Hegemonic decline, according to the historian Fernand Braudel, has historically come with financialization. Amid declining profitability in production and trade, capital owners increasingly shift their assets into finance. This, according to Braudel, is a “sign of autumn,” when empires “transform into a society of rentier-investors on the look-out for anything that would guarantee a quiet and privileged life.”
This specter of Braudelian decline haunts key figures in the second Trump administration. “Tell me what all the former reserve currencies have in common,” Scott Bessent, now Treasury Secretary, mused during the campaign. “Portugal, Spain, Holland, France, UK … How did they lose reserve currency status?” The answer: “They got highly leveraged and could no longer support their military.” While Bessent, a former hedge fund manager, officially denies a program of dollar depreciation, speculators have been driving down the US exchange rate since Trump took office in January. Secretary of State Marco Rubio is the author of a 2019 report on “American investment in the 21st century,” in which he lambasts Wall Street for its shareholder value regime that “tilts business decision-making towards returning money quickly and predictably to investors rather than building long-term corporate capabilities.” His views on finance are shared by self-styled Republican “populists” such as Josh Hawley.
This residual hostility toward Wall Street has marked an ideological rupture in the first months of Trump’s second administration; on the one hand, the President’s “Liberation Day” tariffs have roiled financial markets; on the other, Wall Street has retaliated with financial panics, working to discipline the White House. Whether a coalition of self-styled MAGA populists and Trump’s electoral base—which expects rising living standards and secure jobs delivered via a tariff-led revival of US manufacturing and a deportation-led tightening of the labor market—is sustainable remains a central question of the second Trump administration. Fossil fuel firms and defense-oriented tech companies such as Palantir and Anduril find much to like in militarized nativism. But Trump’s trade policy clearly harms private finance and big tech, two sectors that have consistently supported Trump and expect to be rewarded. Attacking those sectors threatens to alienate the very factions of US capital that have heaved him back into office.
For these capital factions, US decline is relative and can—cue Japan—be managed in a gracious manner. As Giovanni Arrighi observed in 1994, finance has always intermediated, and thus benefited from, hegemonic transitions. Today, asset management titans profit both from re-balancing US portfolios away from the declining hegemon and from offering fast-growing capital pools from China and other rising Asian economies access to US assets. Big tech, meanwhile, aims at general control over knowledge and economic coordination. It has much to lose from geoeconomic fragmentation that could cut it off from access to data, reduce its network effects, increase the cost of its material infrastructure, and push non-aligned polities to pursue digital sovereignty.
In its efforts to revive the American Empire, the Trump administration will thus have to delicately balance the interests of both manufacturing-oriented nativists and capital factions whose interests span the globe. Navigating these competing agendas will pose an enormous challenge to the longevity of the Trumpian coalition—and the stability of the global financial system as a whole.
Private finance backs Trump
The 2016 election brought a dramatic split within Wall Street. While too-big-to-fail banks and “public capital” asset managers rhetorically aligned with Democrats, “private capital,” or alternative asset managers—private equity, venture capital, and hedge funds—emerged as vocal supporters of Trump’s first bid for the presidency. This split mirrored that of the UK, where an emboldened group of private equity and hedge fund moguls had thrown in their support for Brexit, while traditional finance tended to back the Remain camp.
Alternative asset managers want two things only: tax privileges and deregulation. The single most important factor behind the relentless rise of private finance bosses through the Forbes 400 ranking is the carried-interest tax loophole. Over the past twenty-five years, the “carry”—private fund general partners’ performance-based remuneration—amounted to a staggering $1 trillion. In 2010, Obama tried—and failed—to close the loophole, an effort that Blackstone CEO Stephen Schwarzman nonetheless found appropriate to compare to Nazi Germany’s invasion of Poland. Maintaining the loophole was Senator Kristen Sinema’s twelfth-hour demand on the Biden administration’s Inflation Reduction Act—complementing the broader failure to raise taxes on corporations and the wealthy during the Biden years.
On the deregulation front, the single biggest prize for the private finance faction is access to the vast pool of individual retirement assets. At present, private equity and hedge funds rake in money from super rich individuals and from institutional asset owners. Their largest customer group, by far, are defined-benefit pension funds both public and private—institutional investors with fixed liabilities. Since the 2008 financial crisis, however, individual, defined-contribution plans such as 401(k) and IRA plans have grown twice as fast as their collective counterparts. Today, just under $10 trillion are held in these two kinds of plans, all of which are managed by the stalwarts of Wall Street’s liberal faction: the likes of BlackRock, Vanguard, and State Street.
In its long-term quest to gain access to this giant pool of money, the private finance faction scored its first victory under Trump I. In 2020, the Department of Labor (DOL) under secretary Eugene Scalia, son of the leading conservative Supreme Court Justice Antonin Scalia, issued a letter stating that existing rules already permitted 401(k) sponsors to allocate plan money to private equity firms. To be sure, a DOL letter, as opposed to an iron-clad SEC rule change, sits on weak legal ground, but it is nonetheless significant. Shortly after Trump took office for the second time, the titans of private equity redoubled their efforts to open up the 401(k) spigot, which they believe could double demand for their funds.
