piles of cash with nowhere productive to put it, except boondoggles like the Metaverse.

So what did they do? They bought back their stock on a massive scale — roughly over $1 trillion flowed back into markets through buybacks in the decade to 2024. Great for owners of financial assets. Less so for everyone else.

When the AI companies saw that the Trump administration was ready to support the bubble, they went on a massive spending spree. The hyperscalers are now pouring something like $400 billion into the real economy against realised AI revenue of only about $100 billion. This is a massive drain on the financial economy, as buybacks have effectively ceased — and the gap is being plugged with debt and equity issuance on a staggering scale. AI companies borrowed roughly $121 billion over the course of 2025, more than four times their usual pace. Morgan Stanley expects the hyperscalers and their joint ventures to issue $250–300 billion in debt in 2026 alone, and JPMorgan estimates the sector may need to raise as much as $1.5 trillion in investment-grade bonds over the next five years. Google’s parent company Alphabet is selling $80 billion in stock — the largest equity capital raise ever — on top of a $30 billion-plus global bond issuance in February. And the SpaceX IPO, combined with the looming public listings of Anthropic and OpenAI, brings a combined valuation north of $3.6 trillion to market.

The pace of these listings is itself remarkable. All three filings happened within two weeks of each other: Anthropic filed confidentially on June 1, OpenAI announced it had done the same on June 8, proactively, before the filing could leak. SpaceX, meanwhile, completed its listing today, June 12 — having gone from confidential filing to first trade in roughly 72 days, a quick pace for a company at this scale. This is not companies independently deciding the moment is right. Three direct competitors, all rushing to tap public markets within weeks of each other, in a window where liquidity conditions are being actively managed to keep asset prices elevated.

The coordination doesn’t need to be explicit (like in China) to be real. And it also does not need to be a conspiracy, when the structural outcome is the same. Nonetheless, I think it is coordinated, they all know what’s going on.

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The grift is the point

And what’s crucial here, is that the US government doesn’t do explicit subsidies directly to corporations. That would be communist! They do it in a much more intelligent and backdoor manner that escapes the attention of the public, and also has a minor element of “free-market” to it. It is not really a free market though — it is rather, like identified, the best grifter that wins.

Who is best able to convince your grandma to YOLO her retirement money into an AI space data centre adventure? That man is Elon Musk. He’s done it — and a large chunk of money managers have no choice but to follow anyway, because Nasdaq rewrote its index inclusion rules in May 2026, cutting the seasoning period to just 15 trading days for mega-cap listings. BNP Paribas estimates inclusion in the Nasdaq-100 alone will generate roughly $8 billion in passive buying during SpaceX’s first month of trading, with total passive inflows potentially reaching $30 billion. That means retirement savers in passive index funds are being forced to buy shares in a company that lost $4.94 billion last year, whether they want to or not. So not only did your grandma YOLO her retirement money into SpaceX — it turns out she was already in it, and she can’t escape.

So, the financing cocktail is retail money from below and public liquidity injections from above. Crucial for my argument that this is coordinated: the Fed and Treasury are pumping money into markets though the backdoor (despite claiming that they aren’t) on a massive scale accommodating this bubble and the drainage the IPO’s and debt issuance are causing to the financial economy. The long story, including the full plumbing of how it works, is to be read here:

The nature of hierarchy in modern international relations

Back in the day, it was easy to know what your place was. Genghis Khan and his horde pulled up, took your wife, and told you to pay up or he’d burn your city down. Simple. You knew who was oppressing you.

Nowadays, as a European I have to have in the back of my head that the US can literally shut off all the digital services I need and can ask my bank to stop servicing me. I need to take into account that the future of my countries’ decarbonization can simply cease when China decides to stop exporting rare earth metals.

And, as if they knew I was going to publish this article today, Claude was asked to turn off their most advanced AI-model for non-US citizens. All information that has passed through their most advanced “Fable 5” model has been recorded and in all likelihood passed on to the US government for careful scrutiny. My guess is that they wanted to test out what foreigners were going to try to do with it, and flex their newfound geopolitical AI-muscle simultaneously.

So now they probably know that I am using the most advanced and energy-intensive AI model ever for the following prompt: “yo claude, could I eat an entire wheel of cheese in one sitting”? Very sensitive information for the Dutch.

State-capital merger becomes explicit: the oligarchical turn is complete

As of now, with the overt corruption of the MAGA-movement and its techno-oligarchical allies, this merger between state and capital has explicitly come to the fore, and the distinction between political and economic power has become less apparent.

In effect, the US is an empire built on financial and information control, with its vassal allies largely responsible for organising production, while the imperial core controls financial flows and the information system. The AI-bubble and rapid advancement in the buildout of the new commanding heights of global economic development is further consolidating this infrastructure.

Start with the layer you already live inside. Every country within the US sphere of influence runs its life on American information infrastructure. Most Americans have never heard of it, but we all use WhatsApp here in Europe — everyone’s on Instagram — and, as Larry Ellison, founder of the CIA-seeded project that became Oracle, put it: “citizens will be on their best behavior, because we are constantly recording and reporting on everything that’s going on.”

The microphones are always on.

“Alexa, play the shitty EDM song produced by Elon Musk.”

“Sure, this is what the brain of someone making tech-dystopia a reality sounds like”.

What you are looking at, assembled piece by piece over two decades, is an imperial stack.

Social media for data aggregation. Satellites (SpaceX and others) for information control. Palantir for the analytical and security layer. Oracle for storage. Stablecoins project monetary power into foreign financial systems and dismantle the policy autonomy of states through their citizens — just as many central banks want to hedge against the dollar. The icing on the cake: AI agents to automate the whole apparatus, turning stablecoins into lethal monetary weapons.

Every country in the US sphere of influence is running its economy on infrastructure it does not own, and most of its citizens have no idea. This is what analysts miss when they keep insisting AI isn’t profitable. Who cares?! Profit was never the primary metric. Global control is how empires are built, and this is what building one looks like in the twenty-first century.

Two days ago, I argued that US hegemony was over. Can I still walk back that statement? Just kidding. The judge is still out, but my call was probably premature. It all depends on how Europe and China do in this race.

Take a step back and look at the whole shape of it, and remember the Pettis quote. The bubble isn’t a market getting ahead of itself. It is here on purpose. It is industrial policy run through financial markets, the same machine from the folk story pointed in a new direction. The Fed and Treasury are pumping the markets full of liquidity, vacuuming in as much retail money, hype money, and capital from the entire world as they can, and channelling it into the AI race. This compresses the rates that companies pay for corporate debt, and allows them to issue stock on a massive scale. Just as in the folk story, the money flows toward American assets — except this time it is funding the commanding heights of the next century.

What we will be left with after the bubble implodes is the imperial stack: the satellites, the storage, the analytics, the stablecoins, the agents that automate the lot. After the rug pull happens, and the world is in a recession, no one else will have money to catch up. The Europeans will agressively do self-defeating austerity like they always do, and a fragile China will lose its export market.

Profit was never the point. Winning was. That stack is how the US projects power over allies and adversaries alike, and because it’s assembled one contract at a time, one procurement decision at a time, that is also the only level at which it can be fought.

Where this leaves Europe

European capital is far behind, but clawing back by directing more contracts to European firms in defence and technology. The problem with the European political economy is that there is currently no effective centralized foreign and industrial policy between states.

The French have always been the most Europeanist, and it is no surprise that it therefore hosts many sovereign AI firms like Mistral, the closest thing Europe has to a credible AI champion, now backed by a forming sovereign cloud layer of OVHcloud and Scaleway. While Germany has traditionally chosen a more “open” approach by trying to naïvely embrace the now-debunked propaganda narrative of neoliberal globalization, it is now also starting to back the idea of national champions and shy away from US influence, recently even abandoning Palantir. The Dutch position is more interesting and more contradictory. If you want a symbol of Dutch integration into the Atlantic power structure, look no further than Mark Rutte, Mr. “Daddy needs to use some strong language”: fourteen years of neoliberalism as Prime Minister, then handing the country to the far right to depart and become NATO Secretary General — the most senior Atlanticist job on the planet, held by a VVD man. The current Jetten cabinet, which took over after the far-right screwed it up, is more Europe-oriented in rhetoric. But Jetten himself sits on the Trilateral Commission and attended Bilderberg 2026 in Washington, so whether the position matches the rhetoric is another question.

A recent case shows where the baseline sits. When a US firm tried to acquire the company running DigiD — our digital identity system for sensitive citizen data — the cabinet wanted to let it pass, despite a parliamentary majority against it and experts warning of security risks. It took a 140,000-signature petition to force a block. Nearly handed over, simply because they didn’t want to piss off Trump. They need societal pressure as an excuse to block US actions.

And that is the whole point. The imperial stack is built contract by contract, which means it can be challenged the same way. When my research revealed that the Dutch government held secret contracts with Palantir, the Secretary of Defence cited it explicitly as the reason the Ministry announced it would drop Palantir’s technology within two years. He likely could not have done it without the pressure from below. Politicians are caught in a game they don’t control and won’t fix on their own. The pressure has to come from the people who still believe democracy and freedom are worth fighting for. That includes you.

At no point since 1945 has the United States accepted a hostile power controlling a strategic sea lane. , the Leiden University historian of American foreign policy and author of , cannot see how it accepts this one.

As he put it to me: this “doesn’t end without the US either using military force to reopen the Strait of Hormuz or definitely calling it a sign of the end of American hegemony — because that would mean accepting something they have never accepted before.”

And yet, one hundred and five days into the closure of the Strait of Hormuz, that is exactly what seemed to have happened, and it’s not even clear if that is enough for Iran. All that while the international oil price sits, implausibly, around $90.

Yesterday, Trump’s rhetoric went from “obliterating Iran” to saying “the discussions and final points were approved by all involved.” He was immediately mocked by an Israeli official, who said “We do not recognize reaching an agreement … he has already said 38 times that there is an agreement”

Iranian state media quickly followed in the mocking: “In just three days, he ‘imaginarily’ sent his deputy to Pakistan four times [...] As long as Iran does not itself announce the existence of a possible understanding or agreement, Trump’s reports on the subject should be considered part of his previous line of messages.”

At this point, Trump should be in the Guinness world record book for successive successful ceasefires. While the US is being “humiliated” by Iranian leadership, as per German chancellor Friedrich Merz, markets (or at least, algorithms reading headlines) seem to take Trump seriously.

His comments led to wild gyrations in commodities, with Brent crude dropping more than 5.5 percent within three hours and gold and copper rising about 3.4 and 3.2 percent respectively.

Do you find it difficult to know what to believe? You are not the only one. Due to the nature (and strategic necessity) of wartime propaganda, it is difficult to see for the general public what is actually happening in physical markets and diplomatic negotiations.

Both Iran and the US, and likely various other actors, are working to influence elite and public opinion, with geopolitical and financial interests alike in play. Orchestration or structural financial interests — probably a mix of both. Call it a conspiracy or a media blind-spot; it does not matter. One has only to set media messaging and political strategic communications against what industry insiders are saying to get what’s really going on.

The same goes for the deal itself: whether it signs in Europe next week or joins the other thirty-eight, it does not matter much. A signature supposedly reopens a strait. It does not yet refill a salt cavern. It does not restart lost production. The 1.2 billion barrels are still gone, the rebalancing year still has to be served, and the incredible historical precedent — that Iran closed Hormuz for over a hundred days and paid no price Washington could enforce — is already written into the new order. Because one thing is clear: the people who actually get their hands dirty are panicking, and the data does not lie.

Listen to the men with dirty hands

The warnings from the people who actually move the molecules have been piling up since late May. At the Wall Street Journal CEO Summit, Chevron’s Mike Wirth warned that the market’s shock absorbers were nearly gone, with physical price pressures weeks away. Exxon’s Neil Chapman called inventory levels across crude, gasoline, diesel and jet fuel “unheard-of”, and put Dated Brent at $150–160 once they run dry. Shell’s Wael Sawan put a number on the supply loss: 1.2 billion barrels, a year to rebalance, and named the suppression mechanism: “We are borrowing from the future.”

I hear you thinking: “oil executives would say this, wouldn’t they?” Yes. But not for the reason you think. Oil companies want high prices, but they want them stable. The sweet spot is where you keep buying and they keep selling. A spike to $150-160 wouldn’t be resolved by new investment in production, it would be resolved by demand destruction: consumers and businesses cutting consumption by force of price. That incentivises a permanent shift away from oil. Which is precisely contrary to their interests.

Even Paul Krugman — no oil interests, a renewable-energy advocate — told a crowd at Erasmus University Rotterdam in May that global stocks were draining at six million barrels a day, with minimum operational levels arriving “as early as next month”. I reported on that talk. The fundamentals have not shifted since, as the deal still awaits a signature from both sides and boats need to get moving to remove any mines.

Confused? So am I. Counterintuitively, modern information technology has thickened the fog of war rather than lifted it. As I write, Trump has once again unilaterally announced a deal — his thirty-ninth, by some counts — and yet the strait remains closed:

A paid subscriber and I disagreed on who was in the weaker position. I thought it was the US. He prodded me to investigate, so I followed the market obsessively for weeks, weighing what credible people said against whose interests it served. This week, the data settled it for me. The frenzied deal-making only confirms it: a hegemon does not announce the same victory thirty-nine times unless it badly needs one.

To triangulate, I interviewed three specialists whose analysis runs through this series: Andrew Gawthorpe again; Damon Golriz, an Iran specialist at The Hague University of Applied Sciences and author of ; and Michel Don Michaloliákos, a geo-economics and Middle-Eastern analyst who co-founded .

Drawing on those conversations, my conclusion is that things will not return to normal, even after a deal. The stakes run well past commodity markets to US hegemony itself. Any deal may prove temporary, the conflict may reignite — but either way, the security architecture of the Middle East, and the projection of American power, has already shifted tectonically.

This is a historical inflection point. Some analysts reach for the Suez-crisis. I resist the comparison — Suez was above all a financial rout, and the dollar has so far been spared that verdict.1 But the geopolitical substance is the same: a previous hegemon discovering, in public, the limits of its reach. While my interviewees did not want to go this far, I am willing to say that this is the definitive end of US hegemony.2

This first piece shows what’s at stake in the physical energy market. The pieces that follow examine how US decision-making has (mal)functioned under Trump; why the US and Israel so badly misjudged the societal resilience of Iran as a civilisational state; how “Iran can win the war, but must also win the peace”; and how the balance of power in the Middle East is shifting, with global implications.

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10 June: the data that sealed it

The EIA’s weekly petroleum report, released on 10 June, is not looking good. Distillate fuel oil, diesel, in plain language, is at a 1990 seasonal low, 13 percent below its five-year average. Diesel is the most important fuel in the US economy: trucking, agriculture, construction, rail. All of it uses diesel. Motor gasoline is 6 percent below its five-year average. With refineries almost running at 100 percent capacity, there is almost no spare throughput to rebuild stocks quickly.

I’ve kept all categories on a single scale — which makes Cushing, Oklahoma look like a rounding error next to commercial crude. Don’t be deceived by that, the rate of change is significant. And Cushing is the most important figure in the short-term: it serves as the physical delivery point for West Texas Intermediate (WTI). This benchmark moves the US oil price. The market doesn’t care about relatively immobile commercial crude sitting in Gulf Coast tank farms. It cares about what’s physically deliverable against a futures contract. At a recent draw rate of 0.8 mb per week, Cushing is one week from the level at which pumps can no longer move oil efficiently and the market would tip into backwardation stress. This is why traders watch it obsessively despite it representing a small fraction of total US stocks.

For context, look at where it is sitting at the 5 year average in relative terms on this nerdy chart posted by Ole S. Hansen from Saxo Bank:

One does not simply drain the SPR

Then the SPR drawdown: as we can see on the chart above, the pace of the drawdown is rapid. The SPR lost 7.9 mb in a single week and is down 52.9 mb year-on-year, currently sitting at 349.2 mb. I once again hear you thinking: “349.2 mb sounds like a lot, seems like we’ve got plenty of time”. Based on the execution of this war, Trump might’ve thought that too. But no, one does not simply draw down the SPR below 300 mb.

The SPR is stored in various deep underground salt caverns across four major sites located along the coastlines of the Gulf of Mexico in Texas and Louisiana. Storing the oil in massive, naturally occurring salt domes provides a highly secure and cost-effective method compared to above-ground metal tanks.

But it also comes with a slight logistical problem. The caverns rely on the constant internal hydraulic pressure of the stored crude oil and brine to maintain their shape. If too much oil is drawn out, the massive weight of the surrounding rock can cause the salt walls to warp, shift, or completely collapse inward, permanently destroying the SPR storage. The reserve has a floor, and the floor is made of salt.

The spread says it all

So, this unsustainable drawdown, combined with jawboning (they should make this the word of the year) has come to the benefit of lower oil prices, with WTI (US) and Brent (international) hovering around $87.60 and $90.90 a barrel in spot prices respectively at the time of writing. Lower WTI prices reflect the fact that shipping landlocked US crude to global markets costs money. The spread between the two inverts or narrows when Cushing gets tight.

The spread right now is $3.30, compared to $5.20 on 20 February, a week before the war. That compression reflects exactly what the inventory data shows: Cushing tightness pulling WTI upward toward Brent. A wider spread increase US export incentives, a tighter one decreases it; at $3.30, those incentives remain intact, which means exports continue draining the very hub whose tightness is compressing the spread. But the narrowing spread does reflect empirically the unsustainable nature of this move, and that is shown in the data:

Though US oil exports surged post war, they seem to have slowed down since the 30th of May. If this trend continues, this spells bad news for markets outside of the US. If the spread narrows further, an official export-ban might not even be necessary to cause havoc in global energy markets. And if you’re sitting in the US reading this, feeling relieved: sorry to break it to you, a global recession would hurt America too.

By all appearances, the White House opted for the huge drawdown and export-surge to maintain both domestic support and international tolerance of the US-Israeli war of aggression. With the US functioning as an international stabiliser of the oil market, while drawing down on reserves aggressively to maintain low gasoline prices at home. Yet, European governments, meanwhile, are juicing demand beyond what market prices justify, shielding households through energy subsidies. The arithmetic shows in the reserves drawdown. No matter what the narrative is, this number is what everyone should be watching. This course of action indicates that the White House had expected this war to last far shorter than it has — a Putinesque gambit. The two men have similarities, but Trump lacks the evil genius of Putin — though they have both miscalculated and underestimated an apparently weaker enemy.

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Trump’s impossible choice

As long as the crisis remains unresolved, Trump is stuck. He either lets Americans pay for the war at the pump, or he imposes export restrictions and torches what remains of Washington’s standing as guarantor of open energy markets. One might think that an easy choice. It is anything but. An export ban would do what no Iranian missile could: convert a US supply problem into a global financial event.

Japan’s financial system is already holding on to dear life, partially as a result of the commodity shock, as I’ve described in a previous post, and Europe’s energy-subsidising governments are borrowing into the same storm. A shock of that size loops back into US financial markets through the Treasury market, through the dollar funding system, through everything. There is no firewall. Eventually, the real economy and financial economy run on the same pipe: you can’t print more molecules.

