Has the United States’ Long-Term Decline Already Begun? (2/2)

With the Allied victory in World War II, the United States of America emerged as a superpower presiding over the destiny of the Western world. The enormous US industrial machine contributed significantly to the military victory over fascism. In the first part, we saw how the US imposed its model, not only through its military power, but also through a new global economic, financial, and institutional order. In this second part, we will detail the risks currently facing America.

The "Make America Great Again" doctrine marks a break in contemporary geopolitics.

The greatest casualty of this rupture may be the United States itself, not because it lacks power, but because it has become structurally fragile.

The United States can afford to break rules abroad only because the world continues to reward it at home: through the dollar’s reserve status, through relentless capital inflows, and through the deeply embedded belief that U.S. assets — equities and bonds — remain the safest place on Earth to store wealth.

But credibility is the invisible collateral behind that privilege. Once it cracks, the economic consequences follow.

And America is dangerously exposed because its economy is unusually dependent on its financial markets.

We are at a crucial point. At the macro level, headline growth has been sustained by two forces: ever-expanding fiscal deficits, and the relentless rise of asset markets, primarily equities.

Two Economies, One Country

The American economy enters 2026 in a state that traditional frameworks cannot easily parse.

The Atlanta Federal Reserve’s GDPNow model — which has proven remarkably accurate over the past decade — currently tracks fourth-quarter 2025 growth at 4.2% annualized. Consumer spending remains robust. Corporate profits are near record levels. The unemployment rate sits at 4.4%, below the level most economists consider full employment.

And yet…

The Institute for Supply Management’s Manufacturing PMI registered 47.9 in December, marking the tenth consecutive month of contraction. A rising share of manufacturing GDP is shrinking month after month. New orders have declined for four consecutive months. The Conference Board’s Consumer Confidence Index has fallen for five consecutive months — the longest streak since 2008. The Leading Economic Indicators have deteriorated in eight of the past nine months.

Meanwhile, credit stress is no longer theoretical.

Credit-card delinquency rates have risen to 3.0%, elevated versus pre-pandemic norms, while credit-card debt has reached an all-time high of $1.233 trillion, at an average interest rate of 22.3%.

The correct interpretation is that the United States is operating two economies simultaneously, with radically different dynamics.

Tesla's Fremont facility in San Rafael, California, will cease production of its electric vehicles and repurpose the site to manufacture the Optimus robot. (Justin Sullivan/Getty Images/AFP)

The First Economy: AI, Technology, and Unlimited Capital

Seven companies dominate growth, investment, and equity indices.

Their stock performance drives consumption through the wealth effect. The top 10% of households by wealth own roughly 90% of directly held equities. These same households account for around half of aggregate consumption.

When “Magnificent Seven” stocks rise, wealth rises. Spending rises. GDP rises. Corporate earnings rise. And stocks rise again.

The wealthy are spending because their portfolios are appreciating. Everyone else is retrenching because credit is tight and wages are not keeping pace with the cost of living.

The loop is self-reinforcing. It explains why GDP can appear strong while manufacturing contracts and consumer confidence weakens.

But the reflexive loop works in both directions.

The Second Economy: Credit Contraction and Silent Depression

The second economy is the real economy. It includes manufacturing, construction, commercial real estate, regional banks, and the small and medium-sized enterprises that depend on these sectors.

This economy is experiencing a credit contraction that increasingly resembles a silent depression.

Regional banks with commercial real estate exposure exceeding multiples of their equity capital have, in practice, stopped lending. Office buildings that were worth one hundred million dollars in 2019 are being handed back to creditors for the value of the remaining debt. And the $936 billion of commercial real estate loans maturing in 2026 cannot realistically be refinanced at current rates.

Concentration: The Systemic Risk

The unprecedented concentration of equity market value in a very small number of companies has created a reflexive feedback loop — one that ties U.S. economic growth directly to their stock performance.

The “Magnificent Seven” now represent 34.4% of the S&P 500’s market capitalization, and the ten largest companies comprise roughly 40% of the index — more than fifty percent higher than any prior extreme across modern market history.

A homeless man on the New York subway: the world's largest economy suffers from stark social inequality. (Spencer Platt/Getty Images/AFP)

Concentration creates a transmission mechanism that traditional models fail to capture.

A 20% decline in “Magnificent Seven” stocks would destroy roughly $4.2 trillion of wealth and produce a wealth-driven recession through the negative wealth effect. And concentration will amplify its impact.

Because the U.S. economy is now deeply dependent on asset prices to sustain consumption, growth, and political stability, America has placed itself in a precarious position: it has made the stock market the central pillar of its economic model — and the stock market is built on confidence.

Are We Close to Reaching the Tipping Point?

Equity markets: The warning lights are flashing red

Technical signals are turning unmistakably bearish.

Whether one looks at the Nasdaq 100 or the S&P 500 — both indices now critically dependent on a very limited number of stocks — most of these stocks have already peaked.

Both the Nasdaq and the S&P 500 have been going sideways for the past four months, failing to record new all-time highs despite spectacular earnings.

In Elliott Wave terms, we are approaching the final exhaustion pattern of the super-cycle that began in 1932: the fifth wave of the fifth wave of the III rd. wave of the U.S. super-cycle.

This means that we are very close to entering the IV th. wave of the U.S. super-cycle — a bear market that could last for a decade or more and see many companies lose 60% to 80% of their value.

Considering the extreme levels of overvaluation, concentration, indexation, leverage, and speculation, the unfolding of this bear market would have dramatic consequences for the U.S. economy.

Debt and fiscal fragility: The system cannot absorb a shock

When it comes to the bond markets, a Supreme Court ruling could invalidate the legal basis of the administration’s import tariffs at any time, potentially wiping out hundreds of billions of dollars in expected revenues.

Such an outcome would not only remove a key fiscal pillar. It could also force large-scale refunds to thousands of companies impacted by the tariffs, while triggering a political and administrative crisis — and, most critically, widening the deficit of the world’s largest economy at the worst possible moment.

With U.S. public debt at $38 trillion and 33% of that debt held by foreign investors, a sharp aggravation of the U.S. budget deficit — already at 6% of GDP — would send tremors through global bond markets.

U.S. bond yields are already trading at critical levels near 5%. A sudden shock, coming from either a court decision or an oil shock, would send long-term rates surging significantly higher, compounding the strain on an economy that is loaded with debt — from households, to banks, to corporate balance sheets, and even to the Federal Reserve itself.

Conclusion: The Empire Cannot Break the Rules Without Breaking Itself

The American century was built not only on force, but on credibility.

The international order was an instrument of power — and of economic advantage. The dollar, capital markets, and global confidence were its dividends.

Once the United States shifts from rule-builder to rule-breaker, the system destabilizes. And because America is now structurally dependent on financial confidence, it is also the most exposed.

America built the system.
America benefitted most from it.
And America will suffer most if it breaks.

Breaking the world’s international order will not punish America’s rivals first.
It will likely punish America’s economy.