There is no mystery about private equity’s determination to gain access to America’s 60 million 401(k) plan participants. The line of attack is clear: by limiting their investment options to publicly traded equities and bonds, regulators deprive 401(k) holders of diversification and returns. Marc Rowan, chief executive of Apollo, has complained that 401(k) funds “are invested in daily liquid index funds, mostly the S&P 500.” Larry Fink, CEO of BlackRock, which has recently moved into infrastructure assets, has similarly bemoaned that these assets are “in private markets, locked behind high walls, with gates that open only for the wealthiest or largest market participants.” BlackRock’s push into private equity represents the broader rightward shift taking place among public-capital asset managers as access to private equity returns is sold to American retirement savers as a step toward greater financial democracy.
In reality, the private equity sector is seeking a bailout for what economist Ludovic Phalippou calls its “billionaire factory.” Since 2006, private equity funds’ returns on investments have failed to outperform the stock market—even as its number of billionaires has grown from three in 2005 to 22 in 2020. In recent years, such buyout funds have struggled to exit their investments, instead passing them on in a sector-wide game of hot potatoes. In 2024, the private equity sector shrank for the first time in decades. Corporate dealmaking, in the crosshairs in the Biden years, offers one path back to growth. “The industry has been beating the drum on M&A returning partly to justify the amount of capital they’ve raised,” the chief investment officer of alternative-asset manager Sixth Street recently told investors. “The problem is that people paid too much for assets between 2019 and 2022, and nobody wants to sell those assets without an acceptable return.”
With unrealistic return expectations piled up, the surest way of ensuring a profitable exit for current investors is to bring in new investors. Bringing in $1 trillion of “dumb” 401(k) money, industry thinking goes, will allow pension funds, sovereign wealth funds, and large individual wealth owners to exit their holdings with a profit. Smaller savers would be left holding this bag of overvalued assets. In other words, a Ponzi scheme.
Big tech re-alignment
While finance split into two political factions, the Silicon Valley elite marched rightward in astonishing unity. For three decades, tech-entrepreneurs and private-financiers could “move fast and break things” without having to fear major, state-imposed repercussions. Having had it all-too easy, these apex predators’ decided that the Biden administration and the Democratic Party’s mounting anti-trust enforcement needed to be stopped. In that sense, their rallying around Trump’s flag is all about restoring the Obama-Trump antitrust status quo ante. Speaking of the anxiety felt by industry leaders, venture capitalist Marc Andreesen described signs of “social revolution” across both campuses and Silicon Valley, as “a rebirth of the New Left” radicalized the workforce.
Very clearly, companies are basically being hijacked to engines of social change, social revolution. The employee base is going feral. There were cases in the Trump [I] era where multiple companies I know felt like they were hours away from full-blown violent riots on their own campuses by their own employees.
Silicon Valley’s liberalism, it turns out, was a temporary phase linked to a now past maximum-liquidity, minimum-regulation period of US capitalism. Then Covid hit, and the government provided substantial transfers to workers, some of whom felt empowered to voice new demands. At the same time, the Biden administration’s most activist branch, Lina Khan’s Federal Trade Commission, directed its antitrust enforcement toward big tech. Add Biden Treasury Secretary Janet Yellen’s tentative international coordination on corporate taxation and the Democratic President’s rhetorical support for union mobilization, and you can see why Andreesen experienced this as “a giant radicalizing moment” and spent enormous amounts of time on group chats promoting billionaire class consciousness.
Those are the circumstances that led big tech to join private finance as the second capital faction backing the return of Trump. The inauguration day gathering of big tech bosses sealed this alliance. They were rewarded swiftly with a flurry of executive orders that eliminated public safety guardrails for AI companies and regulatory hurdles for crypto firms. Indeed, in contrast to the Biden administration’s swift showdown against Facebook’s plan for its Libra global payment system, launched in 2019 and shelved in 2022, the new administration appears prepared to back the crypto sector with the full faith and credit of the state.
Crypto interests have adopted the private equity playbook by seeking to draw in pension fund money. Since Trump’s re-election, twenty-three states have introduced legislation to allow public entities to invest in crypto. In several cases, bills specifically include public pension funds. And while the “Guiding and Establishing National Innovation for US Stablecoins” (Genius) Act aimed at providing a permissive regulatory framework for stablecoins has passed an important hurdle in the Senate, the DOGE assault on financial regulatory agencies, from the Securities Exchange Commission (SEC) to the Consumer Financial Protection Bureau (CFPB), is weakening oversight and increasing the incentives for risk-taking across the financial system. Little stands in the way of Elon Musk’s plan for an X Money Account in partnership with Visa. The seeds for a much larger version of the Silicon Valley Bank crisis are sown.
The upshot is that the serious financial strain that has troubled the first few months of the new administration may be as much a feature as a bug of the President’s corporate coalition. The ambitions of the new Silicon Valley elite is not only to incapacitate the federal bureaucracy, but also to dethrone Wall Street.