How did the White House manoeuvre itself into this corner? Part of the answer is a structural dismantlement of internal checks and balances, and I’ll get to it in the next piece with Gawthorpe. Part of it is the man himself.

Most of the establishment — the Pentagon included — understands this has been a disaster, says Gawthorpe. Trump does not, because he has built a bubble in which objective voices simply don’t reach him. The family and loyalists who do are telling him Iran’s new leadership is isolated and ineffective, the damage enormous. “He just won’t admit it was a disaster. I think you’ll never see him willing to put out a statement that truly reflects where things stand, because that would be to admit defeat.”

The conclusion Gawthorpe draws is blunt: “Trump has effectively ceded the Strait of Hormuz. And in doing so, he has demonstrated a real weakening of American power in this era.”

What this war reveals, in his reading, is that global competition is no longer about territory and population. It is about chokepoints, supply chains, and geoeconomic nodes. “Trump going to war in service of this twenty-year-old agenda about Iran having a nuclear weapon, and ending up in a war that is really about a key choke point in the global economy — that’s an old way of thinking colliding with new realities.”

As the Iran expert Damon Golriz said aptly: “America’s got the clock, Iran’s got the time.”

In 1988, it was Iran’s supreme leader Ruhollah Khomeini, who ended a war by drinking what he called a poisoned chalice. Golriz’s prediction, which I’ll unpack later in this series: this time, the chalice is being prepared for Trump.

Pieces like this one take weeks of passive research, days of primary interviews, and more reviewing of data than I care to admit. After all, I want to give you correct and qualified infomation After this series, prices rise to €8/month and €80/year, with more in-depth work moving behind the paywall. If you’ve read this far, you know what you’d be paying for. Now is the time.

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I have good news, and I have bad news. Potentially really bad news. But first, the good news.

Last Friday, the US reportedly added 172,000 jobs in May, beating the consensus forecast of about 60,000-100,000 by a wide margin — with Olu Sonola, head of US economics at Fitch Ratings telling the Financial Times that “this is a blowout jobs report.”

Now the bad news. Shortly, after the Nasdaq 100 — the index tracking the biggest US-tech stocks — dropped by a whopping 4,7 percent in a single day. For context, a drop of 10 percent constitutes a correction.

Even the GREATEST truther-in-chief is confused:

Let me walk you through it.

By the end of this, you’ll understand the machine keeping the US economy alive better than most of the financial journalists paid to explain it. This includes a few things they’d rather you didn’t know. And you’ll see why there are now only two ways this ends, both of them ugly.

Answering Donald Trump’s confusion

A strong jobs report means that the economy is performing better than expected. Fewer people who are homeless (crude, yes — but that is essentially what “strong employment” means in America) means more inflation, because they are spending money on… Well, necessities.

This in turn means that the Federal Reserve is more likely to raise interest rates, raising the cost of borrowing.

And who is borrowing a lot right now?

You guessed it: AI-companies. They have borrowed roughly $121 billion over the course of 2025 — more than four times their usual pace. Morgan Stanley expects the hyperscalers and their joint ventures to issue $250-300 billion in debt in 2026 alone, and JPMorgan estimates the sector may need to raise as much as $1.5 trillion in investment-grade bonds over the next five years.

And I wish the bit about homeless people was just a joke. It’s not. The fact that such a positive number is followed by such negative reactions in the stock market, is in my view, the proof in the pudding that the US economy is severely sick, and is at least in part running on hot air.

While AI is a revolutionary technology, it is becoming clearer and clearer to citizens and capitalists alike that the costs outweigh the benefits, for different reasons.

The bottom 25-601 percent of Americans are living paycheck to paycheck and look over to the richer and flourishing side of town, where the top 10 percent who own 90 percent of the financial assets live — they currently account for a whopping 49.2 percent of consumer spending. They don’t feel the effects of AI-data centers increasing their energy bills and they don’t see the grass turning brown due to water shortages; matter of fact, when they open their Robinhood account all they see is green.

Simultaneously, in Manhattan and Silicon Valley offices, capitalists are looking at how much of their bottom line is going to Claude now that it has revealed its actual token rates, and are going: “yikes….”

So, to summarise what is keeping the economy afloat: wealthy Americans, buoyed by rising stock portfolios, are sustaining demand; poorer Americans are barely scraping by, but the economy is just performing well enough to give them jobs; authorities are pumping money into the market; and AI-capital expenditures continue to surge to unprecedented levels.

And the cherry on the cake: all of these factors, combined with an expected 4.2 CPI inflation2, are enough for a 4.7 percent sell-off in precisely the sector currently contributing the most to US economic growth.

If this sounds like a very complicated and fragile Ponzi-scheme keeping the economy afloat, that is because, partially, it is. While I would love AI to provide the productivity gains that its fanatics tout, they just aren’t there yet. It would probably take robotics-based AI to make a meaningful contribution to productivity growth.

But the AI bubble is only the surface. Underneath it is a slow-motion crisis in the dollar system itself, decades in the making. This is the thing I spent my Masters thesis (capstone project, for Americans) trying to understand, and what this whole article is really about. Hold that thought.

The concerning part is that seven of the biggest tech stocks now make up around 35 percent of the entire stock market, up from barely 12 percent a decade ago. Just for context: that means a lot of retirement funds and pops and moms who bought the S&P 500 are ALL-IN on the AI-trade.

Those names are soon to be joined by a plethora of previously private companies entering the stock market — SpaceX, Anthropic, and OpenAI all intend to go public soon with a combined valuation north of $3 trillion. On top of that, Google’s parent company Alphabet is selling $80 billion dollars in stock, the largest equity capital raise ever, on top of a $30 billion-plus global bond issuance in February.

It is hard to overstate how big of a reversal that last fact is. Before AI became investable, the growth of tech-giants was decelerating. Most people had smartphones, app downloads for instagram and youtube were into the billions. The companies were actively making their products worse to earn more money.

So big-tech was basically sitting on this huge pile of money, with nowhere to spend it.

This birthed the weird moment when Mark Zuckerberg renamed Facebook to Meta and started to throw good money after bad trying to get people to live in a virtual world rather than a real one.

But more importantly, it meant these companies started to buy back their stock on a massive scale. Approximately over $1 trillion flowed back into markets through buybacks in the decade to 2024 boosting asset prices higher and higher.

The Great Reversal — from buyback-machine to CapEx-behemoth

Now, as Google and Meta both show, that flow has reversed. Tech is now draining money from the financial economy through an upcoming $3 trillion IPO-fest, selling stock, issuing bonds, and importantly, ceasing stock buybacks.

At the same time, tech is investing $400 billion into the real economy against realised AI revenue of about $100 billion, contributing to the very hot growth and inflation that will make their debt-fuelled buildout more expensive through interest rate hikes.

So what’s keeping valuations afloat (for now)? It’s a combination of two things.

First, massive hype around AI is getting people to put all of their money into tech. I was recently listening to the Forward Guidance podcast where called it “partaking in the casino”, and that is exactly what it is.

When your grandma starts telling you she “is extremely bullish on semiconductor stocks”, your bubble-o’-meter should be off the charts.

Stocks are worth what people are willing to pay for them. This shows most visibly in the forward valuation of tech (~29x earnings) relative to other less cool sectors such as utilities (~18x), consumer staples (~22x), and energy (~19x). The market is paying roughly 1.5 times as much per dollar of earnings for an AI software company as for the utilities building out the grid to power its data centres — and for the energy companies supplying the fuel.

The flip side of this compression is that capital is not flowing into sectors without a hype story to tell: money that could be going into the grid or into energy, is instead queuing up for the next AI IPO.

Second, and BY FAR the more important reason, but also the more complicated one: the US monetary and fiscal authorities are manipulating the financial market to make everything look fantastic.

Stick with the technical part that follows, because it leads somewhere genuinely alarming. There is currently a huge battle unfolding over who has power over the US economy, between the independent3 Federal Reserve and the Treasury (the executive), happening right now in plain sight — but most don’t know that it is happening.

Trump seems to be particularly obsessed with the stock market, treating it like it’s his approval rating. He’s likely constantly telling Scott Bessent to juice the books. And during war-time, that is also geopolitically important, because a crashing stock-market is not good for negotiations.

Even though Trump is arguably worse in this regard, this is also a bipartisan problem because of reasons I will explain below.

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We are definitely not doing QE (yes we are)

Despite all the rhetorics coming from the Federal Reserve and those in government regarding Quantitative Tightening, the Federal Reserve and the Treasury have been flooding the financial economy with liquidity through the back door. People in mainstream media don’t tell you this because they either think you’ll find it too complicated and click away, or they are not interested in telling you the truth.

I’ll have a go at it to prove them wrong. Will you prove them wrong too?

What follows is the most technical stretch of the piece, and the most important. Stay with me through it. This is the part the specialists understand and you’re not meant to, and once it clicks, suddenly you will understand what’s happening in the US economy. Once you see it, you can’t unsee it.

In December 2025, the Fed officially ended quantitative tightening — having unwound only half of its pandemic-era expansion, leaving a $6.7 trillion balance sheet in place. Since then, it has been doing something that is TOTALLY not Quantitative easing, namely, “Reserve Management Purchases” in which it buys Treasury bills en masse. I’ll explain the implications in a second.

The Fed’s own FOMC minutes concede that the economic effects, namely: lower rates, higher liquidity, easier financial conditions — are similar to those of traditional QE. The Treasury has been running its own programme in parallel. It is buying back its own old bonds from banks in weekly operations of up to $4 billion, greasing dealer balance sheets and keeping credit flowing. The Treasury’s cash pile at the Federal Reserve currently sits at $845 billion.

But the most important mechanism ran for two years with barely a headline. Only the specialists are told this stuff. I’ll explain it to you in simple terms.

Remember how QE works: the Fed creating money to buy bonds. The banks it buys those bonds from get cash reserves in return. In theory they lend it out into the economy. In practice, they often just sit on it.

And it would be a shame if banks can’t do anything with the free money they just received.

So the Fed created the overnight reverse repo facility as a release valve: a place where financial institutions can hand their excess cash to the Fed at the end of each day, earn a small interest rate on it, and get it back the next morning. Money parked there is not circulating in the financial system. At its peak in 2022, over $2.5 trillion was sitting in this facility.

That is roughly the GDP of France, doing nothing.

Why does it matter whether that money is doing nothing? Because money loose in the financial system gets spent on financial assets, and pushes their prices up. Money frozen at the Fed does none of that. So what moved it? The US Treasury’s deficit.

Now here comes the bubble story: between 2023 and now, the ballooning fiscal deficit was being funded largely with Treasury-bills rather than longer-dated bonds. This policy started under Treasury Secretary Janet Yellen — and was heavily criticized by current Treasury Secretary Scott Bessent, who ironically has doubled down on this policy now that he is in office. It seems to be the case that they just can’t stop doing it.

Which brings us back to that $2.5 trillion sitting inert in the Fed’s parking lot.

When a money market fund parks its cash at the Fed, that money is frozen. But when the same fund uses that cash to buy a T-bill instead, it hands the money to the Treasury, which then spends it immediately on salaries, government contracts, programmes, straight into the economy.

Same cash, opposite effect. One freezes it; the other releases it. So as the Treasury started to issue trillions of dollars of T-bills, money market funds pulled their cash out of the Fed’s parking lot to buy them, and $1.96 trillion that had been sitting frozen came flooding back into the system.

This is the crucial point: none of this was a decision by the Federal Reserve. It happened because the Treasury chose to fund the deficit with short-term bills rather than long-term bonds.

Had they issued ten-year bonds instead, pension funds and insurers would have absorbed them, and the money would be locked up. But T-bills went to money market funds, which pulled the cash directly from the Fed’s holding pen.

Regime change and its relationship to the bubble: more power to the executive

The fiscal deficit, managed in a very specific way, “accidentally” acted like quantitative easing, loosening financial conditions at the exact moment the Fed claimed to be tightening them.

Notice what that means. The Federal Reserve did not decide this (though they did accomodate it). Nobody announced it, and nobody voted on it.

The Treasury is slowly trying to take over monetary policy through fiscal decisions. And the Fed, for all its press conferences and rate announcements, was not in the room — and yet still have to accomodate it. That is the shift of power this section has been building to.

Americans, listen up. The government is actively changing the locus of power in the economy from the independent Federal Reserve towards the Treasury (under control of the President). They don’t need to take control of the Fed for this, though it would certainly help.

They are finding new ways to bolster this infrastructure. The GENIUS Act — a law designed to legitimize and expand the use of stablecoins — requires issuers to back every dollar of stablecoin in circulation with approved short-term assets, of which T-bills are the primary option. Every new dollar of stablecoin issued must be matched by a dollar of Treasury bills purchased. The law, in other words, created a captive structural buyer for US government bills — one that already likely4 accounts for approximately 30 percent of T-bill demand.

None of this shows up in the headline interest rate. It is the plumbing, and arguably it matters more than the rate decisions that fill every newspaper column, because it determines not the price of money but the total volume of it available to buy financial assets.

Raising rates only changes the price of the water; this determines how much of it is in the pipes at all. And if there’s no water in the pipes, finance bros get thirsty.

Because this is not only a power-grab by the executive to fund their fiscal programmes and manipulate the market. It is also because, well, they kind of have to do it so that the system doesn’t collapse. I’ll explain why.

The Treasury basis trade

The funding markets underneath the US government are far more fragile than most people realise.

Consider the Treasury basis trade. Hedge funds exploit the tiny price gap between US government bonds and the futures contracts tied to them, a spread so small it is measured in fractions of a percent. To turn that into real money, they borrow against the bonds in the overnight repo market and lever the position up to ninety-five, sometimes ninety-eight percent. The trade now runs to roughly $1.48-1.69 trillion (depending on measurements) as of January according to Morgan Stanley, about twice the size it reached in 2020.

The problem is that because the borrowing is so short term, it is crucial that the bond market is stable. If there is too much movement in price, dealers will start to ask higher “haircuts” for lending out cash in return for Treasuries. Because if I don’t know what the price of the Treasuries will be tomorrow, why would I lend out the money at a favourable rate?

And that is why it works beautifully, right up until it doesn’t.

The moment funding tightens or those haircuts spike, the funds face margin calls, are forced to dump Treasuries all at once, and the market for US government debt — the foundation of the entire global financial system — just freezes.

That is precisely what happened in March 2020, when the Fed had to step in with hundreds of billions in emergency purchases to halt the unwind. Regulators have been warning about it for months. It was what got Donald Trump to back down from his extreme tariffs after Liberation Day, as he said the bond markets were getting a bit “yippy”. These episodes can be easily identified by looking at the MOVE-index, an index measuring bond-volatility.

Which leaves the authorities cornered: they can talk and will talk about tightening, but financial conditions are actually loosening, because the alternative is watching the world’s safest asset go into freefall. They need to make sure there is enough liquidity in the system, otherwise bond volatility spikes.

This is especially relevant now that an incredibly large wall of debt from the 0 interest rate era is coming due, which is only going to increase in the coming years.5 This is also why policymakers are concerned about rates rising, and why Trump wants to keep rates low, because they are refinancing it with short term debt that is more vulnerable to swings in interest rates.

And this is also what’s making sure the AI-trade doesn’t collapse. Because this all keeps asset prices rising and keeps funding cheap. But then there’s the slight problem that I started this article with: it also makes the economy overheat and causes inflation.

But luckily, there’s a GENIUS in the White House. Trump admitted as much when he signed the GENIUS Act, saying “it was named after him”.

The genius in the White House

So let’s evaluate his highness’s6 policy track record: Trump decided to abandon Biden’s renewable energy ambitions, put all of his chips on fossil fuels and AI, and AFTER THAT decided to NUKE the costs of the primary input of AI: energy.

Not only that, other important commodities for the AI-buildout such as Helium, which is used in semiconductor manufacturing, and sulfuric acid which is used to produce copper that is used in data centers, are also being squeezed like a lemon.

As of Friday’s close Brent crude is currently hovering around $95-100 dollars, while WTI is hovering around $88-95, a number that is in my opinion way too low seeing the situation in Hormuz, but is likewise being manipulated by reserve drawdowns and jawboning.

Meanwhile copper is priced at $13,519 per ton on the London Metal Exchange.

The Hormuz closure put roughly a third of global seaborne fertiliser trade at risk; through April, world urea prices approximately doubled and DAP rose about 35 percent.

Urea climbed above $850/tonne in April, up 80 percent since February. Global fertiliser prices could average 15-20 percent higher in the first half of 2026 if the crisis persists. Food itself has lagged (transmission takes months): US food prices were up 3.2 percent year-on-year in April.

All of this will feed into inflation, and make the AI-trade unsustainable, that is if policymakers decide inflation should be dealt with.

So what Trump’s policy is doing, is kind of like the trick where you pull a tablecloth from the table and the cutlery stays on there, but you didn’t take into account that the real problem wasn’t the cloth, but the massive cabinet you bumped into afterwards that collapsed on top of you:

Trump has gotten himself into a sticky situation he can’t get out of, as sticky as the barnacles and other sea-debris currently multiplying daily on the hulls of ships stuck in the strait of Hormuz, causing ships to become immobile.

To summarize

So to get this straight once again, because these are A LOT of numbers: the AI-buildout is being funded by debt and the issuance of stock, which is being enabled through loose financial conditions as policymakers have been captured by fiscal problems, the AI-hyperscalers are massively short energy and commodities — and precisely those commodities are being disrupted, causing both inflation and calls for rate hikes while they just took up massive amounts of debt.

And I, as a European, cannot sit comfortably here in my chair in the Netherlands being like: “look at these Americans, they’re screwed”. Because the US economy is literally the global consumer of last resort and sustains demand for the rest of the world. This is something Trump is very upset about: namely, the US is the world’s biggest importer. But it is also a powerful tool any problem in the US, will be a problem for the world.

And get this: the only thing keeping this afloat is trust in the promise of AI and massive liquidity injections by authorities into financial markets.

Are you then surprised that Western elites are panicking?

Seeing as Hormuz seems to be outside of Trump’s control, there are, in my view, only two things they can do here:

1. Raise rates, quit the liquidity injections, and let the whole thing implode.

2. Kick the can down to road until after the midterms: raise rates marginally to keep appearances up, but behind the scenes inject the market with even more money and let inflation rip.

Both of these scenarios have different implications. But both of these deserve careful study and consideration, because macro-economic chain reactions are very complex. Let me know if you’d like to see that in a future article. This theoretical part is honestly the most interesting, because it translates how an acute crisis (which is in my view, very likely coming soon) can translate into a global problem that will affect billions of people.

Additionally, all of these problems are inherited from a decades-long crisis of the dollar-system, which is currently in its final phase of exhaustion. I wrote my thesis on this. It would be a lot of work to explain all of that in understandable language. Consider donating or becoming a paid subscriber so I can help you understand our predicament better.

A closing thought: I wonder how much of this is deliberate financialized industrial policy for the new AI-manhatten project. Maybe interesting to explore in the future.

To reflect my current commitment to this publication, and the fact that I will soon be paywalling some parts of larger and more labour-intensive pieces, I will raise subscription prices to 8 euros per month and 80 annually somewhere in the next few weeks. If you enjoy my content, and would like to support me, you should subscribe now to lock in a cheaper rate.

