It is a human tendency to assume that the future is just an extension of the past. This happens everywhere.

A teacher who is evaluating the paper of a very good student may skim through the answers and assume that s/he must have written it correctly, based on the past reputation of the student. Sometimes, that gets tested in the board exams where the evaluator does not know the student and the student may receive much lower marks (correctly so)!

This happens in offices, in relationships, everywhere...

This is now happening to how people in various countries and people in power in those countries are perceiving US. US has been a superpower for over 70 years and it has marketed itself very well. It has been an aspirational destination.

Their hegemony and their imperialistic power ambitions had manifested in the countless invasions, coups, destabilization and regime changes and other covert operations in various countries like Vietnam, Myanmar, Libya, Syria, Panama, Nicaragua, Venezuela, Iraq, Iran, West Asia, South Asia etc. They have been able to couch their sinister designs in altruistic terms like maintaining global order, ensuring freedom of the oceans and thereby facilitating trade etc.

Their dollar hegemony, their coterie of western countries as well as their vassal states ensured that their writ was law in almost all institutions. They controlled the UN, World Bank and almost all other multilateral institutions, usurping and concentrating power with themselves to do as they pleased. That is why they have been able to impose unilateral sanctions on the world when castrated organizations like the UN watch from the sidelines in mute supplication.

US hence has been using sanctions, tariff, threats, trade card etc. with impunity. They even decided which countries will be ostracized, which no one can deal with (like Iran), decide the credit rating of countries through pliant institutions (who claim they are independent), control countries and their policies, control narratives through their press, technology and finance denial regimes, perpetuate the dollar hegemony as a reserve currency, rent seeking by Western banks through the SWIFT system on dollar transfers (supposedly going up to a shylocking 6% of the value for a two-way transaction!), etc.

US power had been on a decline since the start of the century which is now starting to accelerate. It is important to know about this to understand how the future is probably going to shape up. Let us start with some of the events that have happened/ happening which will shape the coming decades and the US decline into middle power status, a la the UK after World War 2

1. Unbridled debt

US government debt is over $40T and growing every year by roughly over $2T. This would mean that the debt is ballooning and getting into unmanageable territory. The servicing cost of the loan itself is now about $1.25T. All these have ensured that other countries are not buying US Treasuries and many are selling them which puts further pressure on interest rates. US Federal reserve holds about $4.6T and US Domestic Institutions and public holdings is about $18.5T. $3.9T is foreign government debt. About 58% of the debt stays within US. This can at some point start the debasement of dollar and the flight of capital from dollar assets to other assets.

US can erase the debt through debasement of currency and stoking inflation, some say. But that will have a Taser like effect on the US consumers and is not an easy solution by any means. Others say, it can revalue the Gold reserves of over 8,000 tones and it will have money to pay off about 4% of the debt. Some talk hypothetically of taking the gold prices so high that the entire debt can be written off. For the Gold price needs to go to $1.5 - 1.6 Lakhs per ounce, which is a nice dream, that will stay that way.

2. Dedollarization

Countries around the world have been taking the path of least resistance and have been trading in dollars, in spite of the usurious costs. They did not want to come in the US spotlight which will open them to US actions of all kinds.

But, like James Hadley Chase in his novels remarks, Every criminal makes a mistake. So it was with US and their western allies! Their hubris made them freeze Russian sovereign assets & ousted it from the SWIFT dollar payment system, expecting that one act to somehow cripple Russia. It did impact Russia but not as much as the western powers would have wanted it to.

It had an unintended consequence. All countries sat up and took notice. They figured that if they can do this to Russia, they can do this pretty much to any country. Everyone wanted to diversify. It was not easy due to the entrenched dollar system, the aggressive bullying tactics of Trump who said anyone trying to replace dollars will face huge tariffs and sheer inertia. Most are soft pedaling on this as of now. But alternate payment systems which include other currencies are being tried out - the most notable being the one that BRICS countries are testing.

Parallelly, many countries are reducing the dollar in their central bank reserve holdings and are increasing the gold. For several years now, most central banks have been buying record volumes of Gold. As of now the dollar system is holding, but only just. It may be at the breaking point - like when water keeps filling up in a dam with weakened walls, it is just a matter of time when the weakened walls will collapse and the dam itself would crumble. It is not a matter of if, the question is when.

