Global geopolitics

Monetary Weaponisation, Financial Fragmentation and Strategic Overreach  during the Western Collapse Phase

Western power in 2026 reflects the accumulated outcome of choices made since the end of the Cold War.
The system did not drift accidentally into its present condition. Policy decisions consistently favoured financial expansion, global leverage, and institutional growth over domestic production and social stability.
Those decisions created a structure that now limits available responses to crisis.

The core economic shift occurred when wealth generation moved away from producing goods toward managing money. Manufacturing employment declined while credit availability expanded. Debt filled the gap between stagnant wages and rising costs. This arrangement depended on confidence rather than output, making it fragile under stress. Michael Hudson described this model as an economy where rent extraction replaces production, writing that “once finance becomes the master, the economy becomes extractive rather than productive.” Hudson traced how debt servicing transfers income upward, hollowing the middle of society. That process has come to define Western economies rather than exceptional sectors.

By 2026 this structure dominates fiscal and monetary decision-making. Asset prices rose while living standards stagnated. Governments defended market indicators as proof of success.
Households measured success through affordability, stability, and security.
The divergence between these measures eroded trust gradually and persistently. Political institutions adapted to this divergence by insulating decision-making. Administrative systems expanded while accountability diffused across agencies, regulators, and advisory bodies. Complexity replaced clarity as a governing method. This shift reduced the ability of the public to influence outcomes meaningfully.

Elite overproduction intensified this problem. Peter Turchin defines elite overproduction as the growth of educated aspirants exceeding available elite positions. Turchin writes that such periods produce “intense intra-elite competition, declining cooperation, and political instability.” Western political conflict increasingly reflects this pattern rather than mass ideological struggle.

Universities, NGOs, bureaucracies, and consultancies expanded rapidly.
Real decision-making positions did not expand at the same pace.
Factional conflict replaced coordinated governance. Policy paralysis followed despite apparent institutional density. Democratic procedures continued, but outcomes remained fixed. Elections changed leadership style while preserving economic and security commitments. Voters recognised the pattern and disengaged. Polarisation increased without producing policy correction.

As legitimacy weakened, governance shifted toward control mechanisms.
Regulation expanded into speech, finance, energy use, and movement.
Emergency frameworks normalised exceptional powers. Authoritarian practice emerged administratively rather than ideologically. Sir John Glubb described this phase in The Fate of Empires, noting that late empires replace moral authority with coercion and bureaucracy. Glubb observed that elites increasingly rely on regulation and force when social cohesion weakens. This description matches current Western governance more closely than earlier democratic models.
The process unfolds gradually rather than through sudden rupture.

Foreign policy became an extension of internal stabilisation. External threats justified domestic discipline and alliance conformity. Sanctions promised control without direct military cost. Repeated failure did not reduce their use because institutions depended on them. Russia, Iran, and other sanctioned states adapted by building alternative trade systems. De-dollarisation accelerated not from ideological alignment but risk management. Officials in China and Russia consistently described sanctions as tools forcing defensive adaptation rather than isolation. This response weakened Western financial leverage structurally.

The war in Ukraine exposed material limits previously obscured.
Weapons stockpiles depleted faster than industrial systems replenished them. Western defence production reflected peacetime assumptions rather than sustained conflict readiness. Narrative coherence substituted for strategic resolution. Carl von Clausewitz warned that war pursued without political clarity becomes self-sustaining. The Ukraine conflict illustrates this dynamic. Objectives expanded while means remained constrained. Escalation management replaced war termination strategy.

Chinese strategy has prioritised endurance rather than confrontation across trade, finance, technology, and military posture. This approach has reflected a repeated-player logic rather than a single-round confrontation model. Game theory describes this distinction through iterated games rather than one-off decisive encounters. In iterated games, actors prioritise survival, credibility, and long-term payoff accumulation over immediate dominance.

Chinese policy has consistently avoided moves that would force irreversible escalation while absorbing short-term costs. Trade retaliation has remained measured, asymmetric, and delayed rather than immediate and proportional. Technology restrictions imposed by the United States have been met with domestic substitution programmes rather than retaliatory embargoes. This behaviour aligns with tit-for-tat restraint strategies described by Robert Axelrod in The Evolution of Cooperation. Axelrod demonstrated that in repeated interactions, restrained reciprocity outperforms aggressive escalation.