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Thank you for reading. I write this between deadlines, on my own time, without pay. If it was worth yours, buying me a coffee would mean a lot. Also consider subscribing.

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Buy Me a Coffee!

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One thought from the past every week — reflected upon briefly — because past intelligence left mothballed is present potential wasted.

But before I analyse this quote…

🥳🎉 THANK YOU FOR 2000+ SUBSCRIBERS 🥳🎉

The growth has been genuinely remarkable, both in numbers and in the quality of conversation in the comments. I’ve rocketed comfortably past 2000 subscribers, and 47 of you are already supporting me with a subscription, which lets me dedicate more time to the work.

To make this thank you more personal, here’s a video for those who care (recorded a few days ago) — but if you are short on time I have summarized it below.

I have some big pieces coming up.

• A civilization worth defending — an essay I had already worked very hard on for a while earlier this year. I teased it with the Krugman piece but I am paying an illustrator for the cover image instead of using AI-slop. This is work I am particularly proud of for its clarity, substance and argument, and I want to take care in publishing. I am waiting for the illustrator to finish the artwork before I post it. Thank you for your patience!

• Two pieces I am writing for newspapers that I’ll transform into a more sophisticated substack version: 1. The geoeconomics of crypto and digital assets (with 3 top of the field experts). 2. An investigation into EU industrial policy (2 experts, government officials and potentially a lobbyist).

• Many more ideas and some smaller pieces are in development.

To make this my main occupation, I’m considering putting some (not all) labour-intensive ones partially behind a paywall (so not the whole piece). The majority of my work stays free for now.

I believe quality information should be freely or cheaply accessible, but I also need to make a living. Freelance journalism is a fragile occupation, as I do not enjoy benefits of employments such as disability insurance. Sharing this with people you think would enjoy it helps enormously: it’s how I reach the critical mass that lets me keep writing sustainably and, eventually, offer localised pricing so readers in less affluent countries pay a rate that reflects local purchasing power.

Recent work:

I recently published a long essay on AI. It’s a product of a few years of intellectual formation. Don’t be discouraged by the length — I’m confident it will change the way you look at society, even if you disagree with my conclusions. I’ve received many personal messages and donations telling me the argument was compelling and changed their perspective.

I also published this story about the process of exposing Palantir in the Netherlands, in case you missed it.

I was also interviewed by a Dutch media channel on this topic.

Last but not least, a little satirical and well-received explainer of the barnacle crisis in the Strait of Hormuz.

And now, on to the analysis!

A brief thought — Context

What does it mean to do good to a friend?

Polemarchus — son of the wealthy Athenian Cephalus, relaying the poet Simonides — had an answer: “a friend ought always to do good to a friend and never evil.” He meant it in the most ordinary sense: back your allies, punish your enemies, keep your accounts straight.

Socrates disagrees. Not with the statement itself, but with what Polemarchus thinks they mean. If justice is giving each what they’re owed, and friends are owed good while enemies are owed harm, then the just man is a kind of specialist in hurting people at the right moment. Socrates keeps pressing on what “harm” actually does. If you injure a horse, it becomes a worse horse. If you injure a dog, a worse dog. If you injure a person, you make them worse as a person. So the just man, by harming his enemies, produces injustice in them. Which means justice produces injustice.

Polemarchus has no answer to this.

The sophist Thrasymachus — who had reportedly been trying to jump in the conversation consistently — erupts into the conversation like a wild beast, as Plato puts it, furious at two men who have spent an hour destroying every definition on offer without producing one of their own.

The reader also requires more patience than Thrasymarchus, and the Athenian polity for that matter — Socrates eventually was sentenced to death, and forced to drink a cup filled with poison. His charge? Being too annoyingly… Socratic…

Because only by the time Book IV arrives, Socrates has put a new framework for justice in place. Plato, using Socrates by proxy, theorizes this form of justice extended to society. The just polity has three parts — rulers (reason), soldiers (spirit/honour), producers (appetite/desire).

The individual soul mirrors this: reason governs, spirit supports, appetite obeys.

And now with this definition, Polemarchus’s maxim gets its real foundation. Doing good to a friend means contributing to the health of their soul, the proper ordering of their inner life. Harm means disorder, corruption, the dismantling of that structure. Which is why you cannot harm anyone justly, friend or enemy — that is if you define harm correctly. Not because harm is prohibited by some external law, but because a soul in order cannot produce disorder in another without contradicting its own nature.

A personal example would be to tell a friend something they would rather not hear, but would ultimately be good for their soul or life long term. This might make them resent you in the short-term, but a good friend would always come back to thank you if you genuinely had their best interest in mind.

Let me know in the comments how you define doing good to a friend!

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Reader Tip: The Substack App offers a spoken version of this article at the top right, which can help with longer pieces such as these. Some visual elements are lost when listening, however.

Peter Thiel recently funded an AI startup that hires CIA, FBI and British intelligence to harass journalists. His goal is to discourage critical coverage of powerful individuals. So far, the scoreboard reads as follows: Thiel 0–1 Me. Because I helped defeat his infamous company Palantir in the Netherlands. I’ll tell you how.

But before I do that, for those of you who do not know what Palantir is — you should know, so I’ll explain to you what is at stake. Because they are everywhere, which is why it is relevant to everyone.

In the United States the company has spread its tentacles across almost all government institutions — the Pentagon, the FBI, the CIA, the NSA — and ICE uses it to find and deport immigrants. But it has spread rapidly across the broader West as well through strategic lobbying.

Britain has handed it NHS patient records and Ministry of Defence operations; French intelligence has relied on it since the 2015 Paris attacks; German police in Bavaria, Hesse and North Rhine-Westphalia run it. Denmark predicts crime with it, Norwegian customs screens with it, and Europol uses it too; Poland’s defence ministry and Ukraine’s military targeting pass through it. Most controversially, it is employed by the IDF. And, as I would discover, so did the Netherlands. But these are only the contracts we know of. Like what I’m about to reveal, most were signed in secret — and kept that way on purpose.

The men running it don’t know how to shut up. CEO Alex Karp called “wokeness” the greatest danger to Palantir and America, and “peace activists” the real “war activists”; joked about drone-spraying “fentanyl-laced urine” on analysts who call the stock overvalued; and said Palantir exists ‘to disrupt, and when necessary to frighten our enemies, and occasionally, to kill.”

A lot of the people who defend Palantir — or are at least apologetic about it — make the same point to me: other firms are as bad, often worse, so why should this one company soak up all the outrage? If people weren’t so credulous, they say, they’d be furious about everything.

And maybe we should be. But that would kind of suck for our mental health.

Other than that, I disagree with their assessment. Philosophers have long argued that the range of what can be said in public discourse is itself a frontier of power, and that power is safest precisely where it cannot be named. Yet, simultaneously, it is most dangerous when it comes out in the open and actually becomes widely accepted by parts of the public.

The surveillance economy largely understands this, which is why most of them hide behind “cloud infrastructure” and “data solutions”, a grey language built to slide beneath notice. The firms my critics point to may be worse; they are also boring, on purpose.

Palantir, bless it and curse it, refuses to be boring — it names its software after Tolkien’s far-seeing stones, brags to investors that it exists “to kill”, and says the quiet part into a microphone with fancy slides.

Therefore Palantir polarizes society, sharpens the clash between different societal forces, and openly challenges them to fight them. The techno-fascists on the one hand (with Thiel’s objection.ai being a good example), and those on the side of democracy and the liberty of the people on the other. I have firmly positioned myself on the side of the latter.

But this is also why Palantir is simultaneously the most valuable and most dangerous to public discourse: it drags the whole apparatus out of the unsayable and hands a diffuse dread a single logo to either embrace or rage at. This is why it is important that you pay attention to this matter. All of those who love democracy and freedom should join forces with me and many others who fight against the techno-fascist moloch.

So, let’s cut to the chase. Here is why and when I decided to fight Palantir — and how I scored a small victory in a much larger war for justice. It began with a single sentence, spoken to me by a government official, that I haven’t been able to shake since.

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What was the Dutch government hiding about Palantir?

In the summer of 2025 during the riots in LA, where Palantir was allegedly used for facial recognition, my fascination with the company increased. The deeper I dug, the stranger the story became. The discovery that Palantir was operating in the Netherlands provoked me. I wondered how deep the involvement actually went. So I filed freedom-of-information requests with several ministries, asking them to disclose all communication and contracts with Palantir between 2008 and 2025.

In the end, two ministries responded: Justice and Security, and Defence. With Justice, the contact was vague and fragmentary: answers came, but they left more open than they resolved. With Defence the pattern was sharper: the release of documents was repeatedly postponed, questions were sidestepped, and the contact bore the hallmarks of careful reputation management. Understandable, given the moral controversies surrounding Palantir’s suspected role in Gaza and in Trump’s deportation machine.

The spokesperson warned me early on that many documents, if released at all, would be heavily redacted in the name of “national security”. He added, almost in passing, that every disclosure first had to be coordinated with Palantir. That detail stuck with me. If I didn’t yet appear in their internal systems, my investigation surely would.

The company likes to flaunt its contribution to fulfilling a quote by Nikola Tesla from 1898 about the dangers of technology, specifically remotely controlled devices: “You may live to see man-made horrors beyond your comprehension.”

June through October 2025 – Controlled openness

During my contact with the Defence spokesperson, something striking happened: out of nowhere, a strategic publication about Palantir appeared via Defence. The spokesperson told me it had been communicated internally that Defence works with Palantir. Almost simultaneously, he let slip that NRC and Follow the Money were working on similar articles and investigations.

At the time I was working as an intern at de Volkskrant, but I had started this investigation entirely on my own initiative. I suddenly realised that, driven by nothing but curiosity and a sense of moral responsibility, I had stumbled into a political game I was not prepared for.

As an intern I understandably wasn’t given the freedom to chase this down further, which meant I was always a step behind. When Follow the Money then published what was almost exactly the information that had earlier been “whispered” to me, my suspicion grew that something was being orchestrated. Who their “various sources” are remains unknown to me to this day. I can’t prove it — but my suspicion would later gain weight.

The same went for another, seemingly trivial event. When I filed my freedom-of-information request, David van Weel was Minister of Justice and Security in the Schoof cabinet. At some point, after he had been moved to the Ministry of Foreign Affairs, I was followed on Instagram by his official ministerial account.

It’s a detail. But it’s a strange detail. A Minister of Foreign Affairs whose account follows a student journalist with an open freedom-of-information request about Palantir. I don’t know why I’m one of the 250 accounts it follows, and I don’t claim to know. Perhaps my Volkskrant articles had caught his team’s attention. Perhaps it means nothing. But it stuck with me. To this day my account is followed by the Foreign Affairs profile, and as will become clear later in this article, I would end up indirectly dealing with Van Weel again — and there may even be an indication of why his team started following me.

January 2026 – Notice of default: “A whole lot of mistakes”

By the end of my internship, the ministries’ apparent goal — if you looked at it cynically — seemed to have been achieved. My daily life took over due to personal circumstances, and I had to get on with my International Relations degree.

But I had not forgotten my freedom-of-information request.

On 7 January I sent the ministries a notice of default and, the same day, published an investigation into Palantir in which I described the company’s Machiavellian rise and its origins in the American security and intelligence world. I also examined the political networks surrounding the company: the ties between founder Peter Thiel, Vice President J.D. Vance, “crypto tsar” David Sacks and Elon Musk — a circle of techno-oligarchs who together form the inner sphere of influence of the Trump administration, and who are openly hostile towards European institutions. These anti-European anti-democrats are the beneficiaries of Dutch taxpayers’ money.

That same day I received a response from the Ministry of Defence, from a new freedom-of-information lawyer, with a remarkable message.

Two days before my notice of default, the file had been handed over to a new freedom-of-information lawyer. Curious timing.

On 22 January I got a phone call from a new lawyer, who apologised in a audibly agitated manner. “A whole lot of mistakes had been made”, and it was made clear to me that the former lawyer no longer worked at the ministry. They had been fired.

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February through April 2026 – The swearing-in of the Jetten I cabinet

While my contact with Defence wound down, it picked up with Justice. The swearing-in of the Jetten I cabinet produced fresh delay. The reason given: the documents might ‘attract media attention’ — so the decision had to go past the new minister. That minister turned out to be, once again, David van Weel: the same man whose ministerial account had started following me on Instagram months earlier.

Van Weel is no random politician. He built his career at the intersection of defence, intelligence and technology — advising Prime Minister Mark Rutte (now NATO-SG) personally on foreign affairs and defence, then serving as Assistant Secretary General at NATO responsible for cyber defence, hybrid threats and emerging technologies, where he was also closely involved with the NATO Innovation Fund, NATO’s venture-capital vehicle for dual-use technology companies.

Palantir’s entire business model is built around exactly those companies. As Minister of Justice he had already been forced to account publicly for the Palantir file once before, when it emerged the Dutch police were using the software to analyse citizens’ data. He didn’t merely know what Palantir is — he knew this file inside out.

Contact with the freedom-of-information lawyer remained sporadic. Towards the end of the process I was suddenly informed that the ministry had opted for a “different procedure”: the documents would be made public simultaneously with the decision, rather than reaching me first, which is usually a courtesy they give to journalists.

The reason given was the “principle of due care” — all citizens must have equal access. Defensible in itself. But I do wonder why the same principle didn’t seem to apply when Follow the Money’s sources at Defence proved so talkative. It’s also striking that after my notice of default, the lawyer sought contact exclusively by phone — never in writing. What was discussed is recorded only here.

The process matters at least as much as the findings. Transparency is not a favour governments doles out at its own discretion; it is the condition under which democratic oversight is possible at all.

Anyway, once the documents became available, what had played out behind the scenes became visible for the first time — in internal memos, emails and decision-making documents showing how the cooperation between the Dutch government and Palantir came about, and under what conditions it was continued. Because I was just starting out as a journalist, I approached Follow the Money for editorial support and published it first on their platform. What they contain, you can read here:

Long story short: David van Weel, the Minister of Justice, did not inform parliament correctly about his ministries’ contracts with Palantir. Outrage followed.

In the Netherlands, incorrectly or misleadingly informing parliament is “a constitutional mortal sin” according to Leiden University Professor Reijer Passchier. However, our main ruling class party the VVD — from which current NATO-Secretary General Mark Rutte hails — has had too many scandals to count that had zero political repercussions. Accountability in the Netherlands only occurs when it is politically convenient.

So too, it seemed, is the case with our government’s secretive involvement with Palantir. When MEP Laurens Dassen of Volt Netherlands, requested a formal debate on the mistakes our Minister made, the right wing of parliament voted away the motion. The coalition had successfully lobbied to block any discussion of accountability.

But it had set something in motion and increased political pressure. Parliamentary questions came in from multiple parties. The debate continued online, and many dutch language posts went viral, but here’s an english language one:

Two months later, my colleague Sebastiaan Brommersma published another amazing bombshell article revealing that Palantir-employees can access from sensitive to mission-critical information. In effect, that means the American government is able to surveil Dutch military strategy — and logically speaking, by extension, any government or business that uses Palantir’s tech. Not only that, Palantir can unilaterally stop service without the Dutch military being able to do anything, effectively debilitating strategic capabilities.

The good news: apparently, European alternatives are starting to become competitive in terms of quality. The main problem is that organisations like the MOD have built up institutional expertise and familiarity with the technology that is not easily replicable. This is the pattern with Palantir more generally: they build a custom ontology for their customer which takes time and expertise to recreate, effectively making it difficult to leave Palantir.

Once again, Volt MP Laurens Dassen requested a motion to cease any cooperation with Palantir technologies and look for European alternatives. Once again, the coalition struck it down. But in a not so unusual show of political intrigue a few days later, a coalition party MP from D66, Michelle Jagtenberg, stood across our Secretary of Defence Derk Boswijk. Why? To ask soft-ball questions about the usage of Palantir.

What looked like accountability from the outside, looked like damage control and the gathering of political benefits to those who knew the background. They did not want to give political credit to an opposition party, and wanted to control the fallout from any potential backlash. This was successful: the coalition party MP was quoted widely in Dutch media without mention of the actual critics.

Nevertheless, I am happy. Because it turns out the investigative work of me and my colleague journalists had paid off. MP Jagtenberg started off the questioning by citing verbatim from things I had written in my investigative piece:

(Excuse the video quality, this is the best I could get)

“Democracy and freedom are incompatible” and “it’s fine if our software is used to kill citizens” — Jagtenberg lists these quotes. She finds it deeply alarming that these statements come from the founders of the company supplying software to Defence, the police and NATO. How will the Secretary of State reduce our dependence on this company immediately?”

To my pleasant surprise, the secretary announced later in the debate that the MOD would aim to quit using Palantir’s technology within two years. This decision was apparently taken last month (a short while after my piece was published) in response to “pieces written by Follow The Money” (AKA, my research) and the parliamentary questions that followed. Here’s the excerpt in Dutch:

So: Thiel 0-1 Me. I’ll stand by it, with one hugely important caveat.

What I and my fellow journalists won was one contract, in one ministry, in one small country. Though it took huge effort it’s just a small victory in a larger battle, as I discussed in the introduction. What I tried to show with this piece, walking you through the complete process of evaluating governmental accountability, is that you have to look past the optics. This is relatively obvious to most, but it is sometimes opaque how high the level of conniving is. That is a fight I intend to keep having.

The opaqueness is not incidental, it is something that permeates every step of the process. First, the postponements. Then, the redactions promised in advance. Afterwards, the disclosure that had to be “coordinated with Palantir” before a Dutch citizen could see it.

Then came the silence, only until I spoke up. Even then, the lawyer would keep the mail-channel silent, and switched to phone-only after my notice of default, leaving no paper trail.

Note that none of this is illegal. All of it treated transparency as a favour to be timed and managed, rather than the precondition for democratic control. That is not unique to the Netherlands, and it is not unique to Palantir. It is how Western governments handle any arrangement they would rather not explain.

It is also visible in who got credit and who didn’t. MP Laurens Dassen was voted down twice. The coalition, having blocked every serious motion, then sent in their own MP to ask the soft questions, and was quoted in the press as the responsible face of accountability.

I must give it to them: I now honourably award them with the Elias Rutten prize of political choreography.

Regardless, it is still a victory. And even though these victories are appearing more and more, like in Germany, Palantir, for now, is still everywhere. Britain’s hospitals, France’s intelligence services, Germany’s police, the American deportation machine.

But a continent that aims for sovereignty has to start somewhere, and it is up to the members of society that have to fight for it. Because in the end, politicians are often also trapped in a larger game they do not control.

The scoreboard stays at 0–1. For now.

Thank you for reading. This reseach took considerable time writing, and my pay as a young journalist is quite low, despite the large amount of time I put into the work. If you think this was importan work and worth your time, buying me a coffee would mean a lot. Also consider subscribing.

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After US geoeconomic and military planners ran their war plan through ChatGPT with the prompt “chat, am I missing anything?” and it responded “Your plan looks good! Here are a few slight adjustments and a comprehensive framework for winning World War III 😊👉” officials probably thought they were good. Locked and loaded, ready to go.

The plan was to strike Iran.

