Introduction

When we first started sending out newsletters over 30 years ago, the focus was on economic matters and general commentary on local issues that could impact on the Australian and US economies. This was because the US economy dominated the global economy and there was both fiscal discipline and sound monetary policy practiced by OECD countries. This is no longer the case. 

We rarely touched on geo-political matters as these had limited or no impact on the global economy and investing. This is also no longer the case; rather geo-political events are having significant impacts on investment strategies. Because of this, readers may have recognised that in more recent times our newsletters contain much more commentary on geo-political events. This shift reflects the importance of China and to a lesser but growing significance of India in the global economy, and in more recent times the BRICS countries and the splitting into a multi-polar world. Equally, the decline of the importance of European countries and UK is very much on display. For example, the German economy, the largest in Europe has shrunk over the last 3 years with falls in GDP of 0.9%, 0.5% and expected decrease of 0.5% in 2023, 2024 and 2025, respectively.   

US Hegemonic Strategy

In recent times, the US has embarked on a multi-faceted strategy that is aimed at continuing its hegemony through economic and military actions, and the recreation of a US manufacturing base. 

US Economic Strategy

For many years we have regularly been writing about the US twin deficits and national debt that is approaching USD36trillion. The largest component of the US government budget expenditure is now interest commitments and then the US military (Department of Defence is now called War Department). Even with the US dollar being the world’s reserve currency, this situation is unsustainable. How does the US Government plan to address these problems?    

The first step is to devalue the US dollar to improve US competitiveness, and it also assists in reducing the real value of US debt. The downside is a lower US dollar is inflationary to the US economy. It means that foreign holders of US treasuries will take a capital loss, and this is in part why countries are reducing their holdings of US treasuries as well loss in the confidence and credit worthiness of the US and reducing their risk of asset confiscation. The USD against the DXY (the key measure of the value of key currencies) has fallen about 12% since this policy was introduced when Trump became President again, so this US administration goal of a lower US dollar is being achieved. The question is whether it is sustainable in the longer term? Only time will tell. It is a well-worn strategy adopted by countries to devalue their currency to make their exports more competitive, thus stimulating economic growth and reducing imports as they are become more expensive. The lower US dollar will add to the US consumer prices increases that are occurring from the tariffs. Even the Australian dollar (not part of the DXY basket) has been slowly appreciating against the US dollar and is now trading at the AUD0.66 level. 

With respect to the trade deficits and tariffs there are several considerations, including replacing historical capital flows. Specifically, for over 50 years, countries with trade surpluses with the US have recycled their surplus back into the US by buying and holding US treasuries which assisted in funding the US budget deficit and national debt. As mentioned in several newsletters this game is up as countries across the globe after seeing the US/Europeans confiscate Russia’s reserves held in European banks. This along with the blow out of the US deficits has resulted in both Global South and Global North countries reducing their holdings of US treasuries and moving into gold amongst other asset classes. As reported in Newsletter dated 29 November 2024, India physically repatriated its gold that was held in safe custody at the Bank of England because of confiscation concerns. 

Not receiving any detailed level of media analysis has been the trade deals underpinning US tariffs that America has been imposing (not negotiating) on its western allies. The US has imposed 15% across the board tariffs on Japan, as well as industry specific tariffs. The agreement says Japan is not allowed to impose tariffs on the US. In addition, the US is requiring the Japanese to invest USD550 billion in the US and the funds are effectively non-refundable. The US government will determine where the funds go and income earned will be split 90/10 between the US and Japan. From the US perspective this is a wonderful deal and assists in addressing the loss of foreign investors buying US treasuries and funding their debt, while from the Japanese perspective it is awful. Similar one-sided agreements have been struck with European countries and Korea.  America no longer provides US military equipment directly to Ukraine, rather it is requiring the Europeans to buy US military equipment for the Ukrainians. This arrangement is great for the US armaments industry. So far, the Indians have stood up to the US as has China saying that America has no legal right to interfere in their trade with other countries. The US intends applying secondary sanctions on India if it continues to buy and recycle Russian oil. Watch this space closely.

Another aspect of the America’s strategy is the adoption of crypto stable coin currency backed by US treasuries, as a means of wiping out US national debt. It is not dissimilar to the strategies adopted by the US in the 1930s and 1970s when gold was confiscated from US citizens then revalued, and in 1971 with the suspension of the Bretton Woods agreement.  The US wants investors to buy stable coins that are backed by US treasuries as a means of supporting the US dollar as the world’s reserve currency. In time the US will devalue the stable coin reducing the real value of the debt. This strategy is outlined in the Genuis Act that says an objective is the maintenance of the US dollar as the world’s reserve currency and the use of crypto currencies as one tool in achieving this outcome is to create demand for US dollars. With the end of the petro-dollar now that the Saudis are selling oil in other currencies, a stable coin backed by US treasuries (therefore driving demand for US dollars up) is an attempt to maintain US economic hegemony. Given that BRICS countries are trading in local currencies and net settling in gold, it is unlikely Global South countries will invest in these stable coins. Therefore, the economic burden will fall on Global North countries. 

We remind readers that when Bitcoin was released supporters spoke of it as a private currency that will replace government sponsored fiat currencies. This is no longer the case as it is seen as an investment and a competitor (substitute) for gold. With the above matters disrupting the global economy, along with the growth of BRICS we are seeing folks rushing into gold and not crypto or US dollars. Therefore, the need for the Genius Act to drive investors back into US treasuries and not gold. Again, time will tell on how successful this strategy will be.