The Fed’s dilemma
This brings us to the decisive arbiter in any showdown involving finance and the state: the Federal Reserve. Notwithstanding a major financial crisis, the Fed has enjoyed a solid run of monetary dominance in US macroeconomic policy. Once the reopening inflation began, monetary policy offered a promising instrument of both financial and price stability, with fiscal policy taking a back seat. The high-pressure economy engineered under Yellen’s go-big-go-early strategy in response to the pandemic slump, combined with rising prices from pandemic supply-chain delays, provided the justification for the Fed to tighten its monetary stance to deflate both financial markets and labor markets.
Under Trump II, however, the Fed is on a much more perilous path. Trump’s tariffs and a weakened dollar make the return of inflationary pressures a distinct possibility. A competent and disciplined administration could perhaps prevent price increases in essentials through strategic stockpiling and price controls. The current administration is neither competent nor disciplined, however, and DOGE’s systematic assault on the federal government only reinforces the impression that the burden of reining in inflation will fall on the Fed alone.
Here, Jerome Powell faces a dilemma. If inflationary pressures build under the dual onslaught from tariffs and a weaker dollar, the Fed would usually be expected to hike rates. Already, the Fed is allowing bond yields to rise. However, deepening financial stress from higher-than-expected interest rates and lower-than-expected income growth—car owners are missing loan payments at the highest rate in three decades—may force the Fed to step in to prop up asset values, as it did in late 2019 and early 2023, through emergency lending and asset purchases. What is more, Trump and Bessent have made it clear that they want lower interest rates on US government debt—a prospect greatly complicating any project of monetary restraint.
Powell’s dilemma is all the more urgent because the biggest asset of all appears to be on the line: US treasuries’ status as the global safe asset, and therefore the status of the US dollar as the global reserve and funding currency. Official reserve managers’ appetite for US securities has been declining for years, as the dollar share in global reserve holdings fell from 71 percent in 2000 to 57 percent in 2024. Signs of increased concern among bond investors emerged as early as February, when French asset manager Amundi’s chief investment officer noted in response to White House orders weakening securities regulation that “more and more things … are done that could start to erode the trust … in the US system, in the Fed, in the US economy.” In the following weeks, this thinly veiled threat began to materialize with a strong correction of stock markets and, more worryingly, rising US treasury yields. After Trump’s announcement of “reciprocal” tariffs on April 2, the US experienced something extraordinary: capital flight. Should the Fed be pressured into allowing real interest rates to fall as inflation rises, capital flight on a much larger scale is a real possibility.
The goals of eliminating the US trade deficit while preserving the reserve currency status of the dollar have long been understood to be incompatible. Since Robert Triffin’s work of the late 1950s on the “dollar glut,” international monetary economists have understood global economic growth through trade to depend on the availability of reserves. In the absence of a new reserve standard, this has been interpreted as requiring an ample supply of dollars, provided to the rest of the world via perpetual US trade deficits. While a world of eurodollars and unlimited gross cross-border financial flows means global liquidity is not necessarily tied to the US current account, the administration’s ideas for disentangling the two are hardly reassuring. They include, specifically, the promise to “promote the development and growth of lawful and legitimate dollar-backed stablecoins worldwide.” Eric Monnet has called this “cryptomercantilism,” a strategy aimed at extending, rather than undermining, dollar dominance in the global monetary system, since the value of the stablecoins will be backed by dollar assets.
Pitfalls of ruling class rule
Trump’s return to office has exposed the faultlines within the coalition that contributed to his victory. The popular MAGA factions leaned on Trump for his nationalist stance, which has little common cause with mainstream finance and the tech sector’s interest in open global financial and digital markets. Tech and MAGA could potentially meet mid-way on the ambition to revive the US industrial base, but this would challenge the basis of the strong dollar on which both mainstream and private finance depend for their primacy. Even though, as Steve Bannon puts it, “a lot of MAGA’s on Medicaid,” the federal budget recently passed by the GOP-controlled House includes radical welfare cuts championed by private finance. Despite the rhetoric, these spending cuts do not offset the tax reduction: public deficits will be ongoing, just as the administration’s tariff and deregulatory agenda threaten financial stability.
State theorists have long argued that “the ruling class does not rule.” Following Fred Block’s felicitous turn of phrase, liberal democracies have been characterized by a division of labor between capitalists, who run their companies, and “state managers,” who run the government. Since individual capitalists tend to have a hard time seeing beyond their own bottom line, their fortunes depend on state managers’ success in sustaining the conditions for social, ecological, and financial reproduction.
According to Block, the capitalist state navigates its own survival through aggregating interests. The question now arises: will the current US government, in its depleted form, be able to aggregate the interests of the multiple competing factions underpinning Trump II? Tariffs that spare US tech’s manufacturing interests in China but that appease MAGA nationalists, combined with an internationally orchestrated devaluation of the dollar, would go a long way toward sustaining the Bidenomics manufacturing investment boom. Financial deregulation and opening the 401(k) spigots for private equity could be combined with letting high-income tax rates revert from 37 percent to the pre-2017 level of 39.6 percent, as floated by Trump during the House debate on the federal budget. Whether such a consensus will emerge, however, remains to be seen. Just a few months in, the antinomies of Trumponomics are on full display, and without obvious resolution.
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