Iran, as it happens, sits at the entrance to the world’s most important oil passage. The Strait of Hormuz normally carries about 20 million barrels of oil per day — roughly 25 percent of the world’s seaborne oil, 20 percent of global LNG, and a significant share of fertiliser and industrial commodity inputs.

This was, of course, something that the planners had considered.

Because even if the military operation had gone as abysmally wrong as it has, a negotiated peace settlement — however humiliating it would be — could theoretically restore global oil flows rapidly and bring commodity prices crashing down.

Indeed, Substack star economist also thinks as much:

But what the planners and Robin haven’t considered is that the scorching hot waters of the Persian Gulf are treacherous. Three months and five days later, Robin’s assumption — and probably that of the White House — has been severely undermined from an unexpected corner: sea monsters.

Mother nature’s battallion has joined forces with the physics of the warm Gulf climate to strike a decisive blow to the global economy. An army of billions of barnacles, a horde of tens of millions of jellyfish, and algal biomass measured in millions of tonnes have weakened the US’s negotiating position significantly.1

I am not joking.

Now someone in the White House is probably facepalming, flipping tables, shouting at junior bureaucrats, and having tense phone calls with marine biologists.

And wartime or peacetime, the sea monsters don’t care — because for wildlife, it is always wartime.

Barnacle Guerilla Warfare

Sea barnacles have encircled their helpless adversaries — the roughly 1,550 vessels currently stuck in the Gulf — and are currently multiplying in numbers.

Sea barnacles attach to the underside of a ship’s hull within hours of it going still. A bacterial biofilm forms first, then algae; then barnacle larvae arrive and secrete a proteinaceous cement — one of the strongest biological adhesives on earth — that bonds them permanently to bare steel. Once a colony establishes, it attracts more larvae. Modern anti-fouling coatings are designed to exploit the ship’s own momentum: at cruising speed, water shears larvae off before they can grip. Idle in the Gulf for three months, that protection is gone.

The Persian Gulf is the world’s hottest sea and is getting hotter; Kuwaiti waters hit a record 37.6 °C / 99.7 °F in 2020. Surface temperatures swing from about 16 °C / 61 °F to 35 °C / 95 °F, among the highest of any water body on the planet, the average sits around 30 °C / 86 °F, and restricted exchange through the narrow Strait of Hormuz, little freshwater input and high evaporation make it hypersaline.

Why is this relevant? Well, barnacles are fighting on their home turf.

Warm, saline, shallow water accelerates their attachment, growth and reproduction, and a study conducted in the northern Gulf found that just 2 °C of extra warmth alone produced a 1.5-fold increase in biofouling coverage.

This means that when these ships eventually try to move, they will do so dragging the equivalent of a small reef on their hulls. Hull drag increases by up to 60–80 percent under heavy barnacle growth; fuel consumption rises 40 percent or more. For a supertanker burning 50 tonnes of fuel a day, that is an additional $7,000 per day in costs per vessel, before anyone has gone anywhere.

But that’s not the only tactic up the barnacle’s sleeve. Barnacles colonise the sea chests — the hull openings that draw in seawater for cooling and ballast — clogging the intake grates and, in serious cases, causing total failure of a ship’s cooling system. They trap moisture against bare steel, accelerating corrosion from within.

And here is the trap inside the trap: properly removing heavy barnacle fouling from a large tanker requires dry-docking. That means hauling the vessel out of the water entirely so the hull can be scraped clean. You cannot do that at anchorage in the Persian Gulf. The ships must move to be cleaned, but they are too fouled to move efficiently, and too trapped to go anywhere at all. Every day they sit, the barnacles gain ground.

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So what now?

With Donald Trump claiming his 6th succesful ceasefire, it is unclear when this issue truly resolves and ships can start moving again. And as I said before, barnacles don’t care about peace and war.

By May the total of vessels stuck across every type of ship had climbed past 1,550. The biggest of them, 109 supertankers each able to haul 700,000 barrels or more, were trapped the moment the strait shut. That alone is somewhere north of 70 million barrels of crude.

You might assume, like Robin, that this is a simple problem. Oil’s loaded, the door’s locked, open the door, problem solved.

It is not a simple problem.

Start with the producers. Saudi Arabia normally pushes 5.5 million barrels a day through Hormuz, with Iraq adding another 22 per cent and the UAE 13. When the strait closed, none of them could just... stop. You don’t switch an oil field off like a kitchen tap. Shutting one down and bringing it safely back online takes weeks, and you can wreck a lot of expensive kit trying. Then there are the contracts: barrels promised, dates agreed, signatures dry long before anyone thought to start a war. So the oil kept coming. It kept coming right up until the exporters were forced to throttle back, because the tanks onshore had run out of room.

And here’s the bit everyone forgets. It cuts both ways. The tankers that would normally sail in to collect all this oil can’t get in any more than the loaded ones can get out. Storage across the Gulf is full. And on 4 March, after Iran hit its Ras Laffan terminals, QatarEnergy gave up and declared force majeure on every LNG shipment it had, pulling a fifth of the world’s LNG off the market in an afternoon. The cargo is piling up at both ends at once.

Down the coast, Jebel Ali — Dubai’s port, the biggest in the Middle East — is clogged with ships that diverted and then worked out they had nowhere to divert to. They circle and wait and burn fuel for nothing.

So here’s the thing I want you to sit with. Say the strait opened tomorrow, fully, no conditions. Trade still wouldn’t snap back. The infrastructure’s damaged, the storage is full, there’s a backlog of exports stacked up weeks deep, and a good chunk of the fleet now has to be hauled into dry dock to scrape three months of barnacles off before it can sail anywhere without guzzling fuel. The crews are knackered and long overdue a swap. Even the optimists in shipping reckon “back to normal” is weeks away, at best.

Stepping away from objective and evidence-based reasoning for a second: to me it honestly feels like the media landscape is polluted with propaganda. During a war of global importance, this is of course not a revolutionary statement.

Yet, it remains good to ponder what we are being told, and triangulate that with what is actually happening.

I think some outlets and popular figures have been instructed to be optimistic about oil so that the price stays down. Every once in a while, a figure of importance like, say admits that he is panicking; or a figure like the Exxon Senior Vice President Neil Chapman openly comes out and says: “We’re approaching unheard of inventory levels. I mean, really really, low levels.” With the CEO of Chevron basically saying the same thing.

I discussed this a few days ago in a note, in which I speculated that the Iranians are stalling as long as possible for a ceasefire deal to extract maximum advantage. Why would they sign a deal when they can see Western elites panicking? Why would they sign a deal, when Trump constantly says “he is not in a hurry”, which in fact means he is in a hurry.

Donald Trump can declare his seventh ceasefire. He can declare victory, declare peace, declare a National Day of Maritime Freedom. The Iranians can wait. And the barnacles will respond:

There are no winners in this war, except for the barnacles. They have no negotiating position to weaken, no election to lose, and nowhere to be. They are already exactly where they want to be: welded to the hull of a supertanker, in the warmest water on earth, multiplying.

Thank you for reading. The topics I write about are usually quite serious. This is also a serious issue, with people’s livelihoods and the global economy at stake. But it can get a bit heavy if we constantly take everything so seriously, and stop seeing the silly nature of things from time to time. In my opinion, we are living in ridiculous times, let’s make sure we ridicule that from time to time.

If this informed you and/or made you laugh, buying me a coffee for my unpaid labour would mean a lot. Also consider subscribing.

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A recommendation:

My former university professor runs , and if you want clear-headed analysis of US foreign policy and where the Iran war is actually heading, it is the best thing I read on the subject from a foreign policy perspective. His scenario-mapping has genuinely shaped how I think about this crisis. Worth subscribing.

Some more memes:

You don’t hate AI. You hate liberalism.

And you did not vote for liberalism. You were born into it. Nor did you vote for AI, it was forced onto you by liberalism.

That’s why I have no patience for the blind lovers and haters of AI: they are missing the point, and so neither can judge the thing in the only context that matters.

Someone who understands that is his holiness Pope Leo XIV, he has clearly done his fair share of reading history and theory. According to him, “Humanity, created by God in all its grandeur, is today facing a pivotal choice: either to construct a new Tower of Babel or to build the city in which God and humanity dwell together.”

Now that Papal authority has entered the fray, we are seeing many parallels with the past. The spiritual world is once again, like in the middle ages, on collision course with the material world. The stakes are high, it concerns not just people of faith, but the whole of humanity.

On one side, an American Pope reaching back for a remnant of our more humane past to defend the human body. On the other, techno-oligarchs who want to escape it and merge with the machine.

But before we get there, let me explain why I think the AI-debate is missing the larger point and how I aim to address that with this essay.

The State of the AI-debate

The AI-debate is split between several kinds of arguments. The most damaging are the dogmatic techno-optimist posts: the sloppish LinkedIn essays that accept AI uncritically as a force for good, and in doing so provide the ideological cover that lets the actual deployment happen unchallenged. They refuse to see a problem at all.

On the other end, there are genuinely productive contributions — ’s recent piece on what he calls the “dead economy” for instance, which shows how mass AI deployment hollows out both the economy and the democratic structures that depend on it. This is one of the best pieces I’ve read on it so far, yet it still takes the system we live in for granted, which is something that I aim to address in this essay.

Lastly, somewhere floating around on the spectrum of technological-ideologies, we have the AI-hate posts. Sure, the writing is often good. The human-o’-meter is off the charts. But it is not very productive, and we’ve heard it thousands of times. Perhaps you could call it well written human-slop. Except it lacks the toxic positivity of AI, instead beating our brains into despair — filled with negativity towards fellow human-beings who choose to use the technology. As I will show, that anger is misdirected.

A good example comes from a recent popular essay written by , titled “If you let AI do your writing, I will come to your house and kill you”:

“I hate it. I find it viscerally disgusting; a cold shudder like someone’s poured jelly down the back of my neck. I hate that it’s everywhere; I hate that when I read basically anything now I’m constantly on alert, twitching like a schizo in an underpass. Is this thing really what it says it is? Is this person actually a robot in disguise? Nice little personal essay you’ve got there, lady, but I know what you really are; time to get my knife out, time to start digging around under your skin until I find the wires.”

Just for Sam’s information, I wrote this essay completely without AI as a writing tool.1 Please keep your blade sheathed.

Yet, a similarly paranoid alertness is present when I read essays like that of Sam. There is something performatively human about them (I can’t believe I said that) — and I suspect AI’s mere existence is part of why. The technology is already reshaping how we write about it, including for those who hate it. I catch the impulse in my own writing too.

But I will regress from this speculation, because that is exactly the problem: these scuffles among fellow humans detract from the real problem. A problem as old as time — or more accurately, somewhere after 1776.

Liberalism is the problem. But it is simultaneously a solution. It is a parasitical chameleon, absorbing the colour of whichever historical phase it inhabits, tainting it, growing larger with each one it passes through, bloating itself on whatever was not yet a commodity; or what part of humanity was not yet subject to its laws. And the core problem here is not aesthetic. That is a symptom, not the disease.

And now his holiness the Pope Leo XIV weighed in. He has the sharpest instinct — may I say divine inspiration — I’ve seen so far about what is occurring. In his recent encyclical, his holiness criticizes the fact that technological power has shifted from states to private transnational corporations; laments AI’s effects on truth and democracy, war and peace; and he explicitly rejects the instrumentalization of work and the body through automation and transhumanism.

Indeed, we as a society have been involuntarily introduced to this technology for privatised profit — all while the alienation, the ecological and social damage, and the conflict it brings is externalised and made public.

No one voted for this.

So before we decide how to respond, we need to understand the political-economic context in which it’s happening. For that, we need to analyse how the same dynamic has been unfolding over centuries.

What I aim to show in this essay, is that liberal capitalism contains an inherent tension between economic freedom for the few, and political freedom (or rather, unfreedom) of the many. Between unbridled gains in efficiency, and unbridled losses in social and environmental life.

It is abundantly clear from the historical literature that capitalism moves in cycles and it is precisely this economic freedom that undermines human freedom in the long term. We are caught in the bear-trap of technological progress, and without intervention in the political-economic domain, as history shows, it will lead humanity to ruin.

The Long Crisis of Liberalism

In the 18th century, if you were rich enough, you hired a philosopher. Adam Smith was one of these pet philosophers, and one of the most consequential one who ever lived.

Born in Glasgow to a father who levied tariffs at the border — the very profession he would later fulminate against — Smith was hired in 1764 at £300 a year plus a lifetime pension to tutor the stepson of Charles Townshend, Chancellor of the British Exchequer. When Townshend died, the Duke of Buccleuch honoured the pension for the rest of Smith’s life. Smith finished Wealth of Nations in 1776 — writing about the foundations of national wealth while being paid indefinitely by one of the wealthiest landowners in Scotland.

The world he was writing into was dominated by mercantilism — states establishing monopolies for national gain, exporting as much as possible, importing as little as possible, amassing vast hoards of bullion. Smith thought this was nonsense, but his ideals also alligned with his pockets. Wealth of Nations was bankrolled by the pro-free trade Hanoverian Whig establishment and aimed squarely at the mercantilist regulatory state. Smith was funded by the rising commercial-administrative class against the older aristocratic-mercantilist one — and clear-eyed enough to say that the state was really a class construction:

“Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor.” This encapsulates how I think about theory generally, echoing Robert Cox: “Theory is always for someone, and for some purpose.”

His prescription: limit monarchical authority, abolish monopolies (which he called a “strange absurdity”), and organise production rationally. Ten men, properly organised, could make 48,000 pins a day; one man working alone could barely make one. This was the division of labour — and it would change everything.

Later, David Ricardo would extend Smith’s theory across borders — pioneering the term comparative advantage. He argued famously that if Portugal can produce both wine and cloth with less labour than England — but England is better at producing cloth than wine — then both would be better off if England leveraged its factors of production to produce cloth, while Portugal specialized in wine.

Together, these foundational theories were crucial for human economic and societal development, and are still taught in high school economics. But in the introduction already, I emphasized the dual nature of liberalism: its forces are as regressive as they are progressive, as constraining as they are liberating, and as destructive as they are creative.

For with the division of labour, a previously highly regulated system of production attached to custom, tradition and human knowledge — for example the guild system — was disrupted in favour of a capitalistic mode of production.

Previously highly specialized labour — commanding high wages and social status — was disrupted in favour of the manufacturing system, where individual labourers would specialize in just one small part of the total labour process of producing a commodity. With its introduction, the specialized knowledge and power of the labourer was absorbed by the capitalist who organized production and oversaw the manufacturing progress.

Indeed, Smith recognized this fact:

“The man whose whole life is spent in performing a few simple operations… has no occasion to exert his understanding… He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become.”

The Dual Nature of Liberalism

Liberal trade and economic theory was completely realistic and appropriate for its time. But it was written for a world that no longer exists. As & note in their influential book Trade Wars are Class Wars:

These arguments for specialization only went so far. Neither Smith nor Ricardo thought it would make sense to divide the stages of pin-making or textile manufacturing across national borders. Rather, they were thinking of the world as it was then—two hundred years ago. [...] The communications technologies available at the time—carrier pigeons and couriers on horseback or sailing ship—would not have been adequate for coordinating the various stages of production across disparate locations. [...] What many forget today is that Ricardo’s argument made sense only under these primitive conditions. [...] Ricardo’s subtle case for free trade depended on persistent differences in rates of return across countries, which in turn depended on investors’ unwillingness to move money abroad. Those assumptions broke down as technology improved, communication costs collapsed, and global politics changed.

In short, liberalism was not meant for a world of the scale that we are seeing today. At the level that it is practiced today, I’d argue its effects are massively more destructive than they are constructive. The same is true with liberalism’s effect on AI. While advancing the economic sphere of human development, it is disastrous for social and ecological development. As revolutionary as liberalism was at the time of monarchs, the disastrous effect on the social and ecological fabric that it would have centuries later were unforeseen in scale, at least by Ricardo and Smith.

The Great Transformation

Smith’s theories gained ground rapidly — the conquest of the aristocrat and bourgeois mind was in full swing: though it took decades before their minds conquered markets.

For liberalism started to transform the material world and human society in two waves: first, around the turn of the 19th century in England, second the 1820s when it forcefully expanded its reach into world markets — poisoning the well of societies that were formerly regulated by ancient customs and traditions.

And for the longest time, the earth in the form of land, and humanity in the form of labour, were protected by these ancient institutions that evolved over millennia.

In effect, the economic and the social system used to be the same thing. This is what the genius multidisciplinary economist Karl Polanyi described in his book The Great Transformation. One example being the guild system:

“Under the guild system, as under every other economic system in previous history, the motives and circumstances of productive activities were embedded in the general organization of society. The relations of master, journeyman, and apprentice; the terms of the craft; the number of apprentices; the wages of the workers were all regulated by the custom and rule of the guild and the town.”

Polanyi’s point is that labour and land are what he called “fictitious commodities.” Real commodities are produced to be sold; labour and land are not. Labour is simply human life, and land is nature. Neither was made to be sold, and to treat them as if they were is to subordinate society and nature themselves to the logic of price. For most of history, every society understood this instinctively, and hedged these two things around with protections.

And here’s the thing that Smith and Ricardo missed. For all its economic faults, mercantilism never went this far.

As Polanyi observed:

“Mercantilism, with all its tendency toward commercialization, never attacked the safeguards which protected these two basic elements of production—labour and land—from becoming the objects of commerce.”

For centuries, much of the English countryside was held in common — used by villagers for grazing, firewood, and subsistence cultivation under customary right. From the 16th century onwards, that common land was encroached upon by the aristocracy who saw profitable parcels for capitalist agriculture or sheep pasture.

The Satanic Mill

Around the time of Smith, between roughly 1750 and 1830, this problem greatly accelerated. The commoner lost their historical right, landlords gained saleable commodities and the dispossessed were pushed into the cities.

The repeal of the Poor Laws and the Statute of Artificers stripped away the legal protections that had, however imperfectly, kept bare labour from becoming just another commodity.

The Corn Laws — tariffs on imported grain that had kept bread prices high — fell in 1846 after a prolonged battle between agrarian and industrial interests. Cheaper grain meant cheaper bread, and cheaper bread meant workers could survive on lower wages.

What was presented as relief for the poor was in practice a subsidy to industrial capital. It was the first great demonstration that liberal trade doctrine was not merely a theory but a political instrument, one that could be wielded to reshape the fundamental rules of economic life in the interests of commercial capital.

Torn from their roots and ancestral land with nothing left but their bodies, the newly minted proletariat served industrial capitalists with an abundant supply of labour.

Manchester’s population roughly quintupled between 1770 and 1830. And with it emerged the unregulated free-market system with its machinery of industrial capitalism, which Polanyi called2 the “satanic mill” grinding human beings down — a sentiment echoed by Pope Leo XIV in his latest encyclical on AI.

The machine, when it first appeared, looked rather innocent: the spinning jenny, hand-powered and used in the home, greatly increased the productivity of individual spinners — cloth being Britain’s greatest export — without yet tearing them from their personal working speeds or their roots.

Then came the factory. Steam engines drove vast power looms in mills as loud as chainsaws — workers communicated by lip-reading, and deafness was an occupational norm. The omnipresent vibrations ran through the floor, through the frame of every machine, through the hands and feet of every worker on the floor, all of them tethered to a single engine’s pace that never tired and never stopped. Idle machines were considered idle profit, and thus workers were forced to work day and night in terrible conditions.

