The Curse of an Exorbitant Privilege

 

The 5 weeks ended on December 12, 2025, interesting news items to look at from the past periods are:

The Curse of an Exorbitant Privilege: In the first James Bond film, Sean Connery in his role as James Bond sarcastically remarked to Dr No (the villain in the movie) “World domination. The same old dream. Our asylums are full of people who think they’re Napoleon, or God”. (Fig. 1).

It was 1962, I was in my junior high school and such phrases made a profound impact on my young mind about power struggles of big and mighty nations. 63 years has since come and gone and sadly, the world’s elite and its folly never changed, only the lead actor got replaced. As 2025 is drawing to a close let us wrap up this tumultuous year with reflections of the triumphs and tragedies of 2025 that we may all move forward with lessons learn and be prepared to face the challenges of 2026.

(i) National Security Strategy of the United States of America: Released on December 4, 2025, this document is intended for both US domestic political consumption as well as a signal to the international audience. (Fig. 2).

Some call it a document of US strategic retreat from the role of the ‘World’s Enforcer”, but I rather frame it as a pragmatic approach to a temporary cease fire.  US needs to regroup and rearm until she is certain to successfully reassert herself as the Alpha. A summary of the document, with apologies for the smaller fonts, is found in Fig. 2. The gist of the message is if the Atlantic and Asian allies want to deal with regional rivals, US is no longer capable to lead the charge but be quite willing to take a back seat and sell them US made weapons. US will concentrate on her own backyard and will first subdue lesser defiant countries like Venezula, Honduras, El Salvador, Pabama and Columbia, then bigger fish such as Mexico and Brazil to check China’s influence.  

(ii) Japan Militarism: Knowing US must lean more on Japan to face the China threat, Prime Minister Takaichi and her right wing supporters is pushing the envelop to free the shackles imposed upon Japan after the WWII defeat - to rebuild her military and an independent voice as a middle power.  (Fig. 3).

Takaichi’s tactic is to provoke China and hope with an overreaction by China, US may give Japan a longer leash and elbow room to grow her military.  Sensing Japan’s miscalculation, China FM Wang Yi, with over 40 years experience in diplomacy, immediately seize the moral higher ground of the post WWII world order enunciated by the Yalta and Potsdam Accord. This has boxed Japan in and bind all members of the UN Security Council to the established rules. Unlike the US Democrats fabricated mantra of “Rules-based International Order”, there is no ambiguity to the world order towards Japan and consequently US, UK and France are silenced from lending support to Japan. Please find key terms of the Potsdam Declaration in (Fig. 4).

The Catch 22 for US is if the Potsdam Declaration is not uphold, US has no more rights to station her military in Japan at all. Then with a combination knockout punch, China moved unrelentingly onto escalation dominance over the incident with both a projection of power over previously disputed territories as well as an economic and technology Full Nelson. Kind of nip Japan Militarism in the bud.

(iii) The Coalition of the Unwilling: With Trump quickly distancing Zelensky to keep his gun powder dry at home, all the four European stooges (Macron, Starmer, Merz and Zelensky) could do is to sing “Can’t Buy Me Love” in front of 10 Downing Street. (Fig. 5).

Out men, out gunned and out of funds, the quartet is still trying to pirate Russian funds from Euroclear to bankroll a bloodbath tinted with graft and corruption. Poor Europeans, when will they ever wake up to make their elected political leaders accountable. For over 20 years, since 2004, these politicians have continued their expansion eastward into former Soviet satellites in total disregard to Russia’s plead and warning. Now with immanent defeat they want a pause and regroup and rearm. People died, homes, families and energy infrastructures destroyed and nations are d-industrilized yet no one has been brought to account. May be that is how true democracy works because we all get the type of leaders we deserve.