Professor Jiang Xueqin has repeatedly argued that Chinese political culture values long-term stability over short-term victory. Western escalation logic misread restraint as weakness.
This misinterpretation increased miscalculation risk. China’s response pattern has matched this model by signalling resolve without closing future negotiation paths. Western strategy has instead resembled a single-round dominance game. This mismatch has produced compounding strategic errors. United States policy has treated pressure as cumulative leverage rather than as a dynamic feedback system. Tariffs, sanctions, and technology bans have been layered without reassessment of opponent adaptation. Game theory predicts diminishing returns under these conditions as opponents adjust their payoff structures. Observed outcomes have confirmed this prediction. China has expanded trade settlement in non-dollar currencies following financial sanctions precedent.
The People’s Bank of China has increased bilateral swap agreements to reduce exposure to dollar clearing systems. These measures have reduced sanction vulnerability without requiring ideological alignment against the West. This response mirrors rational adaptation under repeated coercion rather than revisionist ambition.

The same logic has governed Chinese military posture. Force modernisation has continued steadily without premature confrontation over Taiwan.
Military exercises have increased signalling capacity without crossing commitment thresholds.
Thomas Schelling described this as bargaining through risk rather than force execution.

Schelling noted that power lies in shaping expectations rather than winning battles outright. Chinese strategy has applied this principle by increasing uncertainty costs for opponents. Western deterrence signalling has relied on credibility unsupported by industrial or political capacity. This asymmetry has weakened escalation control.

Economic decoupling policies have already produced measurable domestic effects. United States manufacturing input costs have risen due to supply chain fragmentation. European energy prices have remained structurally elevated following Russian supply displacement. These outcomes have followed directly from policy decisions rather than external shocks.

Industrial policy announcements have not reversed capital allocation patterns. Investment has remained concentrated in financial and digital sectors rather than heavy industry. Labour productivity growth has remained weak across advanced Western economies. These trends constrain sustained military and economic competition. Game theory predicts that actors facing declining capacity shift toward risk acceptance. As payoff margins narrow, escalation thresholds lower. Western alliance systems have displayed this behaviour through forward deployment and red-line inflation. This pattern increases accident and miscalculation probability.

Nuclear deterrence has continued preventing direct confrontation.
However, deterrence has not prevented cumulative destabilisation.
Game theory describes this as stability at the top with instability below.
Proxy conflicts and grey-zone operations have expanded accordingly. The system has entered a phase where containment replaces control, as multipolar competition has replaced hegemonic management. Acceptance of limits has remained politically unavailable. Instability has therefore persisted.

Western strategies have increasingly turned to economic and physical coercion against producers linked to China, Iran, and Russia. Sanctions have expanded into tanker seizures, maritime interdictions, and energy chokepoint enforcement. United States naval forces have seized Venezuelan-linked oil tankers to block shipments bound for China and allied states. These actions represent escalation from financial coercion to kinetic enforcement at sea. Venezuela, Iran, and Russia have responded by constructing parallel shipping systems. Shadow fleets, flag switching, ship-to-ship transfers, and offshore storage have expanded. Iran has stored millions of barrels offshore near Singapore to preserve export capacity under pressure. China has remained the principal buyer through discounted and indirect channels. Game theory explains this behaviour as rational adaptation under repeated coercion. Actors do not capitulate when interaction continues indefinitely. Instead, they adjust structures to survive. Sanctions therefore transform into attrition contests rather than decisive tools.

The same logic applies to Greenland and Arctic competition. Control over rare earths, energy routes, and logistics nodes alters long-term payoff matrices.
Western security expansion and Chinese investment have increased strategic friction. Resource competition adds additional escalation vectors beyond conventional theatres.

China has also deployed financial hedging strategies. Gold reserves have increased steadily as dollar exposure risk management. Silver and critical metals policy has prioritised domestic demand over export availability. These measures reduce vulnerability while increasing leverage under prolonged confrontation. Each theatre interacts with the others. Tanker seizures increase naval encounter risk, whilst sanctions increase adaptation and counter-leverage. Alliance escalation increases miscalculation probability.

World war has not emerged through declaration, but has as process. Overlapping strategies, repeated interactions, and narrowing exit options have raised kinetic risk.
History shows systemic wars begin through accumulated local escalations rather than singular decisions. Western decline has therefore manifested as strategic rigidity rather than collapse. Power remains substantial whilst flexibility has diminished, at the same time ommitments have expanded beyond capacity.

Empires historically fail not from weakness but from inability to disengage selectively, hence containment replaces control as risk accumulates. Kinetic confrontation becomes increasingly probable under sustained interaction pressure.

Authored By: Global Geopolitics

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