The division of labour absorbed the craftsman’s knowledge — his understanding of the whole process — and transferred it to the capitalist who coordinated the fragmentary process. Then the machine absorbed the act of work itself: the tool was taken from the worker’s hand and given to a mechanism he merely tended. With AI, the same logic reaches the mind. It is the machinery stage applied to cognition — not just the physical process of labour, but thought itself.

A system expanding at this pace does not merely create shared interests — it creates shared vulnerabilities. The more we are connected, the more disruptive our interconnections can be. This dynamic will return throughout this essay.

How did we get here?

British ‘Free’ trade imperialism

As Britain’s economic and social life was conquered by liberal thought, its industry rose with it to become the workshop of the world. The domestic market was rapidly saturated.

The problem that presented itself was that British capitalists individually had no incentive to raise the purchasing power of their workers, while it was detrimental to the economy as a whole; seeing as the value of production exceeded the demand that justified it.

Having disembedded its own society from traditional life and subjected it to the laws of ‘freedom’, the only way forward was outward. That is, imperialism.

J.A. Hobson (1902) encapsulated the contemporaneous problem well in his seminal work on Imperialism that later thinkers like Vladimir Lenin and Klein & Pettis would draw on. The root cause, he argued, was maldistribution: the wealthy accumulated more than they could productively invest, leaving domestic demand chronically deficient. Imperialism was the outlet — surplus capital seeking foreign markets because the home market had been starved of purchasing power. The remedy was not colonial expansion but social reform: redistribute the surplus to wages and public income, and the home market becomes capable of absorbing what it produces. “The only safety of nations lies in removing the unearned increments of income from the possessing classes” and returning them to those who would actually spend them.

Britain industrialised behind protective institutions, became the dominant productive power, and then — once it no longer needed protection — declared free trade the universal good. It dropped its own tariffs and used diplomatic, ideological and military pressure to force other markets open, because open markets at that point served British interests. After all, Britain had such a superiority in production that no one could compete, and low tariffs allowed Britain to dump goods on foreign markets in exchange for cheap commodities.

The weaker economies specialised in lower-value production, the stronger locked in its advantage, and the doctrine that justified this arrangement was dressed up as mutual benefit.

Capital cannot stand still: it must expand or contract, and expansion means new markets. Steamships collapsed shipping costs; railroads and telegraph lines, exported to the periphery, extracted its commodities and created yet more markets for British capital.

Western capitalists colonised the world by exporting the infrastructure that extracted low-value commodities from the periphery. The dependence this created required no formal territorial control to ensure hegemony: this was Pax Britannica. But integration is not stability — in a world of competing interests, it creates instability.

But the same order that carried British goods outward, and imported cheap commodities into the Isles, carried the seeds of its own undoing. The stability of the system — the gold standard, the open sea lanes, the guarantee of contracts and capital flows — was the very condition that allowed rivals to grow within it. Germany, Japan, and the United States industrialised in the shelter of British order, and then used it to upset the balance. As they rose, Britain could no longer rule by legitimacy alone and turned to coercion.

British capital’s desire to expand was the very thing that undermined its primacy. This would eventually produce the two most devastating wars humanity had ever seen. The infrastructure and environment changes with each cycle — steamship, railroad, platform, algorithm. The logic does not. Expand or contract, open new markets, export the costs. What we are living through is not an AI crisis. It is the same crisis, wearing new clothes.

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The Second Wave of Globalization and its reacceleration

Fast forward to Pax Americana. A new wave of globalization under a different organizational wrapper. In a similar show of the influence of technology, container shipping contributed more to economic globalization than free trade agreements ever could. The container solved the physical problem: as Douglas Irwin explains in Free Trade Under Fire, containerisation increased trade among developed countries by roughly 700 percent over a twenty-year period. Communications technology solved the coordination problem, making it possible to direct production on the other side of the world in real time.

Together they did not merely lower costs; they made the fragmentation of production across national borders structurally viable for the first time, binding more of humanity into a single economic web than Ricardo could have imagined. The container moved the goods; the cable and the algorithm moved the coordination. Each new layer bound the world tighter, and AI is where that binding reaches the mind itself. What was sold (literally) as the frictionless freedom of a connected market turns out to generate friction and unfreedom in equal measure, the more entrenched the connections, the more inescapable the dependence. We are wired into a single system we did not choose and cannot exit.

It is not a coincidence that the American dynamic resembled the British one, but instead operated through formal institutions rather than informal ones. In fact, the genius scholar Giovanni Arrighi showed that capitalism has gone through successions of systemic cycles of accumulation, each led by a progressively larger state-capital bloc. Before the British and the Americans, there were the Genoese and the Dutch who organized capital accumulation.

Each hegemon organizes the system with unique institutions. For the US, the order was created just before the end of WW2 at Bretton Woods, in which the dollar became the reserve currency.

Each cycle consists of a phase of material expansion, where hegemonic capital pours into trade and production while a market lies open and uncontested. Once returns diminish, capital specializes in high-quality goods, then pulls back from production altogether to speculate in finance — with disastrous consequences for the general population.

Arrighi traces the pattern back to the Florentine banking dynasties of the 14th century, whose merchant capital, having exhausted its returns in trade, pivoted to financing European monarchs — until the English crown defaulted and took the great Florentine houses down with it. The crash of the 1340s wiped out thousands of ordinary investors and workers. Cloth production, which had employed roughly a third of the city’s population, collapsed over the following decades — and the dispossessed clothworkers, pushed to the edge, rose up in the revolt of the Ciompi of 1378, briefly seizing the state and putting a woolcomber at the head of the republic. Financial bubbles and technological change leading to revolt, are as old as capitalism itself. The pattern has not changed — only the scale.

The Cold War had, paradoxically, kept this logic in check. The existence of a rival system gave Western governments reason to maintain the social contract — full employment, welfare states, regulated capital — as proof that liberal capitalism could deliver for ordinary people. When that rival collapsed, the restraint went with it.

Capital, now facing no ideological competitor and no geographic boundary, poured into the newly opened world. The material expansion of the postwar decades gave way to the financial turn, and the financial turn accelerated into something qualitatively new.

A system of global free capital flows emerged to reorganise around the cheapest labour wherever it could be found. This was the reacceleration. And it carried within it, as it always does, the seeds of the next disruption.

The origin of the geopolitics and economics of AI

In its victory of 1991, the Western liberal world order carried the formula for its own disintegration. As soon as the bipolar struggle between the Soviets and the Americans transformed into a de facto American unipolarity, neocolonial hubris emerged in the West. The end of history was declared. According to Francis Fukuyama, the superiority of liberal capitalism would transform the globe into one large democratic market.

The world was henceforth be ruled by global value chains and the imperial dollar system — in which the surplus savings of the periphery and subservient industrial economies would be recycled into American assets, financing the consumption of the centre at the expense of workers on both sides. The US was to be the centre of this system, ruling the world through finance, information technology and intellectual property rights. The late Peter Gowan has gone as far as to argue that the US deliberately used capital flows as a financial weapon to liberalize state-led economies, as I have discussed in a previous essay.

The order this produced assumed that economic integration would eventually democratise its participants. China, once admitted to the WTO, was not calculated as an adversary; it was expected to converge.

Well, that didn’t happen.

It did not democratize and liberalize. Instead, it industrialised under state-capitalism, absorbed the technology that global value chains so obligingly transferred, and became a systemic rival. What’s more, the immense trade imbalances that this order accelerated (they were already present in the architecture of the global trading regime), were a crucial factor in causing the Great Financial Crisis of 2008.

From Global Freedom to Global Control

Why is this relevant? Because, as shows, the response to the crisis fuelled the rise of big tech.

When the system nearly died in 2008, central banks resuscitated it with cheap money. But the money did not flow where the textbooks promised. With demand weak and governments cutting spending, there was little reason to build anything in the real economy. Banks were flush with credit, but with barely anyone to lend to. The firms best placed to borrow at near-zero rates were the large technology companies, and they poured it into the infrastructure of the digital age — cloud computing, data processing, algorithms. The kind of thing with enormous upfront costs, almost no cost to run once built, and a powerful tendency to monopolize and control markets the bigger it gets.

And here is the trick. These platforms don’t make money by producing things. They make money by owning the gateways to them. They control access, harvest data, and sit between buyer and seller and take a cut. The bailout meant to save capitalism birthed a landlord class for the digital world, its private tollbooths underwritten by public money. Something that went unnoticed at the time, was that this digital infrastructure built to coordinate global commodity flows was generating the basis that artificial intelligence would later feed on. Reminiscent of past dynamics, the population of the world has been subject to what I call a digital enclosure movement.

As society was neoliberalized, life outside of the house got more expensive, previously communal activities in the form of communication and social gathering have become digitalized and privatized, and we as a society have become digital paupers in the same sense that the peasants pushed into the cities provided the industrial capitalists with cheap labour. And not only that: the same digital tools would later be weaponised to compete with adversaries and hold allies in place, firmly in the grip of an information ecosystem they had come to depend on and could no longer escape.

But the broader system had a vulnerability. The strength of the dollar that came with the massive capital inflows from surplus countries deindustrialized the US. The financialization of the economy in the interest of shareholders meant that critical production of low-value goods became unprofitable within the neoliberal system.

China is the new pole that controls these physical nodes of the global production system. They now also provide a market for Russian commodities and are a critical supplier of technological goods for the new anti-Western axis that includes Iran.

What we are seeing now, the re-election of Trump, the aggressive bipartisan attempt at reindustrialization, the spasms of a fallen hegemon who now turns to coercion and aggression, remind us vaguely of the fall of Britain. But it also explains the immense government support for AI. The presence of powerful adversaries legitimates renewed control over society through technological means, as well as investment in defence applications of AI.

Additionally, since the general population is too poor to consume the value they produce and capital amassed around big tech, AI seemed to provide the perfect way out for the large hoards of wealth, without their owners relinquishing their control over the economy.

The promise of massive productivity increases has caused a surge in capital expenditure. Once the first firm moved, the others could not afford to sit out the bet, even if it could turn out to be a bad one. While Big Tech previously had a license to print money, it now has a shareholder obligation to become capital-expenditure behemoths.

We are now in the age of geoeconomics in which power moves through information technology, value chains, financial networks, and strategic industrial policy. The technological struggle for AI-supremacy between the US and China cannot be seen apart from this context.

These individual instances make clear why the problem is systemic rather than particular to the technology itself.

As the example of Sam Kriss’s essay shows, we are now gripped by a paranoid distrust of public knowledge production. What I have shown is that instead of directing our anger at the technology or the individuals who use it, we must direct our anger at the system that allows the unbridled marketization of these technologies. The profit of this expansion is privatized, the social, economic and environmental costs are publicized.

Almost a century ago already, Polanyi observed that the struggle to maintain one order unknowingly builds the foundations of its successor. The world built the internet to move instructions across borders and to control and influence consumption and production, and ended up building the data architecture that would train the machines. The temporary global freedom that prevailed was also the condition for the return of control we are seeing now, both domestically and internationally. But the construction of these systems of control also has huge potential if used for the right means, with the right institutional controls and limits in place, and in the right hands. Seeing as every single person is affected by this technology, the people of the world should demand democratic control over this technology that is currently in private hands.

For that, we must — regardless of religious affiliation — collectively turn to his holiness, the pope, as he is giving us the means to do so.

Papal Authority vs Everything’s computer

In the middle ages, the religious spirit clashed with the aristocratic sword. Kings and emperors held authority over physical territory, whereas the Church held spiritual authority over the minds of the people. While the subjects of rulers were divided over different jurisdictions, all souls were (relatively) united under the church. The pope was able to excommunicate rulers, interdict kingdoms, and mobilise crusades. Neither power could fully subordinate the other, and in that structural tension a space existed for moral claims that were not reducible to political or economic interest. Papal authority was, in effect, the only transnational regulatory authority of its age.

Today, we are seeing a similar clash emerge, not between state and church, but between corporation and church. But the corporation is a much more powerful adversary. The major tech and AI companies operate across every jurisdiction simultaneously, owning the infrastructure of knowledge, communication, and increasingly cognition, with resources that exceed those of many governments. States are in the position of medieval princes: powerful within their domains, but structurally unable to govern an entity that operates above and across them. This is exemplified by the enormous influence of corporations on the Trump administration, the Zeitgeist being symbolised well by the following clip:

As we arrive at the current day, it is important to recognize the symbolic parallels Pope Leo XIV draws to the past.

In 1891, Pope Leo XIII published an encyclical called Rerum Novarum which literally translates to “on new things.” His holiness had observed the human immiseration that resulted from industrial capitalism, while enriching another strata of society. 135 years later, Pope Leo XIV wrote an encyclical called Magnifica Humanitas which literally translates to “magnificent humanity”. One of the most important paragraphs of his holiness’s 40,000 word publication is the following:

150. Today, the convergence of automation, robotics and AI is rapidly transforming the very structure of work. It is said that this will bring great improvements for everyone. In reality, however, the “new ways” of working are not necessarily better, for “while AI promises to boost productivity by taking over mundane tasks, it frequently forces workers to adapt to the speed and demands of machines, rather than machines being designed to support those who work. As a result, contrary to the advertised benefits of AI, current approaches to technology can paradoxically de-skill workers, subject them to automated surveillance and relegate them to rigid and repetitive tasks. The need to keep up with the pace of technology can erode workers’ sense of agency and stifle the innovative abilities they are expected to bring to their work.” Precisely in order to avoid this drift, it is necessary to design systems that are centered on the human person and not solely on performance.

And this is why we can be certain that Pope Leo XIV has read ample theory and economic history, as his analysis is reminiscent of the analysis presented in the theoretical chapter of this essay.

We have to understand the significance of what the Pope is offering humanity with this encyclical. For countries with strong religious protections, he is providing workers with the legal cover to abstain from using AI for religious reasons. If you read between the lines of the encyclical, it is an effective soft-excommunication of the tech-oligarchs currently vying for supremacy of the United States government.

Peter Thiel, their antipope, is perhaps the epitome of this movement. A self-proclaimed libertarian, monopolist, anti-democrat, and transhumanist — aiming to “transcend” the human body, which in my opinion is the ultimate and final regression of the long historically progressive movement that is liberal capitalism. And here is where it gets almost too perfect to be true: Thiel has spent the last few years touring the world — from Oxford to San Francisco before arriving, of all places, in Rome — where in March he, ironically, lectured on the coming of the Antichrist.

His thesis, stripped of the eschatology, is this. The Antichrist will not arrive as a monster. He will arrive as a bureaucrat. A soothing, well-meaning administrator who offers humanity safety from nuclear war, from climate collapse, from runaway AI — and asks only for the end of what Thiel sarcastically calls “progress” in return. A one-world government of tax treaties, surveillance, and sanctions, promising peace at the price of freedom.

But when freedom is defined by the extremist wing of liberalism — right-libertarianism — the irony is clear, as shown throughout this essay. Economic freedom for the individual under a regime of unrestricted capitalism is in fact an extreme version of how Adam Smith defined the state: “Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have property against those who have none at all.” When scrutinising the right-libertarian argument one must understand that government is not an objective phenomenon, it is the structure which determines who in society gets to have influence over material reality. In that sense, a lack of rules is also a rule. And when that government serves the many instead of the few, in the mind of a billionaire, actual accountability sounds like absolute horror.

So what is the worst thing that could happen, the people who are the real problem according to Thiel? I challenge you to keep a straight face: people who worry about climate change, economic inequality, nuclear war — and those like me, who think AI progression might be going a little too rapidly — and who’d like global cooperation to deal with these issues. In Thiel’s version of the story, they are the unwitting foot soldiers of this regime.

And the thing that holds the Antichrist back, the katechon of Christian theology, is precisely what Thiel claims to be selling: unregulated, decentralised, localised technological power. And what is standing between us and this horrifying monster? Try not to laugh: tech-bros.

Thiel has told on himself. He is the arsonist in fireman’s clothes. Also, here’s a video where Thiel gets asked the question: “you would prefer the human race to endure, right?”

One does not have to be Freud to see the irony of a pathetic rich man looking in the mirror and seeing the ugly thing he has become, and reflecting it back onto the world.

A man builds his fortune on Palantir — a surveillance apparatus sold to militaries, border police, and intelligence agencies, an instrument of exactly the centralized control he warns against — and then takes the stage in Rome to cast himself as the shield protecting human freedom from the surveillance state. Catholic commentators have called it what it is: a self-serving heresy, a theology engineered to baptise deregulation as crusade and the tech-oligarch as the messiah.

And this, everyone, is why you shouldn’t bully the nerd in high school. Because a man who names his company after the all-seeing stones in Lord of the Rings does not tend to take defeat graciously.

His protégé, JD Vance — whom he has spent more than a decade preparing for a presidential takeover — has turned out to be a total failure of a politician. Nobody likes him. The US has been humiliated by Iran in a failed war, the consequences of which are bound to generate mass political instability and social upheaval. And across the country the mood has turned: people are rising against the data-centres spreading like cancer across their towns, draining their water and power without compensation. While the discontent that this essay has been circling has always been present, the data centre is the perfect symbol of its presence.

And now the pope has implicitly excommunicated him and his gang of mafia billionaires. Is it then a coincidence that he has decided to flee the United States to Argentina of all places, after having effectively attempted and almost succeeded in a techno-fascist coup d’état of the US government?

There is no clearer sign than now. It is time to act against the techno-oligarchs.

But this is not my call to make on my own. I need you, the reader, to weigh in. Writers, put your pens to paper. It is our societal duty to formulate a positive response to the current crisis of liberalism.

In that effort, be critical. Reject my argument if you think it is wrong. But please, stand united. Let us not divide humanity by focusing on individual applications of technology, when the problem is of systemic origin — and hence, requires a collective response.

Thank you for reading. This essay took me very long to write, and is the result of several years of study and reading. I enjoyed my time writing this. If it was worth yours, buying me a coffee would mean a lot. Also consider subscribing.

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A brief thought

Antonio Gramsci definitely had a good reason to be inexorable: he had been imprisoned by the Italian fascists, with the prosecutor noting that “We must stop this brain from working for 20 years.”

They did not succeed.

I used to be compassionate towards those who do not take sides — that is no longer the case. I even admire those who take a position against me, while I loathe the indifferent. Friction produces resolution. Passivity encourages inertia.

Indifference is either privilege or defeatism. I remember an Argentinian telling me that “Argentines [literally] can’t afford to not know about economics” — something that cannot be said about most of my fellow Europeans and midde-class Amercians.

But for them too, there is a catch — and an irony. The longer indifference is affordable, the more dangerous the moment it stops being so. A public that has never developed the habit of serious thinking doesn’t suddenly acquire good judgment when crisis forces its hand. When anger finally arrives without a moral framework to direct it, it becomes a lethal weapon, used precisely against those who’re enraged by their predicament.

Gramsci’s imprisonment by the Fascists is definite proof of that, as is the political situation in many countries on earth right now. But for that problem too, Gramsci had a solution: win the minds and hearts of people through what he called the war of position. He ran a newspaper in Turin called the L’Ordine Nuovo, aimed at workers in factories with the eventual goal of achieving he called hegemony.

With the spreading of information, he aimed to make an alternative worldview feel like common sense to those who had consented to their own subordination as though it were the natural order.

I am currently reading his Prison Notebooks, incredible to read.

P.S. Here are some affiliate links for that work: (US) (UK) (NL) (DE) (FR) (CA)

What I’m working on currently

The response to my Krugman piece and my Japan piece(s) have been overwhelming. Subscriber count up 700% in a few days, 17 paying subscribers at the time of writing, flattering emails (I will respond to all of them in due time!), and generous support on BuyMeACoffee. Thank you. It pushes me to keep writing.

A few things in the pipeline:

A Civilisation Worth Defending — an essay I originally wrote in Dutch on how Western society was quietly reshaped in the image of economic elites, sold to us as progress, and how that produced the disorder we see today. I’ll expand it here with an introductory piece on why economic theory is never just academic. In fact, it shapes material reality. I expect it around mid-June — though I’d rather be late and right than early and sloppy

Why the current AI-debate is Childish — I’ve been a bit fed up with the lack of orginality in the AI-debate, both on the side of its lovers and its detractors. Personally, I sit right in the middle. I’ll argue that what society is facing with this technology is fundamentally a political problem, and that a lot of energy is wasted in the debate at the moment — literally and figuratively. My ADHD-brain is currently most activated by this idea, so it’s coming relatively soon. Stay tuned.

European Industrial Policy — the EU caught between geopolitical pressures from all sides. I’ve interviewed two experts and am digging deeper before I write. It’s going to be a long story that will take some time, but is honestly undercovered.

Dollar Dominance and Crypto — how the US is weaponising cryptocurrency to reinforce the dollar’s global power. I wrote my Master’s thesis on this and I think it’s hugely undercovered. Except more of this over the coming half year.

I write freelance on the side to sustain myself, so Substack remains a labour of love for now. And as always, I’d love to hear your thoughts on any of the above.

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Before we head into the full transcript, a quick thank you to my subscribers, and my paid subscribers in particular:

Thank you. You motivate me to produce high quality content in my free time. There’s a few more pieces in the pipeline at the moment. My method of working is quality > quantity, but I aim to keep the quantity high as well, because the work I post here is the work I enjoy writing the most.

I aim to do more things for paid subscribers in the future as my supporter base grows. For now, I can give you the exclusive recording of this evening with Paul Krugman at Erasmus University. Please feel free to message me with ideas and requests, and I’ll see what I can do.

Introduction

Welcome here in the auditorium of Erasmus University, in a co-production of the Royal Dutch Economic Association, KBS, Studio General and David Dawes. Tonight we will try to make sense of the world around us. War is in Europe and the Middle East, sending shockwaves through the global economy – rising oil and gas prices driving inflation and the risk of recession. Trade wars are shaking up long-time alliances, and underlying all this, an ongoing shift in the global economic and political power balance. What is going on? And are we witnessing, at the backdrop of this world in crisis, the rise of a new economic order?

On this question tonight: in the first half, a public lecture by one of the leading economists in the world, Mr. Paul Krugman. After that, a panel discussion on sustainability, the role of global institutions and the future of Europe with Axel Erbahar, Alana O’Malley and Sandra Phlippen. And at approximately 8.30, after about an hour, we will open up the room for questions or remarks from you, the audience.

Just to get an idea of the crowd tonight – please raise your hands. How many economists are present? How many students – students of economics or econometrics specifically? Any politicians? And who among you has entered this venue in a state of worry, uncertainty, or even panic with regard to the state of the world?

Just for the record: our keynote speaker in the front row did not raise his hand. So he will explain to you why there is absolutely no reason to be afraid in these times of crisis. It is a pleasure to welcome to the stage a Nobel Prize-winning economist, a long-time New York Times columnist – officially retired, yet publishing more than ever on his extremely popular Substack. He taught at Princeton, at MIT, at Yale, and was a visiting professor at the Erasmus School of Economics here in Rotterdam. Please welcome Mr. Paul Krugman.

The World as It Seemed – 20 Years Ago

Thank you. It feels wrong to sit – so let me just stand here.

Let me admit from the beginning that I was a little concerned about having a lecture devoted to the “new economic order,” because I don’t see much order right now, and I’m not sure we’re going to have any order for quite a while. But in a way, that is my theme.

I find that when you’re trying to make sense of the present, it helps to step at least a little bit into the past. So let’s talk for a moment about the way the world seemed to many observers 20 years ago.

20 years ago was the high tide of globalization – the time when it seemed that the shrinking of distance and the integration of world economies was an unstoppable force. My former New York Times colleague Tom Friedman had an immense international bestseller titled The World Is Flat, capturing the perception that anything made anywhere could reach you very easily. That certainly captured the mood of the time.

If you really want to know the history of these things: world trade, as a share of the world economy, reached a peak in 1913. Then in 1914, something happened that rather put that on its back foot, and trade really didn’t recover to its 1913 levels until around 1980. But starting in the 1980s, there was an explosion of world trade to levels never seen before. And the numbers don’t tell the full story – the world became a single economy in a way it had never been before.

If you ask the question – where was this made? [holding up his phone] – the answer is genuinely complicated. The final assembly was probably China, the equipment likely India, and the various components come from something like 15 different countries. That is the kind of world we created.

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“I’m in a bit of a panic … even in purely economic terms,” says .

He isn’t panicking because Donald Trump called him a “lightweight thinker” and a “deranged bum”. In fact, Krugman thinks that it is “evidence that I am doing something right”.

He also isn’t panicking because, despite writing daily criticism of the US president, he does not yet consider himself a serious target for persecution. “Ask me in two-and-a-half years. Let’s not be hysterical yet,” he says soberly. He is, he reasons, “some ways down the list.”

One of the two reasons Krugman is panicking: “Six million barrels a day. That is the rate at which global oil stocks are currently running down.”

The Strait of Hormuz — through which roughly 20 million barrels of oil passed daily before Trump and Israel launched strikes on Iran — has been closed for 83 days. Brent crude is hovering around $106 a barrel. The price reflects jawboning (cough, market manipulation, cough) by the US government, massive injections from global reserves, and hope.

Even if the Strait reopens tomorrow, that hope is ignoring physical reality. Iranian strikes have torn through the Gulf’s energy backbone — oilfields and pipelines in Saudi Arabia, Qatar’s Ras Laffan, the world’s largest LNG complex. Repairs alone will take years.

“We don’t have much further to go before you hit the minimum operational level, which, according to the oil industry people I speak with, could arrive as early as next month. So we are heading for a very serious energy crisis — far more serious than what we’ve seen so far — unless something changes. And I don’t currently see a resolution to the war.”

As we speak, energy exports from the Western Hemisphere are surging at an unsustainable rate, with the US drawing down reserves to prop up global markets.

Chinese oil imports are plummeting — raising speculation about hidden reserves or a severe economic contraction. States are scrambling for supply: East Asia and Europe are outbidding less affluent buyers, leaving markets in Africa and South-East Asia dangerously undersupplied.

In the Philippines, where entire communities live and work on petrol-powered boats, ABN AMRO chief sustainability officer Sandra Phlippen calls it akin to a “pandemic lockdown”.

Krugman was speaking at Erasmus University Rotterdam on the evening of 19 May at a sold-out lecture organised by De Dépendance titled New Economic Order: Global Turbulence and Political Autocracy. He shared the stage with three panellists: Alanna O’Malley, professor of global governance at Erasmus; Aksel Erbahar, an international trade economist at the same institution; and Sandra Phlippen, ABN AMRO’s chief sustainability officer.

Nearly a thousand people had come to hear what one of the world’s most prominent economists made of a world that no longer resembles the one most of them grew up understanding.

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A theory descending from a different century

Krugman opened the evening by admitting he was uneasy about giving a lecture titled “new economic order” when, as he put it, “I don’t see much order right now, and I’m not sure we’re going to have any order for quite a while.”

From there he walked the room back through a century of globalisation: its first peak in 1913, the seventy-year collapse that followed, and the explosion of cross-border trade after 1980 that produced the world Tom Friedman famously called flat.

Krugman held up his phone. “Where was this made?” The answer, he said, involves about 15 countries. That is the world we built.

What collapsed it, was not what economists feared. Fifteen years ago he would have warned about a 1930s-style protectionist spiral, or the destabilising rise of China.

Instead, the international economic order is disintegrating because the country that built and enforced it has lost the will to do so. “What we had,” he said, “was one man who wanted to impose tariffs, one man who hated the international economic order. And the US political system, as it has evolved, empowers that one man to do essentially what he wants.”

It is compelling, especially for progressives like me to think this way, but slightly ungenerous. Trump did not create the grievances that elected him: the stagnant wages, the hollowed-out communities, the sense that the globalisation Krugman championed had worked out rather better for some than others. Democrats bear real responsibility for that too. He is more symptom than cause, and the same, I would argue, is true in Europe, though that is a case for another essay.

“The United States, not just the international economic order, but its domestic political order, turns out to be far more fragile than we realised.” That much is undeniable.

His framework for understanding all of this is inherited. Krugman is intellectually descended from Charles Kindleberger, a foundational figure in international political economy, who argued in The World in Depression (1973) that the 1930s catastrophe happened because no single power would provide the public goods an open world economy depends on. Britain could no longer; the US was not yet willing; and the system collapsed for want of a stabiliser. That is the lineage Krugman is working in when he says the Pax Americana is unwinding. It remains a useful frame, but one built for a world of tariffs, gold reserves, and gunboats.

The phone he held up belongs to a different kind of world. Fifteen years ago, the economists watching for systemic risk were watching the wrong things: protectionist spirals, currency runs, the destabilising rise of China. What arrived instead moved through semiconductors, strategic industrial policy, supply chains, dollar clearing systems, and undersea cables. Infrastructure the discipline had spent decades not modelling. Krugman himself admitted as much; he had not seen this coming. The framework was not wrong so much as it was looking at the 20th century while the 21st went past.

This is precisely what political scientists Henry Farrell and Abraham Newman theorised in their concept of weaponised interdependence, the use of privileged positions in global networks for coercion. When I interviewed them in Helsinki last August, Farrell described the EU as “a prehistoric fish with gills in a world that demands lungs.”

Such analysis demands integrating domains that no single discipline yet fully connects, though as a graduate of international relations specialising in global political economy, I would like to think mine comes closest. But then, I would think that, wouldn’t I?

The person in the room who came closest to attempting that integration was not one of the senior economists in the front rows, but a young student who had grown up inside this turbulence rather than during the Great Moderation.

Is US energy-strategy deliberate?

She introduced herself, self-deprecatingly, as “just a student, and not in economics either”, in contrast to the confident assertions that had passed for questions from the men in the room.

Her question was, in my opinion, intuitively the sharpest of the night: had the US deliberately escalated the conflict with Iran, knowing it could lean on Venezuelan oil while Europe and Asia could not?

Krugman was dismissive. Venezuelan production is less than two million barrels a day, the oil has the consistency of “cold peanut butter,” and anyone who thought it could replace the Persian Gulf would be “really, really stupid.” He had served in the Reagan administration, he added. Having seen US government decision-making from the inside, strategy was not what he observed.

Krugman is right about the chemistry. Venezuelan heavy sour can’t replace Gulf grades, and the volumes are trivial. The student’s framing invited that dismissal by naming Venezuela specifically. But the intuition underneath her question is the one worth taking seriously, and it doesn’t depend on Venezuela at all.

Here’s where I disagree with Krugman, and where I think analysts more generally suffer from affective polarization. People tend to dismiss the Trump administration as nutjobs who have no idea what they are doing — and while that might be true for some members, people like Marco Rubio and Scott Bessent pack a serious intellectual punch, no matter if you disagree with the moral framework that occupies their grey matter.

Krugman’s Reagan-era experience may also be the wrong reference point. Had he instead drawn on the Nixon years — on whose cabinet serious and equally ruthless strategists like Kissinger resided — his answer might have looked rather different.

It is not difficult to see similarities between Nixon and Trump. History does indeed repeat itself, first as tragedy, and second as farce.

Both Trump and Nixon were concerned with burgeoning trade imbalances, and sought to reorder the dollar-system to the US’s geopolitical advantage. Nixon’s administration did so by ending the gold standard and encouraging the opening of global capital flows. Trump did so by redollarizing the world through cryptomarkets and stablecoins, something I will be writing a piece on in the future.

And lastly, both gave up on reducing the trade deficit and instead chose to lean into it.

Nixon himself had little patience for economic technicalities. In March 1970, he told his chief of staff he did not want to be bothered with international monetary matters and would not need to see the reports on them in future. Martin Daunton, in his 1,024-page epic history of the global economy from 1933 to 2023, notes that the chairman of his Council of Economic Advisers concluded Nixon “may even have had an almost psychological block about economics,” which he approached much like a reluctant schoolboy doing required lessons.

He delegated to advisers he held in barely concealed contempt, his overriding concern being domestic: protect employment, win over blue-collar workers. When international monetary reform threatened that, his administration retreated into what Charles Coombs — a senior Federal Reserve official at the time — described as “aggrieved acceptance of whatever the future held in store.”

But that presidential indifference coexisted with enormous strategic cunning elsewhere in the administration — and the outcomes, as political economist V.H. Oppenheim would later argue, were anything but accidental.

Writing in Foreign Policy in the winter of 1976-77, Oppenheim made a provocative case: Washington had not merely failed to prevent the 1973 oil shock, but had actively helped bring it about.

When James Akins — the US Ambassador to Saudi Arabia — testified before congress, he claimed that when the Saudis approached the Shah in 1975 to push for lower prices, the Iranians said Kissinger had made clear that Washington “understood Iran’s desire for higher oil prices.”

Akins was removed from his post shortly after, following disputes with Kissinger.

Then, in 2016, Bloomberg obtained a declassified diplomatic cable from the National Archives that filled in another piece of the picture: a secret arrangement, struck in 1974, in which Saudi Arabia agreed to recycle its oil windfall into US Treasuries in exchange for American military aid and equipment.

US policy in the early 1970s tolerated and may even have encouraged higher oil prices. This was a way to kneecap European and Japanese competitors while increasing Washington’s influence with the Arab states, and more broadly, help restructure the global monetary system towards open capital flows.

I have discussed this piece of US geoeconomic statecraft more extensively in this piece:

Grand-strategy or chaos, the result is the same

But whether Krugman’s speculation is correct, or mine is — whether the current crisis is by grand-strategy or chaos (or most likely, a combination of both), the result is the same: the world is splitting into petrostates and electrostates, and decarbonization is gaining geopolitical imperatives.

ABN AMRO’s Sandra Phlippen notes Spain and Italy as exemplary cases. Spain has roughly half Italy’s exposure to gas prices. This is why in her reading Madrid can afford to pick fights with Moscow and Washington in ways that Rome simply cannot.

But she dislikes the word “chaos”. While we focus on acute crises, the real damage, she argues, is always the slow drama you don’t see in the headlines. As with Brexit, where the “cliff-edge collapse in GDP” never came, but the divergence with the European mainland became undeniable over time.

What her risk department at ABN AMRO is watching — she is careful about how much she can say — involves scenarios that are not base cases but are no longer implausible. Real physical shortages arriving before the summer ends, markets beginning to price the bottom of deployable global reserves. “Nobody knows what kind of panic that would trigger,” she says. “And I don’t think we’ve seen anything yet.”

Around 80 percent of the oil transiting Hormuz was destined for Asia. The shortages there are already realities, not hypothetical. In Australia, secondhand EV sales are surging on a weekly basis, a tipping point potentially arriving not by policy but by price. EV, solar and battery costs have fallen up to 99 percent in a decade. There is, she says, a lot still on the table.

Goldman Sachs has warned that Brent will average above $100 a barrel through 2026 if the Strait remains closed for even another month. And even a ceasefire would not reset the clock: infrastructure damage across the Gulf takes years to repair, inventories need replenishing rather than merely stabilising, and markets have absorbed one lesson they will not unlearn. Iran controls the strait.

But oil was not the only thing Krugman was panicking about.

The two-and-a-half year timeline Krugman put out wasn’t a joke: “The chance that the United States will no longer be a functioning democracy five years from now is quite large. Not the most likely scenario, but no longer unthinkable. It is very clear that we are genuinely at risk of losing everything that defines us as a country. That would have been an outlandish thing to say not very long ago. Now it is not.

In a very Kindlebergean fashion, Krugman notes that “we do not have a hegemonic superpower. The United States is no longer powerful enough — or willing enough — to play that role alone,” echoing the words of his late teacher:

“For the world economy to be stabilized, there has to be a stabilizer—one stabilizer. [...] The world economic system was unstable unless some country stabilized it, as Britain had done in the nineteenth century and up to 1913. In 1929, the British couldn’t and the United States wouldn’t.”

— Charles P. Kindleberger (1973), The World in Depression, 1929-1939

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Krugman understandably wants to end on an optimistic beat, noting that there are not one but three economic superpowers in the world: “the United States, China — which is looking stronger by the day, given what’s happening — and the European Union, which is basically their equal.”

“The EU, in terms of economic size, political stability, and institutional capacity, is a match for either the United States or China. And if we ask who will ultimately keep global commerce safe in the years ahead — once we get past the current crisis in the Persian Gulf — well, the United States, I’m not sure. But does the EU have the capacity? Actually, yeah. So in a strange way, the future of the world economic order — whether there is any kind of order at all — depends a great deal on what happens in Europe. Will Europe rise to that challenge? I have no idea. But I am hopeful.”

Krugman is right that Europe is probably the last real chance to reinvigorate something resembling a liberal world order. But where Krugman is hopeful, I would borrow Gramsci instead: pessimism of the intellect, optimism of the will. Europe does not rise to the challenge merely by completing the single market, issuing eurobonds, and unblocking the Common Foreign and Security Policy. The task is more herculean than that. It requires a transformation that is harder to legislate than any of those reforms: a continent that has spent eighty years outsourcing its security, its strategic thinking, and much of its sense of historical agency learning to reclaim those instincts. And it requires something deeper still: a new social contract, a civilisation worth defending, in which European citizens feel ownership over the order being built rather than merely receiving its bill in the form of austerity.

That is precisely why it matters that the call is coming from someone like Krugman. A Nobel laureate, an American, an architect of the order now unraveling, standing in Rotterdam to tell Europeans that they are not bystanders. That they are, in fact, an equal of the United States and China, and that the world may need them to behave like it. Europeans are unaccustomed to hearing this and tend to discount it when they do.

Speaking for myself, and I suspect for many other Europeans in that room: it is something we are genuinely grateful for. Mr. Krugman, if you are reading this, thank you. We need more outsiders, and more insiders, willing to tell us to get our shit together.

More on what that actually requires — and why I think the real fight for Europe is happening inside our own heads rather than in Brussels or on the battlefield — in my next piece.

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Thank you for reading. This production in particular cost me money to make, and quite some time and effort. I purchased a professional microphone to record this lecture. I expended significant effort transcribing, getting the data for the charts, and polishing the writing. I write this between deadlines, on my own time, without pay. If it was worth yours, buying me a coffee would mean a lot. Also consider subscribing.

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Edit: I wanted to make clear I added a brief argument about the fact that Krugman is right about the chemical compostion of Venezuelan oil.