3. AI bubble

AI models have been attracting huge amounts of funds - it was estimated at between $1.8 - 2.6T at last count. Another $750B - 1T is being spent, this year alone! By 2030/ 2032 the estimates state that the spends on AI model, related infrastructure, models, software etc. would be anywhere between $5 - 10T.

It is an open question today whether there will be a reasonable return on investment after spending so much money.

There are Chinese models which seem to be spending a lot less money on their models and infra. They are also charging a lot less to the consumers. A slew of other nations is also developing models & AI Infrastructure to solve specific problems. SLMs are a lot less costly and are more suited to address specific problems in a cost effective manner, which frontier models will have to compete with.

It certainly looks like the huge investment that US companies are making into AI is going to be very difficult to get a reasonable return on. Many of them will collapse midway as their revenues cannot catch up to any meaningful level and the VC funding will dry up after a point. At that point, these companies may collapse or most probably be sold in a fire sale. Considering the quantum of investment involved, this kind of situation will crash the stock markets, some portions of the financial markets and can push the economies of various countries into a recession. The epicenter will be the US, with shockwaves rippling across the globe.

4. Unpredictable Thug behavior

Since Trump came to Power in Jan 2025, he has been on a non-stop nonsense trip. His avowed goal of Making America Great Again (MAGA) rhetoric sounds laudable; but it is not something one can do overnight.

Trump is playing the politician here. Politicians always want to be seen as doing good as opposed to actually doing good! He kept saying to his constituency that every country in the World was ripping America by selling goods to them. What he did not say is that they sold as American consumers were voracious consumers.

What he also did not care to tell them was other countries were giving really goods and services for the paper printing of dollar bills that US was doing. Without adding any value US, was getting all products and services due to their reserve currency status Also, the countries which produced the goods were spending real money, labor, polluting their environment and selling cheap in the US!

MAGA crowd is sufficiently unschooled to not understand any of this. When Trump threatened trade wars, tariffs and blocking countries from doing trade, the MAGA elements were ecstatic. His behavior increasingly became unhinged & irreverent - like he started calling Canada the 51st State and Canada PM the Governor! His policies lacked any coherence and he was looking more like a medieval emperor who comes up with bilge and nonsense everyday that the subjects had to swallow.

His antics on trade wars in the first few months where he said he will make the countries pay for the privilege of trading with America. His MAGA crowd did not understand economics - any tariff is added to the goods price, collected by the US government but the higher price will have to be borne by his fans! He kept talking things which they wanted to hear and tried to placate them with some sops, here and there.

He also said that he will bring manufacturing back to the US. What he was able to do was to scare away Hyundai-LG from Georgia when US Authorities raided an under- construction plant and arrested expert technicians from Korea, who went away, never to come back. Many from all over the globe have paused their investment plans in the US due to the extremely volatile environment in the US.

Invasion of Iran, continued support to Ukraine, sabotage of Nordstrom 2 pipeline, sudden tariff on crude from some countries, claiming Greenland, adverse Visa and immigration policies etc. have made the global situation unstable and US an unreliable player. His latest antic is the Diesel deal with Russia, while threatening India, China and many other countries buying from Russia to desist or face 100% tariff!

The bunch surrounding him is nuttier than him and is unschooled in diplomacy, economics, geopolitics and even basic human dealings and decency. These guys remind one of cavemen with clubs, thumping their chests and thighs.

End note

Single handedly the US has made the world an uncertain place and we need to be careful about the wars and disturbances, which seem to be widening.

Saudi Arabia is now at the receiving end of a barrage of missile attacks from Houthis, Russia is systematically destroying infrastructure in Ukraine and the entire West Asia is involved in the conflict, one way or the other. Other countries are also slowly getting sucked into the conflict - like Pakistan and Turkey who had a Makkah pact with Saudi Arabia. Not that they have been able to save Saudi the blushes!

From an investment point of view, it calls for a rethink in terms of what will be a suitable investment mix in an unstable world. We have suggested Gold, Silver, REITa and InvITs in the past few years from a diversification stand point. International investment (especially in the US) has been a favorite among people in the past 2-3 years, as they have given good returns. The world is not so simple and caution is advised. We cannot assume that the party will continue and the music won't stop - for it will and we will not have a place to sit, or stand!

We are now building our thesis on what changes we want to suggest in such an incendiary environment. You can expect that dispatch in the next two weeks or so. Once that is done, we can look at what changes we need to carry out in the portfolio.

Till then enjoy the ride, even if it feels like you are hanging on the wing of the aircraft while airborne, with a prayer on the lips!