Trump’s Economic Morass
Probability: High
Many economists have already sounded the alarm that all the preconditions are present for economic meltdown. Financial assets are massively overvalued with unbounded artificial intelligence fueling 40% of U.S. GDP growth and 80% of stock market growth even though productivity gains by companies experimenting with AI are so far elusive.
Some experts are beginning to doubt whether AI can really go beyond machine learning to the artificial general intelligence of Silicon Valley dreams, charging that current AI models can handle simple problems but “fundamentally break down on complex tasks,” thinking less, not more, as the difficulty rises. A stock market crash could wipe out $35 trillion in consumer wealth, according to former International Monetary Fund Deputy Director Gita Gopinath. Institutionalizing, yet lightly regulating, cryptocurrency adds risk uncertainty.
Adding to these risks is the growing role played by unregulated non-bank financial institutions or shadow banks in corporate finance, and in state finance in China, making it difficult to know how much companies are leveraged. An internal probe of First Brands, an auto parts maker that filed for bankruptcy in 2025, examined how it used money that was due from customers to borrow from lenders several times over. First Brands’s collapse was also spurred by the growing weakness of middle-class consumers no longer able to maintain or purchase new vehicles.
The situation is frighteningly reminiscent of what happened in 2007-08 when the holders of cheap mortgages could not keep up their payments. The K-shaped economy, with just the wealthiest 20% of U.S. households fueling consumption, is not sustainable. Tariffs are beginning to increase inflation, and low hiring levels have led to an affordability crisis. Trump has few solutions beyond eliminating his own tariffs on food items such as coffee, negotiating with Big Pharma to lower drug costs, and promising $2,000 checks for most Americans that would boost U.S. debt already equaling around 125% of GDP, a level unprecedented for peacetime.
A financial crisis this time around could be far more lethal for U.S. power in the world than in 2008. China and the G-20 are unlikely to help a second time. The U.S. dollar, already weakened, would not be the shield it has been without the U.S. taking drastic action to cut spending and raise taxes.
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Third Nuclear Era
Probability: Medium-High
2026 begins with the Bulletin of the Atomic Scientists’ Doomsday Clock moved to just 89 seconds to midnight. Great-power competition is driving new nuclear risks, as existing powers such as the United States, Russia, and China seek to increase their stockpiles or carry out new tests, while at the same time, proliferation threats, from Iran to Japan, are unfolding in a third nuclear era.
AI, offensive cyber, and anti-satellite weapons are creating new vulnerabilities for nuclear powers. Gone is the Cold War-era balance of terror, as is the post-Cold War stasis and its aftermath when the U.S. and Russia pledged to reduce their nuclear weapons stockpiles by more than 80%. The architecture of arms control accords has unraveled. Its last vestige, the New START Treaty, which limits the United States and Russia to 1,550 deployed warheads, expires in February, its fate uncertain.
In a nascent triangular arms race, U.S. military strategists are thinking the unthinkable: to fight two nuclear wars simultaneously. The U.S. is modernizing all three legs (land, sea, air) of its nuclear triad at an estimated cost of $1.7 trillion. Russia is also modernizing its nuclear forces, deploying new short-range “non-strategic” nukes, as is China. The Pentagon says Beijing will have 1,000 nuclear warheads by 2030. In response to Russian and Chinese tactical nukes, the U.S. has developed its own short-range nuclear cruise missiles.
Though the major nuclear powers have not tested nuclear weapons since 1996, Trump has ordered new nuclear tests if others such as Russia and China test. China is expanding its test site at Lop Nur. Moscow’s threats of tactical nuclear use in Ukraine, a lowering of the nuclear threshold, suggested the feasibility of limited nuclear war. This risk extends to lesser nuclear states — North Korea, which has massively built up its missile and nuclear force capabilities, and India and Pakistan, whose nuclear rivalry continues.