A note before we begin.

Welcome to the roughly 110 of you who subscribed after Michael Pettis reposted my piece on Japan on X. I’m grateful you’re here. The piece below is, I think, a natural follow-on: Mark Blyth and Pettis share a structural account of how surplus countries shape the macroeconomic order.

Mark Blyth is a professor of political economy at Brown University. His book Austerity: The History of a Dangerous Idea — winner of the American Political Science Association’s Best Book in Political Economy and the Paul A. Samuelson Award — is a natural companion to Pettis: sharp, funny, and one of the few economics books that makes you angry in a productive way. More than a decade after publication, its central argument — that cutting public spending during downturns deepens the downturn — keeps being vindicated, mostly because policymakers keep ignoring it.

For a more advanced treatment of the domestic coalitions that sustain global surpluses and deficits, Diminishing Returns: The New Politics of Growth and Stagnation is where Blyth goes deeper on the structural politics behind the models.

And if you’re not sure who Pettis is, read his book Trade Wars are Class Wars. It’s the best entry point into understanding why the contemporary global trading system is organised the way it is, and who benefits from keeping it that way.

It is also widely read by policymakers, including in the Trump administration.

Fifteen months later: a quick scorecard

This interview was conducted on 11 February 2025 and originally published in Dutch. This is the first time the 10k word interview has been converted to a readable English version. Unfortunately, the content is as relevant as ever. I’ve updated it where events have moved on.

The Draghi report, which Blyth called Europe’s obvious blueprint, has had only 15.1 percent of its recommendations fully implemented.

At the one-year conference, Draghi himself said every challenge he had identified had worsened.

Germany is the partial exception, but nowhere near satisfactory.

Merz pushed through a €500 billion infrastructure fund in March 2025, breaking with the debt brake he had campaigned to defend. But by early 2026, the ifo institute was reporting that 95 percent of the new debt earmarked for 2025 had been used to plug regular budget gaps rather than fund net new investment.

A hollowed-out state can’t just decide to invest at scale overnight, which is precisely what Blyth would have predicted.

On to the interview.

The mechanics of self-harm

I start where most readers will: with the standard finance-minister script.

Growth is slow, revenue is down, so spending must be cut.

In the Netherlands, where I’m based and where this script is delivered with particular conviction, the Liberal finance minister had spent the year before our conversation insisting that low growth necessitates austerity, and that deficits leave bills for future generations.

It’s the same script you’ll hear in Berlin, London, Brussels, and depending on whether you follow rhetoric or action, Washington.

“They keep doing it,” he sighs when I tell him the book is, depressingly, still relevant.

Blyth has heard it a thousand times.

“Start with the basics. When you’re in recessionary or quasi-recessionary conditions, and the government spends around 40 percent of GDP, significant cuts produce two predictable outcomes.

“First, your debt stock increases due to the denominator effect. GDP shrinks, so the same amount of debt becomes a larger share of the economy. Then you say, ‘Oh no, look at all that debt, we need more cuts,’ and you spiral further.

“Cutting spending during a recession effectively creates the recession. That worsens the deficit because less tax revenue comes in. Then policymakers point to the deficit and call for more cuts. They lock themselves into a cycle of self-harm. This happens every time.”

This is the canonical Blyth point, and it has the slightly tedious quality of a conclusion that has been demonstrated empirically many times — the post-2010 eurozone, post-2010 UK, the IMF’s own internal revision of fiscal multiplier estimates — and yet keeps having to be re-demonstrated, because the political economy of who benefits from the script keeps reproducing it.

The euro as a straitjacket

There is, Blyth concedes, a kernel of something real beneath the bad arguments, at least in Europe, and you don’t need to be a Modern Monetary Theorist to see it.

“If you get to print the cash, you can never go bankrupt, because you can just say, ‘how much cash do you want?’ That shows up in devaluation, in falling asset prices if foreigners lose faith, but ultimately you can offset it. Your deficit is a fiscal control valve rather than a death trap.”

The euro removed that valve by design.

The upside was scale, lower volatility, and imported German monetary credibility.

The downside was that when everyone’s trading partners simultaneously decide to save by cutting deficits, the whole bloc manufactures its own stagnation — which is, more or less, the story of the past decade.

“Look at Europe over the past ten years. Many economies have basically failed to grow. Surprisingly the periphery, particularly Spain, has done the best, because they had more room to grow and benefited from immigration, which powers growth. An economy is nothing more than the number of people, the number of hours worked, and the quality and quantity of capital. Spain grew through people. Everybody else stagnated.”

The corollary is uncomfortable for the surplus-country consensus: the periphery wasn’t bailed out by core austerity discipline; it grew despite it, on factors — demographic absorption, productive capital, hours worked — that have nothing to do with the deficit-cutting morality play.

The export model and its discontents

This is the part of the argument that readers of Pettis will recognise immediately. The Dutch and German preference for austerity isn’t a cultural quirk or a Calvinist hangover. It’s a structural feature of the growth model.

“When you’re set up as an export platform, you care about two things. First, an undervalued exchange rate — which you get by being in a currency union with lower-productivity countries. Second, you suppress consumption and wages to maintain cost competitiveness. You achieve that through fiscal retrenchment, through trade unions that know pushing wages too high might move jobs elsewhere.”

“In this context, austerity is baked in. If wages rise and people spend more, you lose cost competitiveness. A BMW that costs $20,000 might now cost $25,000, and you lose your export edge.”

The follow-up I wanted to test was the explicitly Pettis-style framing: are these policies beggar-thy-neighbour?

Blyth responds: “I don’t think finance ministers wake up and say, ‘Let’s screw the French.’ But the effect is the same. In a currency union, if one country runs an external surplus, someone else must run an internal deficit. Initially the euro allowed balancing through varied growth models — France and Italy on consumption-led growth and higher deficits, the UK on financialisation. Since the 2012 reforms to the Stability and Growth Pact, everyone has been pushed toward export-led growth. Domestic consumption is now suppressed across the union. It’s not strategy. It’s outcome.”

The distinction matters less than it might seem. From the perspective of the deficit country on the other side of the imbalance, the question of whether the suppression of German and Dutch demand was intended to suppress French and Italian growth is academic. The growth got suppressed either way.

Milei, or: when does austerity actually “work”?

I asked whether any case had made him reconsider his hostility to austerity. He surprised me.

“Milei is genuinely interesting. I never thought it would be possible, but it actually works, for a specific reason. Argentina wasn’t in a recession. It was in an inflationary death trap and had been forever.”

In Argentina, the richest 20% had dollar accounts. So when the peso tanked, they simply bought more with their dollars. Trade unions were equally insulated: wages indexed, costs covered by the government. The Peronist settlement, in other words, worked fine if you were inside it. But more and more Argentines were neither in the dollar-account class nor in the Peronist coalition, just facing “impossible losses in their purchasing power, month after month, year after year.”

“What Milei said was: ‘This is just all the crap that we’ve got here’, whether it’s the middlemen at every level of the economy, whether it’s the fiscal profligacy of the government. None of this has to be true. It just has to be convincing.”

He built what Blyth calls a deflationary coalition: a third of the poor, a third of the middle class, a third of the rich, all united by the shared conviction that killing inflation would make their assets and purchasing power better. And as a side effect, it destroyed the cronies’ network entirely.

The results: poverty above 50%, brutal cuts to public expenditure, a shrinking deficit, positive growth, collapsing inflation.

“What he’s shown is that when you’re not in the European situation — where the problem is essentially a manufactured micro-recession — but in a genuine inflationary crisis, you can burst it. High interest rates, spending cuts, and people willing to absorb the pain because they hate inflation more than they hate deficits. I didn’t think it was possible. We need to acknowledge it.”

The framing he insists on is crucial: “He’s not cutting budgets in a recession. He’s cutting budgets in an inflationary period. The effect and the goals are massively different.”

Whether Argentina’s strategy is sustainable, whether the promised investment shows up before the coalition exhausts itself, remains an open question fifteen months on. Inflation has continued to fall through 2025 and into 2026; poverty has begun retreating from its peak; the Milei coalition’s electoral durability is the next test.

The deeper point, and the one I want readers to sit with, is this:

“Who is benefiting and who is losing. That’s really what matters.”

This is, in two sentences, the entire methodological commitment of political economy as a discipline. It’s also the question that the technocratic vocabulary of optimal management is engineered to bracket.

European governance: the unfinished project

On the Stability and Growth Pact, Blyth quotes Romano Prodi, the former Italian prime minister: “The stupidity pact is stable.”

Prodi also gave him a metaphor he loves. “He said: think of Europe like a Vespa. Two-stroke engine. One piston Germany, one piston France. When one went up, the other went down, and it powered Europe. Then you needed more cylinders.”

The Kohl–Mitterrand generation, scarred by the war, saw monetary union as a prelude to political union. “Then Merkel switches. Blair shows up, very transactional. Chirac in France. You get a generational shift — the people who came out of World War II replaced by post-boomers. ‘Globalisation, let’s do this, whatever.’ The whole impetus for political union, federalism, fiscal union just died because the people who took up the reins didn’t care enough to finish the project.”

The euro was supposed to be a beginning. “But nope. Sorry, that’s the end, and that’s going to be your doom.”

This is the diagnosis that makes the Draghi-report scorecard so painful. Draghi’s recommendations — common debt for common projects, completion of the capital markets union, strategic autonomy taken seriously — are exactly the federalising moves the original architects of the euro assumed would eventually have to be made. Fifteen months in, with one in ten recommendations delivered, the project remains exactly as unfinished as Blyth described it.

Why nothing changes

If you had dictatorial powers over EU economic governance, I asked, what would you do?

“First, I wouldn’t give myself the job. Or anyone.”

“Let’s talk about the big problems. The United States doesn’t care about you anymore. You’ve got zero security provided by yourselves. You’re 27 countries with 27 agendas, and you all think China’s coming to eat your lunch — when in fact China might be the last trading partner you have, because the Americans are about to tariff the hell out of you. Economic governance is way down the list.”

This was February 2025. By August, the EU had signed exactly the asymmetric trade arrangement with the Trump administration that Blyth’s framing implies: hundreds of billions in committed US energy and chip purchases, with European leverage roughly where he said it was — minimal.

“The institutions Europe built in the 1990s were based on a fantasy. A world where history doesn’t matter and tomorrow looks like today. Why 3% deficits? It sounded nice. Why 60% debt-to-GDP? Could’ve been 40 or 80. Then the financial crisis blew that world up. Central banks reversed their mandates, flooded markets, put everything on life support. You got loose money and tight fiscal, not enough to sustain growth. The ECB stayed too tight even after Draghi. Fiscal policy didn’t fill the gap because exporters dominate governance, and exporters don’t do fiscal expansion.”

His prescription, broadly: the surplus countries need to rebalance toward domestic consumption. Debt mutualisation. Confront the fact that “the Netherlands is essentially a giant tax haven, parasitic on others. Germany makes cars nobody wants anymore, and their solution is another round of structural reforms. Good luck with that.”

The Draghi report, he says, nailed it. “Just read it. He’s 100% right. Chance of European governments actually doing it? About the same as me becoming the next Pope.”

Why? “Because the top 20% in places like the Netherlands, the ones making decisions, are fine. They don’t want to rock the boat.”

Populism is the symptom

“It sounds like we’re sleepwalking into a slow economic death,” I said.

“That’s exactly what’s happening,” responds Blyth. “Populism, right or left, is the reaction. Twenty to thirty percent of voters in every major European country are saying ‘burn it all down.’ They don’t believe the elites anymore. Their communities and lives have gotten worse while the top gets richer. And frankly, they’re not wrong.”

The historical link he draws is direct. Imperial Japan: “Largest austerity programme in human history at that point. A third of GDP out in budget cuts. The economy collapses, they turn on the military, the military eventually cuts everyone’s head off, and off we go to imperial expansion.”

Weimar Germany: “Everyone tells you it was the inflation. The inflation was over by 1923. Hitler wasn’t in power for ten years. What killed Weimar was 1929 onward: tightening, cutting, tightening, cutting, mass unemployment. It had nothing to do with inflation. But it’s a good story, and it tells us we should care about inflation. Why? Because inflation hits financial assets. That’s why the people who own them don’t like it.”

A statistic he likes citing: a UMass Amherst paper estimating that US carbon majors in 2022 made $220 billion in excess profits, 51% of which went straight to the top 1% of Americans. The ECB later found that around 40% of European inflation in 2023 was driven by firms hiking prices because they could. “I’m not outraged. If I owned a firm I’d do it too. It’s called capitalism.”

The point isn’t that inflation is good, it does hit the poor hardest, as Blyth acknowledges. The point is that the political economy of who cares about which macroeconomic problem, and how intensely, tracks pretty cleanly to who owns financial assets. That’s not a moral failing. It’s the model behaving as designed.

The household fallacy

I asked him, finally, how to explain to ordinary Dutch and German voters — proud of their frugality, intuitively convinced the state is just a big household — that this analogy is wrong.

His answer was three sentences.

“Do you get to issue long-term liabilities denominated in the name of the family, with secondary markets? No. Do you get to print the thing you pay your bills with? No. Start there.”

What we can’t quite see

The conversation closed where it had to: with the question of how anyone — economist, voter, journalist — is supposed to figure out what’s true when the technocratic vocabulary has absorbed all the political questions.

“We’ve turned political questions about distribution into technical questions of optimal management. ‘Don’t worry, the central banks have got this. There’s a perfect interest rate that’ll bring the whole economy into balance, if only we can find it.’ The people who say this don’t even believe it themselves.”

“Europe has basically decided it can’t do anything and shouldn’t do anything. The rules say they can’t, and they shouldn’t. Anyone who says otherwise is obviously talking nonsense. Let’s have another round of cuts. That’s where they’re at.”

The rules, in his telling, are a shortcut for thinking. They smuggle a set of beliefs about how economies work — monetary neutrality, real rates, equilibrium — into the everyday vocabulary of fiscal policy, and once they’re there, the question of whether those beliefs are true never quite gets asked.

“At the end of the day, their house is still worth 800,000 euros.”

The full transcript of this conversation — roughly four times the length, with longer detours on Japan, Weimar, greedflation, and the limits of paradigm critique — is to be read here.

I am currently working on a piece that explains how theory is more fundamental to the way we understand the economy than most people realize, and how that in turn affects the economy. Stay tuned!

Thank you for reading. I write this between deadlines, on my own time, without pay. If it was worth yours, buying me a coffee would mean a lot. Also consider subscribing.

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Japan spent forty years running an export-led growth model that suppressed household consumption, channelled savings into industrial conglomerates through a tightly controlled banking system, and held the yen below its market value. The model worked spectacularly until the 1985 Plaza Accord forced a sharp yen appreciation, to which Tokyo responded with monetary easing that produced the largest asset bubble in modern history. When it burst in 1990, Japanese corporations spent two decades paying down debt rather than investing. The government borrowed to fill the gap, and has been borrowing ever since. Public debt now stands above 250 percent of GDP. The Bank of Japan spent twenty-five years inventing unconventional monetary tools such as zero rates, quantitative easing, negative rates and yield curve control, to fight a deflationary trap that turned out to be structural rather than monetary.

Underneath all this, two slow erosions went unaddressed: a demographic collapse shrinking the tax base while expanding pension obligations, and the displacement of Japan’s automotive sector by Chinese electric vehicle manufacturers. Both were knowable. Both were known. Both were treated as problems to be managed rather than confronted, on the implicit assumption that the global environment would remain stable enough to absorb the slow loss of competitiveness.

In March 2026, the global environment stopped being stable.

Before we head into that discussion, let’s look at the historical precedent that makes Japanese markets so relevant for global financial markets, and how the yen carry trade caused global spillovers that could reoccur today on a larger scale.

The yen carry trade — a free money glitch

Around the early 2010s, traders began to notice something that looked suspiciously like a free money glitch in the global financial system. You could borrow in yen at near-zero interest rates, convert the proceeds to dollars or pesos or Australian dollars, and invest in literally anything that yielded more than nothing — US Treasuries, the Mexican peso, Brazilian local-currency debt, US tech stocks, emerging-market high-yield bonds. The differential alone was profit. And as long as the yen kept weakening, it was easy sailing. What could go wrong?

For more than a decade, the answer was: nothing. The yen carry trade became one of the great quiet engines of the post-2010 bull market. Cheap Japanese funding flowed into US technology stocks, into emerging market currencies, into private credit, into anything with a yield. Estimates of its size vary wildly depending on what you count, and we’ll come back to the numbers later. What matters first is what happened when the trade reversed.

On 31 July 2024, the Bank of Japan delivered a surprise rate hike — only its second since 2007. Two days later, a weak US payrolls report sent the dollar sharply lower against the yen. The carry trade went into reverse. On 5 August 2024, the Nikkei fell 12.4% — its worst single day since 1987. The TOPIX dropped 12%. The VIX spiked to pandemic-era levels. UBS estimated that roughly $200 billion of dollar-yen carry positions had been unwound in a matter of days. The Mexican peso, the highest-beta carry-trade beneficiary, was crushed. So was the Nasdaq. Within a week, JPMorgan estimated that 75% of the broader trade had been eliminated.

The episode was a warning shot. Markets recovered. The trade was rebuilt. But everyone who had to live through it knew the architecture was still there, just waiting.

The shock — a closed Strait of Hormuz

If August 2024 tested the financial fragility of the carry trade architecture, March 2026 tested the physical foundations of the Japanese economy itself.

Japan imports 60 percent of its calories and 90 percent of its oil and gas. It is, structurally, the most exposed major economy to a commodity supply shock. On 4 March 2026, that shock arrived. After failed nuclear negotiations, an Israeli-American strike that killed Iran’s Supreme Leader, and the collapse of multiple ceasefires, Iran declared the Strait of Hormuz closed. The International Energy Agency’s Executive Director Fatih Birol called the disruption the largest supply disruption in the history of the global oil market. Brent crude finished April more than 55 percent above its pre-conflict levels, with physical cargoes briefly trading near $150 per barrel — far above futures, an indication of genuine physical scarcity.

Roughly 70 percent of Japan’s crude imports transit the Strait. Around 10 percent of its liquefied natural gas comes through Qatar, which is also exposed. One Japanese economist, cited in Nippon.com, estimated that the country’s trade deficit could balloon from ¥1.7 trillion in fiscal year 2025 to as much as ¥15 trillion in 2026 if the closure persists — a near-tenfold deterioration that mechanically pressures the currency.

The shock arrived on top of a bond market that had already been deteriorating for three years. Japanese government bond yields had been rising steadily since the BoJ began unwinding yield curve control — its policy, in place since 2016, of committing to buy unlimited quantities of Japanese government bonds to pin the ten-year yield near zero. The central bank had, in effect, declared that the price of long-term Japanese debt would be whatever it said it would be. That declaration was withdrawn over 2023 and 2024, and the yields have been moving ever since. By May 2026, the ten-year JGB yielded 2.5 percent, the highest since 1997. The thirty-year touched 3.91 percent in January, and the forty-year hit a record 4.21 percent. None of these are catastrophic by international standards. They are catastrophic by Japanese standards, where the entire fiscal architecture of the state was built on the assumption that long-term borrowing would remain near zero.