(iv) The Curse of an Exorbitant Privilege: "Exorbitant privilege" refers to the special financial advantages the U.S. gains from the U.S. dollar being the world's primary reserve currency, allowing the U.S. to borrow cheaply, run large trade deficits, and finance its spending by selling debt to other nations, a term coined by French Finance Minister Valéry Giscard d'Estaing in the 1960s. Essentially, the world needs U.S. dollars for trade and reserves, creating massive demand for U.S. Treasury bonds, enabling lower interest rates for America even when it spends beyond its means, which other countries can't easily do. The license to print money at will has lured theUS elites  to protect this privilege above all economic and security considerations. US has devoted all her resources to expand her military industrial/technology supremacy to nurture this Exorbitant Privilege and in the very process emptied her Treasury and incurred huge debts. This myopic vision was adopted by every elected official even at the expense of hollowing out national support infrastructure, industries, STEM education and engineering efficiencies and skills on a false pretext that US can always print and buy whatever she needs. This thinking came about because the elites are delusional that there is no alternative to the USD. After 25 years of rampant abuse of global finances from the dotcom bubble through the sub-prime fiasco to the Covid Modern Monetary Theory, the day of reckoning came in December 2025. On December 12 2025, the Federal Reserve was finally forced to start monetizing Federal Debt again by buying short term Treasury bills, knowing fully the world is watching a scenario of print or default and bankruptcy. I have given readers of this Blog a heads up on my last post published on November 8, 2025. With Fed’s renewed printing, the Dollar Hegemony is officially finished. One by one, we saw the three pillars that propped up the USD faded away, the US Economy, US Technology and the US Military. One may say. the concluding chapters of this saga is documented precisely by the aforementioned National Security Review under point (i) above.

Market reaction to the Fed’s rate cut and printing is one of frustration:

(a) Interest Rates - Fed Funds Rate is only used when banks are out of overnight funds and need to borrow on an emergency basis. (Fig. 6)

US Yield Cure shows from one month to 5 years, interest rates only marginally dropped by a few basis points, much less than the 25 basis point cut by the Fed, whilst longer duration rates actually rose (bond prices lowered) implying the Fed’s action will have a negative impact on the economy. In fact, Jeffery Gunlach, the New Bond King said, the Fed decision is late by one year of what the market has been saying since December 2024 judging by the yield of the 2YR Treasury Note. (Fig. 7)

(b) Exchange Rate: DXY dropped as a result of the Fed’s rate cut and commencement of the forever QE. (Fig. 8).

(c) Stock Market: Nasdaq initially reacted to an increase in liquidity by the Fed’s action but quickly turned to profit taking in fear of an AI bubble burst. (Fig. 9).

Given the forgoing, perhaps the best way to sum up progress and setbacks in the market place in 2025 may be to just simply look at what was being championed respectively by US and China in 2025. In the former case, US Tech stocks and crypto currencies. For China, it was precious metals as reserve assets and a Chinese alternative to technological Innovations. The result, in order of performance for the year 2025, was as follows: Silver (+114%), Gold (+64%), Shenzhen Technology Innovation Index (+43%), Russian Ruble (+37%), Nasdaq (+20%) and Bitcoin (-3%). (Fig. 10).

Yet, irrespective of whether one correctly picked the winners, life remains a struggle for the majority in the global village because as nations tried to trick one another to stumble in intense competition, commerce hibernate in defensive posture. For 2026, we should expect as many false starts and misadventures as in 2025.  So long as politicians vested with self interests dominate the leadership of developed economies, inflation and high unemployment will be the new normal. AI will likely see a K type development and it is obvious where the up-line and down-line will be located. The trend on asset class performance we witnessed in 2025 will continue but none will rejoice because they just represent currency debasement than productivity gains. Cost of living burden will become worse for the majority. The fourth turning will be in full bloom and civil unrest will be a common occurrence. Military tension between super powers should eased, but sadly they will be replaced by armed conflicts between regional and middle powers as diversion tactics from domestic problems and for opportunistic gains. All in all nothing to cheer about. My prayers are for your resilience and inner peace in the midst of these interesting times and that your connection with wisdom and love from on High will shine through.

Ecclesiastes 12:1  Remember now your Creator in the days of your youth, Before the difficult days come, And the years draw near when you say, "I have no pleasure in them": 2  While the sun and the light, The moon and the stars, Are not darkened, And the clouds do not return after the rain; 3  In the day when the keepers of the house tremble, And the strong men bow down; When the grinders cease because they are few, And those that look through the windows grow dim; 4  When the doors are shut in the streets, And the sound of grinding is low; When one rises up at the sound of a bird, And all the daughters of music are brought low. 5  Also they are afraid of height, And of terrors in the way; When the almond tree blossoms, The grasshopper is a burden, And desire fails. For man goes to his eternal home, And the mourners go about the streets. 6  Remember your Creator before the silver cord is loosed, Or the golden bowl is broken, Or the pitcher shattered at the fountain, Or the wheel broken at the well. 7  Then the dust will return to the earth as it was, And the spirit will return to God who gave it. 8  "Vanity of vanities," says the Preacher, "All is vanity."