America’s Hegemonic Glory is Under Threat

by Bill Gross, 6/2/26

Vocabulary is a power builder. Every time I use the word “hegemonic” in a conversation, I see my listeners’ eyebrows go up as if to say, “what does this guy know that I don’t?” Then again, maybe they’re just signaling that I’m full of more than baked beans. I suspect the latter but either way it creates an impression.

And I am getting more of a chance to use the term “hegemony” nowadays when looking at the US and the risks to its dominance in the world. Today there can be little doubt that America is, and has been for the years since the second world war, a hegemon both militarily and economically. But historical global hegemons are born and thrive primarily because of policies that ultimately lead to dominance.

Britain, from the fall of Napoleon to 1945, became one because of free trade, military control of the open seas and a strong currency. As Britain’s successor, America employed free trade as well as taking advantage of its favourable geographical location that isolated its economy and population from would-be hegemonic rivals. It also encouraged the growth of open capital markets, which in turn led to dollar domination and the ability to purchase cheap foreign imports.

But investors should know that “Pax Americana” requires continued maintenance and favourable government policies that promote its number-one status. While changes have been most visible during two Trump administrations, the negative trend has been visible over several decades, most statistically in US trade and fiscal deficits that have reached 6 per cent of GDP annually.

While several wars share responsibility, America’s mandated obligations for healthcare and social security have and will continue to have “wrecking ball” implications on the budget outlook, adding tens of trillions of dollars of costs over time. The Congressional Budget Office has projected public debt will rise from 101 per cent of GDP in 2026 to 120 per cent in 2036, well above the previous record of 106 per cent just after the second world war.

Then there is the cost of war in Iran which is likely to far exceed the $29bn already estimated by defence officials. In addition, America will need to keep spending on defence high for many years to come. As a result, guns and butter will continue to extend our global credit card to the limit, leading to the loss of one of its hegemonic necessities — a strong dollar.