The political trigger for the most recent leg up was Sanae Takaichi, who became prime minister in October 2025 and won a parliamentary supermajority in February 2026. Takaichi campaigned, and has governed, on a programme of aggressive fiscal expansion — a record ¥122 trillion budget for fiscal year 2026, a ¥21 trillion supplementary stimulus package, and a proposal to suspend the 8 percent consumption tax on food. Each announcement has produced a JGB selloff. The bond market is, for the first time in decades, refusing to absorb new fiscal commitments without demanding compensation.

Headline inflation looks deceptively contained. National CPI ran at 3.6 percent in March 2026, with core (excluding fresh food) at 3.2 percent. But the headline figure is being held down by aggressive government subsidies on electricity and gas. Strip those out and the underlying rate is considerably higher. Takaichi’s fiscal accommodation is, in effect, papering over the inflation print — and paying for the cover-up by widening the deficit, which feeds the bond market’s anxiety.

What makes the 2026 shock different from earlier Japanese inflation episodes is the company it keeps. Three years of meaningful wage growth (Rengo’s 2026 spring tally landed at 5.26 percent headline, 3.85 percent in base pay), inflation expectations decisively unanchored (83 percent of households now expect higher prices over the next year), real interest rates of nearly minus two percent, a structurally weak yen amplifying every imported price, and a government pouring on fiscal fuel — all at once. This is the closest Japan has come to genuine wage-price spiral conditions in thirty-five years.

The currency, predictably, is reflecting all of this. USD/JPY hit 160.7 on 30 April, prompting the Ministry of Finance to spend ¥5.48 trillion (roughly $35 billion) in a single intervention — the largest since July 2024. A second wave during the Golden Week holidays brought the total intervention spending to roughly ¥10 trillion ($63.6 billion) over two weeks, briefly pushing the rate from 160 back to 155. Markets read the intervention level as having migrated downward from 162 to 157, a sign of declining tolerance, not of strength.

A trilemma with three losers

The contradiction at the heart of Tokyo’s predicament can be stated as a trilemma. Three goals, only two of which can be pursued at once. The third has to give way.

Corner 1: keep government borrowing costs low.

For more than a decade, the Bank of Japan has held long-term bond yields close to zero by the simple expedient of buying whatever the market wouldn’t absorb. With public debt at roughly 250 percent of GDP, this is non-negotiable A move from 1 to 3 percent on a ten-year bond would burn through a meaningful share of government revenue in additional interest payments alone. Every domestic institution holding those bonds — banks, pension funds, life insurers, the postal savings system — has a direct interest in this corner holding. And since those institutions are themselves managing ordinary people’s savings, the exposure is ultimately household exposure, hidden inside institutional balance sheets where it never shows up on a personal statement.

There’s a complication that makes the situation worse, not better. The headline number commentators cite — that the average maturity of outstanding Japanese debt is around 9.5 years — suggests a long fuse before higher yields show up in the budget.

In reality, the Ministry of Finance has been quietly shortening that fuse since 2023, increasing issuance of short-term bills and five-year bonds where domestic bank demand is strongest, and cutting issuance of thirty- and forty-year bonds where life insurer demand has collapsed. This is not a Japanese peculiarity. The US Treasury, the UK Debt Management Office, and most European finance ministries have done variations of the same thing over the past three years, as global appetite for long-duration sovereign debt has thinned. The collective effect is that every major government is now more sensitive to short-term interest rates than it was five years ago. Japan happens to be furthest along this curve.

Corner 2: defend the yen.

A weakening yen feeds the calorie and energy dependence we just described straight into household bills — which is why this corner is ultimately about protecting households from imported inflation. To defend the currency, the central bank can either raise rates, which makes yen savings more attractive, or sell its dollar reserves to buy yen. Intervention without rate hikes has a track record: it slows the slide for a few weeks and then runs out.

Corner 3: Sanae Takaichi’s fiscal programme.

Any deficit has to be financed by issuing new bonds. A flood of new bonds normally pushes yields up — unless someone steps in to swallow them. This corner is what Takaichi was elected to deliver, and it is the one with the most direct democratic mandate.

Now watch what happens when you try to hold all three at once.

1. Suppress yields and run the spending programme. The new bonds get bought by the central bank, paid for in printed yen. The yen weakens. Corner 2 falls.

2. Defend the yen and run the spending programme. Higher rates drag bond yields up across the board, and the new bonds keep arriving. Yields rise, interest costs explode. Corner 1 falls.

3. Suppress yields and defend the yen. Either the central bank prints yen to absorb the bonds (breaking the yen defence) or yields are allowed to rise (breaking the cap). The only escape is to stop issuing new debt — which means austerity. Corner 3 falls, and Takaichi’s mandate falls with it.

The hidden loss has two forms. Hold yields below inflation and the real value of savings erodes, year after year. Let yields rise and the bonds themselves lose value, because bond prices fall when yields rise. Domestic ownership of public debt is functionally a wealth tax on Japanese savers, administered through the central bank rather than the legislature. Corner 1 protects them from the sudden version of the loss. Corner 2 protects them from the slow version. Tokyo cannot deliver both.

What the Japanese state is currently doing is attempting all three corners half-heartedly, which is precisely why the bond market and the currency are stressed at the same time. Yield caps transfer the fiscal stress onto the currency.

The performance of calm

By Wednesday, May 13, the ten-year JGB yield had extended its rise to 2.596 percent, building on Tuesday’s 30-year high. The yen continued to slip on a slow and steady basis through the morning, defying the previous day’s diplomatic theatre. US Treasury Secretary Scott Bessent had been in Tokyo a day earlier, where he met Finance Minister Satsuki Katayama in the morning and Prime Minister Takaichi later in the day before flying on to Beijing.

The Tokyo stop was not, in fact, primarily about the yen. Bessent was on his way to South Korea to meet Chinese economic tsar He Lifeng, and from there to a Trump-Xi summit in Beijing later in the week. Japan got twenty-five minutes with the Finance Minister and a brief follow-up with the Prime Minister, sandwiched into a China trip. That choreography matters. Tokyo was hoping for an unambiguous American endorsement of its intervention. What it got was a transit visit.

The official language from both sides is studied calm. Bessent posted on X that US-Japan coordination on currency volatility was “constant and robust.” Katayama said the two countries were “coordinating extremely well on recent market moves, including exchange rates.” Both confirmed that Japan’s intervention has been “consistent with” the bilateral agreement signed last September, which allows for foreign exchange intervention to “combat excessive market volatility.”

This is the language governments use when they want to project alignment without committing to anything. Notice what was not said. Bessent did not announce that the United States would sell dollars to support the yen. He did not commit to coordinated intervention. He did not endorse Japan’s specific intervention level. On Bank of Japan rate policy he said only that he was confident Governor Kazuo Ueda would guide the central bank to “a very successful monetary policy” — the diplomatic equivalent of a pat on the head — and confirmed that he had made no request of Takaichi on the subject. The yen rallied for ninety minutes on the headlines and then gave it all back. Nomura’s forex strategist told the FT that if the yen drifts toward 158 or 159, further intervention is still on the table.

There is one signal in what Bessent did say. He has previously suggested, and continues to suggest, that he would prefer the BoJ to tighten monetary policy rather than have the Ministry of Finance intervene directly. To understand why this is not a neutral preference, follow the consequences. Higher Japanese rates would unwind the yen carry trade gradually rather than in a single August 2024-style discontinuity, because the gap between yen borrowing costs and dollar returns would narrow trade by trade rather than collapse all at once. They would also make the yen marginally more attractive relative to the dollar, which serves the Trump administration’s stated preference for a weaker dollar overall. The United States would get a slower carry-trade unwind and a weaker dollar without the Federal Reserve having to sell anything or the Treasury having to intervene. Japan would do the work, in its own bond market.

What Japan would pay for delivering this convenient outcome is everything. Higher rates feed directly into debt service costs on a stock above 250 percent of GDP. They crystallise bond-market losses for every domestic institution holding JGBs at suppressed prices — banks, pension funds, life insurers. The BoJ itself absorbs mark-to-market losses on its enormous JGB holdings, meaning the bonds the central bank bought at high prices are now worth less, eating into its own balance sheet. Each of these hits is a transfer from Japanese fiscal capacity, household wealth, or central bank credibility into the global currency outcome Washington prefers. Bessent is, in effect, recommending the path that hurts the Japanese state most while costing the United States least. The recommendation is offered as professional advice between allies.

The reality underneath the performance is straightforward enough to state. The thirty-year JGB yield is at a thirty-year high. The yen is still weakening despite ten trillion yen of intervention spending in two weeks. Japanese household spending fell 2.9 percent in March from a year earlier, far worse than expected, which means the squeeze on consumers from imported inflation is already materialising in the data. The BoJ governor executed a “hawkish pivot” last month that brought the central bank into rare alignment with the Ministry of Finance, and three committee members at the April meeting suggested rates may need to rise as soon as June. Two governments are publicly performing comfort while, on the evidence, both sides are calculating hard.

The reason the US can perform coordination cheaply is that Washington has its own version of the trilemma. The Trump administration wants a weaker dollar overall, it has said so repeatedly. But Washington does not want a sudden carry-trade unwind, because every yen rally over the past two years has coincided with a Nasdaq selloff, and the administration is politically invested in US equity prices, especially before the mid-terms. The first goal calls for dollar weakness. The second calls for yen weakness. Those goals are not compatible — unless someone else does the work.

That someone else is now Japan. Bessent can talk the yen up for a few hours at zero cost, which slows the speed of the unwind without committing to a stronger yen overall. He can recommend BoJ rate hikes, which would resolve both American goals at Japanese expense. Material US coordination — Federal Reserve dollar-selling, or Treasury-side intervention to match Japan’s — would require choosing between the two American goals and absorbing the cost domestically. Washington has not chosen, and as long as it does not have to, it will not. The “constant and robust” language costs nothing and gives Tokyo just enough cover to keep going. It is the diplomatic equivalent of throwing good money after bad.

It is worth lingering on the contrast with the Plaza Accord that closed Part 1. In 1985, James Baker convened the finance ministers of the five largest economies at a hotel in New York and extracted a coordinated agreement to weaken the dollar against the yen and the deutschmark. The accord worked because Japan was a client of the American security order, willing to revalue its currency under American pressure even at catastrophic cost. Forty years later, Tokyo is meeting the American Treasury Secretary in Tokyo rather than New York, asking for help rather than agreeing to terms, and receiving language rather than commitment — between flights to Beijing. The system that the Plaza Accord was designed to manage has aged into one in which the architect no longer wants to coordinate symmetrically, because the architect’s own interests have changed.

All money that’s anywhere must be somewhere — How money might move

The reason any of this matters outside Japan is that money tends to move when conditions change, and a great deal of money is currently positioned around the assumption that Japanese conditions will not change.

Three distinct pools of capital are exposed. They differ in size, in speed, and in how predictable their movements are. It is worth taking them in ascending order of size and decreasing order of probability.

Layer 1: the leveraged carry trade. This is the fastest-moving and best-understood pool. Traders borrow yen at low rates and invest the proceeds in higher-yielding assets abroad. When Japanese rates rise or the yen strengthens, the trade has to be unwound rapidly, because the unwinding itself moves the yen in ways that wipe out the spread. August 2024 was a preview of how this can play out.

Estimates of size vary so much that they require some unpacking. The Bank for International Settlements puts the directly funded portion at around ¥40 trillion (roughly $250 billion). Hyun Song Shin’s Jackson Hole address in August 2024 warned that this estimate was, if anything, biased downward due to data gaps. The broader market for yen-based currency swaps runs to about $14 trillion in outstanding contracts. Deutsche Bank’s widest measure reaches around $20 trillion — about five times Japan’s annual GDP.

The $14 and $20 trillion figures look apocalyptic and require a caveat. They are “notional” numbers, which means they represent the headline size of the contracts rather than the money actually at risk. In a currency swap, two parties agree to exchange currencies now and reverse the trade later; the only thing that actually changes hands is the difference in value between the two legs over the life of the contract, which is typically a small fraction of the headline. So $14 trillion in yen swap notional is not $14 trillion at risk. It is $14 trillion of contracts, of which perhaps a few hundred billion is the real exposure. The number that matters for an unwind is somewhere between the $250 billion BIS estimate and the trillion-dollar range. That is still enough to move markets violently. It is just not, on its own, civilisation-ending.

What is not in dispute is the direction. Bloomberg reports that BCA Research describes the position as “a ticking time bomb.” Japanese insurers cut their currency hedging on foreign assets to 46 percent in late 2025, down from a 63 percent peak in 2020. The hedging matters because an unhedged position is a direct bet that the yen will stay weak — when an insurer holds a foreign bond without a currency hedge, a stronger yen means losses in yen terms on the bond’s principal value, separate from the bond’s interest payments. Cutting hedges from 63 to 46 percent means Japanese insurers have moved from cautious to exposed precisely as the yen has become most vulnerable. Nobody knows exactly how big the carry trade is. Everyone agrees it is bigger than anyone can comfortably manage if it goes the wrong way.

Layer 2: the Japanese household. Japanese households hold over ¥2,000 trillion in financial assets, of which the bulk sits in cash. To put that number in perspective, it is roughly four times Japanese GDP and well over four times the household savings of any other major economy. For thirty years this pool has barely moved, because cash earned nothing and Japanese households were culturally and structurally allergic to risk. Recent tax-advantaged investment reforms have begun, slowly, to push retail money into invested assets — and a meaningful share of that has gone into foreign equities, particularly US tech and global index funds.

The math is straightforward and uncomfortable. A 5 percent reallocation of household financial assets toward foreign assets is roughly ¥100 trillion, or about $650 billion of yen-selling. The April intervention to support the yen was $35 billion. If the famously conservative Japanese saver begins moving meaningfully out of yen, the shift could amplify currency weakness in ways that no central bank balance sheet can offset. Mrs Watanabe, as the archetypal Japanese household investor is sometimes called, is the elephant in this room. Nobody is sure when she wakes up, but if she does, every other actor in the story becomes a footnote.

Layer 3: the structural creditor position. Japan has been the world’s largest net creditor for decades, with foreign assets exceeding foreign liabilities by ¥533 trillion. The headline gross external assets are roughly ¥1,500 trillion, around $10 trillion at current rates. The bulk of this is held by Japanese pension funds, life insurers, and banks, who built enormous portfolios of foreign bonds — above all US Treasuries — because their own government’s bonds paid nothing for thirty years. They had liabilities to pay (pensions, insurance payouts) that required yield, and JGBs at zero percent couldn’t deliver it. They went abroad out of structural necessity, not preference.

That necessity is unwinding. If Japanese yields rise to 2 or 3 percent across the curve, those institutions can suddenly meet their liabilities at home, in their own currency, without taking dollar risk. The original reason for being abroad disappears.

The closest international parallel is the Dutch pension fund sector, which has been shifting away from long-duration foreign assets toward shorter-duration, liability-matched portfolios under regulatory pressure. Dutch pension flows have already reshaped European bond markets despite the country’s modest size. Japan’s potential version of this is much bigger, because Japanese institutions are much bigger, and the asset base they would be rotating out of — primarily US Treasuries — is much more globally significant than what the Dutch funds rotated. The key difference is that the Dutch shift was driven by regulation, with announcement schedules and phased implementation. Japan’s would be driven by market arithmetic. That makes it harder to predict and potentially faster when it tips.

This is the part of the story most commentary misses. It is not panic. It is arithmetic. When the world’s largest creditor moves its money home, every other major bond market loses buyers, and yields go up everywhere. The currencies and assets that climbed furthest on cheap yen — the Mexican peso, US tech stocks, emerging-market high-yield debt — fall the hardest when the trade reverses, because they had the most yen-funded money inside them.

Brad Setser at the Council on Foreign Relations laid out the architecture in March 2024, just as the BoJ was exiting negative rates: Japanese institutions had built their foreign bond portfolios precisely because domestic yields paid nothing, and a meaningful rise in JGB yields would invert the logic. That trigger has arguably now arrived. Setser told Reuters in September 2025 that the striking thing was the lack of repatriation. Japanese institutional portfolios that loaded up on US Treasuries before COVID were now underwater after the Fed’s hikes, and selling meant locking in the losses on paper. Capital was staying overseas not because the structural logic had changed, but because the institutions could not afford to take the hit.

That sounds reassuring. It is not. What it means is that the institutions are sitting on losses they don’t want to crystallise, while watching domestic yields rise above the levels they need. There is a threshold at which the gap between what they could earn at home and what they are earning abroad becomes large enough that taking the loss and moving home is cheaper than staying. No one knows exactly where that threshold is. But every basis point of further JGB rise pushes the institutions closer to it. And the closer they get, the harder it becomes to predict whether the move will be gradual or sudden.

Japan holds roughly $1.24 trillion in US Treasuries, the largest foreign position by anyone. August 2024 involved only the leveraged traders. If the long-term institutional money joins in, the scale would be larger by an order of magnitude.

Time for economic seppuku?

This is unlikely to resolve quickly. The question is which path it takes over the next twelve to twenty-four months. from provided a helpful framework on a recent podcast episode for Forward Guidance to understand what could happen next.

Scenario A: USD/JPY breaks decisively through 160.

Japanese bond yields rise further as markets demand compensation for fiscal unsustainability. US yields are dragged higher with them through global rate contagion. Inflation worsens in Japan via import costs and energy, and potentially in the United States through dollar strength feeding back into commodity prices. The carry trade survives, but the underlying inflation problem festers and compounds.

Scenario B: authorities successfully defend 160 and the yen strengthens.

The carry trade unwinds — and as the August 2024 episode demonstrated, every significant yen rally has coincided with a Nasdaq selloff. A weaker dollar becomes inflationary in the United States precisely when American inflation is re-accelerating. US bond yields still rise, because dollar weakness paradoxically worsens the perception of US fiscal sustainability.

The asymmetry is uncomfortable, and there is no clean exit. But notice what both scenarios share: in each one, Tokyo never actually decides anything. The yen drifts through 160 because no one wanted to raise rates in time. Or the yen rallies because intervention forced what policy refused to choose. The trilemma resolves itself, in either case, by being made to resolve by the market.

There is a third scenario nobody is naming, and to describe it properly requires a Japanese word.

Seppuku is usually translated into English as “suicide,” which gets the act wrong by missing its meaning. In its original cultural register, seppuku is not defeat, it is a deliberate, dignified resolution of an impossible situation by a willing sacrifice of one thing to preserve the integrity of everything else.

What Japan is currently doing is something closer to the opposite. The half-hearted attempt at all three corners of the trilemma is a slow, undignified bleeding, costing the country its currency stability, its bond market credibility, and its fiscal flexibility all at once, with no resolution at the end.

An economic seppuku would be the deliberate choice to abandon one corner cleanly. An explicit end to yield-curve management, a declared restructuring of the debt stock, or an honest acknowledgement that the postwar fiscal settlement is no longer compatible with the inflation regime.

Any of these would be costly, but each of them would be a choice, taken on Japan’s own terms, that resolves the contradiction rather than prolonging it.

Thank you for reading. I write this between deadlines, on my own time, without pay. If it was worth yours, buying me a coffee would mean a lot. Also consider subscribing.

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