An Autopsy of American Exceptionalism

I’m writing this in a Parisian cafe in the year 2050. I’m doing a reverse Hemingway, trying to become a better writer as I get into my 70s while I do part-time consulting in what has, to my surprise, become the center of the western financial world. Unfortunately, my writing is also doing a reverse Hemingway, in terms of quality, not that it was ever close to begin with. I always loved sitting on these porches sipping coffee for hours paying in Dollars that made everything in Europe feel so inexpensive. But it’s not the same these days. You won’t believe how expensive this miniature coffee is with the Euro now trading at $1.90 to the USD. What a mighty currency it once was. I remember living in Southern California during the heyday of what we called “American Exceptionalism”. It was an unbelievable period of prosperity for Americans, but it was also a period of great social strife.

It all started with 9/11. I watched the Pentagon burning from Georgetown that day. I remember the conspiracy theories and erosion of public trust as the unimaginable happened in the heart of America’s financial and political districts. It got worse with the subsequent wars, which we seemingly fought for no good reason against adversaries who weren’t even directly involved in the attacks. And then the Financial Crisis hit us like a haymaker, just as it looked like America was getting up off the canvas. We bailed out the banks and made the rich whole. The public trust was eroding even faster.

But we were still a resilient bunch. We always had been. We’d been thru revolutionary wars, civil wars and multiple world wars. Overcoming turmoil was part of what Americans were always good at. But this social turmoil was different and it was eating us from within.

The strange thing about this turmoil was that much of it was predicated on falsehoods. I remember specifically combatting many of the narratives following the Financial Crisis. While I disagreed with policies like QE and the bank bailouts I also thought that the fear mongering around these ideas was misplaced. The common narrative was that these policies would cause hyperinflation, but as we now know QE did nothing of the sort. That policy has since been thrown in the dustbin and I am proud to have consulted on legislation banning its use and also helping to create a more automated interest rate policy at the Federal Reserve. But its impact lingers to this day.

In the 10 years following the Financial Crisis the US economy grew in a surprisingly robust way. We had low inflation, stable growth and an innovative tech boom that made the USA the envy of the economic world. The median American was in the top 10% of global wealth at the time. We outperformed all G7 nations in real GDP growth. And when you excluded the rest of the G7 the USA had almost 50% of all the wealth in the entire world. I remember seeing the US stock market at 65% of total global market capitalization and thinking to myself “this doesn’t seem sustainable”. And it turns out it very much was not. Except I did not see us destroying it from within.

The next domino was Thomas Piketty’s popular book Capital in the Twenty First Century. Although America was unfathomably rich it also suffered from significant wealth inequality. We didn’t appreciate that we were vastly wealthier than the rest of the world because all we could do was stare into those incredible little pieces of technology and flip through photos of people presenting lives that appeared better than ours. As the late great Charlie Munger once said, fear and greed aren’t the most destructive human emotions – envy is.

I recall the most destructive singular data point around this period. It was a chart of stagnant wages. It presented a nearly flat line of domestic US wages since 1970. I remember Bernie Sanders presenting it on a near daily basis and it enraged me as it was based on such an obvious misrepresentation. It would later turn out that this chart was fantastically wrong as it used a deceptive price deflator and didn’t even include total income and compensation. But the narrative was out. And it presented this wealthy economy as one where only the most wealthy people had benefited.

But I remember thinking at the time that these critics aren’t entirely wrong. They had a right to be mad about the inequality because they knew they should have gotten more of the pie even though their pie was far larger than most people’s in the world. But we’d spent most of the post-9/11 era favoring the rich thru tax cuts and various forms of Trickle Down Economics. But the wealth never really trickled down to the extent that it should have because we had misguided policies in place like an unjustifiably low capital gains tax and the carried interest loophole that made the rich richer. This was all exacerbated by persistently large budget deficits which, thanks to this favorable tax structure, would disproportionately flow to corporations and the wealthy.

And then there were the real estate regulations. Oh. My. Word. The real estate regulations. During the prior 50 years we’d spent an egregious amount of time trying to help Americans obtain and protect their “American Dream”. We implemented policies that benefited homeowners and propped up real estate prices by making it difficult to build new homes and protect the gains that current homeowners had. It seemed important. After all, 45% of our net worths were in real estate at the time. But this locked out the young and made it difficult for them to obtain that American Dream. And they were mad. Boy were they mad. And rightfully so.

And then there was the pandemic. Oh what a disaster. The government overstepped by telling us all we couldn’t even go to public playgrounds. I recall being the only person on a public track one day. I was exercising, you know, because we were all trying to battle that virus. And a police officer kicked me off the track because he said I was “endangering the public”. I recall saying to him “before you arrived here there was no one within 500 yards of me so the only thing I am endangering is these 40 year old hamstrings!”. He insisted I leave and so I did. And then we printed tens of trillions of dollars and caused the highest inflation we’d had in 50 years. Home prices surged even further. The Fed said the inflation was all supply driven and “transitory”. And the federal government said it was all “corporate greed”. The public knew better. And as the public trust was eroding the American Dream was becoming virtually untouchable for anyone who wasn’t already in.

And despite all of this America roared back again. In the years following the pandemic it outperformed all the other economies of the world. We developed the AI that now powers everything around me, even here in Europe. It was astounding to watch us rise up out of the ashes of Covid and once again become the envy of the economic world. But the narrative had evolved. We supposedly weren’t rich they said. We were poor because of government debt and a meager current account deficit that was supposedly the result of the rest of the world taking advantage of us.

I recall looking at the actual data at that time and thinking to myself how preposterous this all was. Donald Trump (not the Junior who is currently President) had had a 50 year hatred of trade deficits. He didn’t understand trade deficits from toilet deficits, but he was relentless in convincing the American public that we were being ripped off. The basic accounting disproved this in an almost laughable way. I recall in 2025 that the American private sector had $250 trillion of assets. That was 1/4th of a QUADRILLION. The only reason this old man can remember that specific number is because I was astounded by it. I couldn’t recall ever having used that number in all of my financial analysis. More interestingly, the American private sector had $200 trillion of total net worth. The amount of wealth was absurd. And yet we’d convinced ourselves that we were poor and being taken advantage of because of a meager $1 trillion annual current account deficit and national debt of $36 trillion at the time. The wealthiest society in all of human history had somehow convinced itself that our monetary system was broken.

I recall watching the dangerous narratives evolve with time. When I would debate the hyperinflationists in 2010 it was like dunking a basketball on a children’s hoop. They didn’t understand the plumbing of the monetary system and so they incorrectly predicted what things like QE would do. But in the subsequent years many of these same people evolved. They developed sophisticated understandings of the monetary system and spent years convincing people that the government data was falsified. It was a brilliant repositioning of the narrative and I remember seeing them online and thinking to myself “holy cow that person is dangerously wrong, but dangerously smart at the same time”. When you can talk about repo markets and the reserve system while feeding on public mistrust you can concoct convincing narratives. When you can add in things like a current account deficit and tie that into how wealth inequality is the result of the Fed and free trade you create a gold mine for scary newsletters. I still regret not having started my own scary Fed newsletter. I could have made a fortune. I kid. But there were shreds of truth to those narratives, which is what made them all the more dangerous. These people didn’t really despise our monetary system. They despised government overreach and government debt. And they weren’t wrong to despise government debt. After all, we’d just had the highest inflation in 50 years, but they were vastly overstating its dangers and then promoting a policy agenda centered around tariffs and protectionism that was a wildly misguided prescription. After all, economists had known for a century now that tariffs are one of the most regressive supply side taxes. They hurt the poor the most and would likely exacerbate the inequality that was enraging everyone. But the USA pushed forward aggressively with the protectionist agenda.

The problem was that these narratives mostly got the causation wrong. It wasn’t the Fed and free trade that had caused the inequality that was resulting in social strife. It was mostly the domestic housing and tax policies that had been in place for decades. And as we got the causality wrong we ended up getting the prescription wrong. We pulled back from our most loyal allies and made enemies of the rest of the world. We became isolationists and protectionists thinking we’d make all the goods in the USA and stop getting ripped off by all those poor countries, who weren’t actually ripping us off at all. It’s been sad to watch the manufacturing sector in the USA since get decimated by the robots that are all around us. Those jobs never came back and America just got more and more angry about it all. The saddest part is that we had real problems despite the exceptionalism. And those problems were solvable with sensible policies. But the tariffs and isolationism was based on the wrong causality and so it made it all that much worse.

The worst part was that pulverizing recession in 2025 and 2026. We lost 5 million jobs and as AI grew in popularity these fired workers were deemed largely unnecessary during the ensuing recovery. That made everything worse. It was amazing to watch it unfold as it was self induced. I felt terrible about it all. We had convinced ourselves that this was part of the necessary reshuffling of the global monetary system and so some short-term pain was needed for long-term gain. But in retrospect it turns out that the gains mostly flowed to Europe and China who entered into long standing agreements that ultimately made them both more powerful. As I write this China’s economy is now 1.5X the size of the American economy and even Europe is 1.25X. It’s been a remarkable turnaround from what once was. The RMB is even emerging as a global reserve currency, something I once thought was impossible. But they adopted a more European form of Capitalism that has benefited them tremendously. It’s been especially amazing to watch the Asian economies boom. India is now the closest thing to American Capitalism that once existed. They are surging ahead. I’m incredibly optimistic about their prospects. I visited Kyoto two weeks ago where my younger daughter is now living and married. It’s been incredible to see the Japanese become more open as the USA became more closed. God I love it there.

I still live in California. But it’s not the same. The Americans are still unfathomably wealthy, but they’ve become increasingly isolationist. They never forgave the world for turning their backs on them but they seem to forget it was the USA who first turned ours. We were exceptional. We had no idea how exceptional we were because our social media silos convinced us we weren’t. It’s a narrative war that I fought and lost. I regret not having been more vocal. I had implemented a rule where I would do leg day during stock market downturns, but that 2025 bear market was so deep that I ended up spending all my time doing squats. In retrospect I should have done more chest and arms as I am now shaped like the glass exterior of the Louvre. I don’t think I could have made a big difference in these debates, but I regret having not tried a little harder. But don’t worry, this story doesn’t end like Hemingway’s. At least not for me. And hopefully not for the future of America.