BRICS - Mbridge

At the recent BRICS summit in Brazil new members and partners including Indonesia were announced. Over the last 10 years we have observed in newsletters that BRICS has adopted western style financing and monetary frameworks, and most recently the launch of Mbridge (Digital Central Bank Currency bypassing the US dollar) as an alternative to SWIFT. This along with BRICS countries settling trade imbalances in gold through the Shanghai Gold Exchange has contributed to Global South countries central banks’ being major buyers of gold.

Re-creation of US Manufacturing Base

With respect to recreating a US manufacturing base, the introduction of tariffs and these trade agreements will lead to more inflation and US western trade partners seeking new markets and reducing their dependency on the US.  American costs of production (wages, energy and raw materials) are comparatively significantly higher than those of China and other BRICS and Global South countries. Tariffs and lower US dollar will not compensate for this higher US cost base.

Another challenge the US administration has in trying to re-create a manufacturing base is culture. Americans do not want manufacturing jobs. The financialisaton of the US (and most western economies) and the hallowing out of the US industrial base has contributed to a cultural shift as folks see the stock market and crypto as quick rich schemes and preferable to working in a factory. This culture issue applies across the board in western countries and when combined with aging population and Working from Home (WFH) are creating significant challenges for businesses and governments.

Geo-political events

One of the most significant geo-political events this year has been the Israeli attack on Hamas Qatar offices. The Gulf countries of Qatar, United Arab Emirates (UAE), Kuwait, Oman and Saudi Arabia now realise that the US can not be relied upon to defend them. It is reported that the US Administration instituted a stand down order to the US Al Udeid air base in Qatar which is meant to protect Qatar from attack to give the Israelis a free shot at the Hamas meeting.

On Monday 15^th September 2025, 54 Islamic countries met in Doha to discuss recent events. The key take aways were:

1. Although years in the making Saudi Arabia and Pakistan (a nuclear power)  on 17 September 2025 signed a mutual defence agreement which the attack on Qatar helped push the deal over the line. This agreement has a similar clause to Article 5 of NATO. It now means Saudi Arabia has access to nuclear weapons and they will likely be added to Saudi Arabia’s defence infrastructure.

2. Point 1 above means that Israel is no longer the only Middle Eastern country with direct access to nuclear weapons.

3. With Saudi Arabia having access to nuclear weapons, it is likely Turkey will do likewise even though it is a NATO member. Will other Gulf countries follow suit?

4. Iran and Egypt have agreed to re-open diplomatic relations after 34 years.

5. It will trigger a reduction in Gulf countries exclusive reliance on American military equipment as they will likely buy Chinese and Russian military equipment to reduce exposure to the US. In the much longer term, US bases may be closed something that Iran wants and has been advocating for many years.

6. It is places on hold for the immediate future any of the expansion of the so-called Abraham Accords, and possibly the termination by UAE.

7. Saudi Arabia, Qatar and Pakistan announced they will join BRICS. Pakistan joining is very interesting given its historical differences with India that is a founding member of BRICS (it is the “I” in BRICS) and has been up to now standing on the sidelines.

8. After 34 years, Jordan announced the introduction of compulsory conscription.

9. There was some discussion that the Islamic states may move in the UN General Assembly to expel Israel.

In conclusion, the Israeli attack on Qatar has backfired from the US and Israeli perspective.

Joint Comprehensive Plan of Action (Iran nuclear deal) – Snap Back

The next major event coming to ahead at the end of September 2025 is the UK, France and Germany (E3) triggering the “snap back” clause in the Iran nuclear deal.  Given the attack on Iran by Israel and then follow up attack on the Iranian nuclear facilities by the US and the Saudi Arabian/Pakistan deal, the Iranian response to “snap back” could be the withdrawing from the Nuclear Non-Proliferation Treaty (NPT), just as North Korea did after the US Clinton administration did not live up to its side of that agreement. If Iran leaves the NPT, it could be the death knell of the NPT, as other countries have closely watched Iran comply for many years (as confirmed by the International Atomic Energy Agency) without receiving the economic benefits of compliance. Even though it was initially fully complying until the US withdrew from the JCPOA, it was still attacked when being party to the NPT is meant to protect a country from attack, specifically from nuclear armed states.

It is very likely that the US and Israel will attack Iran again, as the 12 July 2025 attack failed to achieve the objective of regime change and destruction of its nuclear program. The Americans and Israelis thought Iran would fall in the same way Syria did, but they did not fully appreciate the political and societal differences between the two countries. The unprovoked attack achieved neither and had the opposite effect, as there has been a rallying around the flag, especially amongst the younger Iranians. The Iranians refer to this unprovoked attack as their “Pearl Harbour”, in the same way as Americans consider Japan’s surprise attack on 7 December 1941.

In considering the above and other global events, e.g., the US attack on Venezuela vessels, India pushing back against the US on buying Russian oil shows that the US no longer can rely on soft power to achieve its aims.

Artificial Intelligence (AI)

Companies such as Amazon disrupted retailing with online stores and automation, impacting high streets and job losses. AI is disrupting entry level and lower-level white collar jobs. We have just seen the start of this disruption which will flow through into other sectors, e.g., health. No industry or country, including Australia is immune.

If you have any queries or wish to discuss opportunities or concerns, please feel free to contact us.

General Advice Warning: Any advice or information provided is general advice only and has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any General Advice provided, you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs.