The AI Bubble in 2026 (1/4)
Deep Dives
Explore related topics with these Wikipedia articles, rewritten for enjoyable reading:
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Petrodollar recycling
12 min read
The article's central thesis compares a proposed 'compute-dollar' system to the petrodollar arrangement. Understanding the mechanics of how petrodollars were recycled through US Treasury bonds and the geopolitical implications of the 1974 Kissinger-Saudi agreement provides essential historical context for evaluating this analogy.
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Dollar diplomacy
13 min read
The article explicitly references dollar diplomacy as 'Act I' in the evolution of American hegemonic tools, mentioning Theodore Roosevelt, the Dominican Republic customs collection, and Brown Brothers' control of Nicaragua. This historical policy provides crucial context for understanding the pattern the author sees repeating with AI.
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United States sanctions against China
12 min read
The article discusses export controls forcing ASML to stop serving Chinese customers and the use of chip access as geopolitical leverage. Understanding the broader context of US-China technology sanctions illuminates the mechanisms through which 'compute diplomacy' is already being implemented.
My final essay of the year will be split into four parts, laying out areas of the AI bubble I want to focus more on next year. They’re overshadowed by a myopic focus on equity prices, valuations, and capital expenditures—an overcorrection by commentators and talking heads who stubbornly dismissed early AI skeptics. These are all important topics, of course, as they consist of the financial frontier of an AI bubble that is consuming more and more of our economy, but nonetheless are contributing to an obfuscation of the geopolitical and industrial dimensions that’ll have a decisive impact on what our world looks like regardless of whether the bubble bursts or not.
Part One focuses on: how geopolitical ambitions will factor into various actors trying to stabilize or take advantage of the AI bubble in 2026 and beyond. Across the Biden and Trump administrations, the United States has made clear that it views artificial intelligence as integral in its dream of securing hegemonic primacy in the 21st century. Can we anticipate some of the ways that will present itself next year?
From Oil Diplomacy to Compute Diplomacy
One development I expect to see is advocacy (and even some steps) for a transition from the Petrodollar system of the 20th century to what we might call a Compute-Dollar system in the 21st century.
In Le Monde Diplomatique, Evgenvy Morozov reframes “sovereign AI” offerings as “the final act of a three-act play” of US imperial management, featuring an evolution from “dollar diplomacy” to “oil diplomacy” to “compute diplomacy” centered around deploying our state apparatus and capital to preserve global hegemony:
...Act I opened in the early 20th century, when the US promoted dollar diplomacy to Latin American governments as a path to political stability through economic prosperity and sound finance; Theodore Roosevelt used this as a pretext to gain control of the Dominican Republic’s customs collection. By 1912 Brown Brothers bank controlled Nicaragua’s customs collection through loan receivership. The majority of the revenue was collected in New York. When Nicaraguans objected, US marines occupied Nicaragua for 21 years (1912-33), with peak deployment reaching nearly 4,000 troops. In 1922 The Nation called it the ‘Republic of Brown Brothers’.
Act II began in 1974. Nixon had killed the gold standard and the dollar was wobbling. Kissinger flew to Riyadh with an offer: charge whatever price
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