The world is not resetting — It is reorganizing

The idea of a “global reset” has gained popularity in recent years. It reflects a widespread sense that the extant world order is no longer working and a fundamentally new thing needs to emerge to replace it. Total collapse of global growth in the past couple of decades, unsustainable trade balances, and excessive socialism (social security in developed countries) have raised the specter of a total collapse in the global order, just like it happened in the early part of the twentieth century.

While this feeling is understandable, the term itself might be misleading, in my view. What we are witnessing may not be a reset, but a reorganization of global institutions and systems.

Global systems rarely collapse overnight. Instead, they evolve unevenly, often while appearing stable on the surface. Trade continues, markets function, currencies circulate, and institutions remain intact. Yet beneath this continuity, the logic guiding decisions is changing.

For much of the post–Cold War era, economic integration was the dominant force. Countries pursued efficiency, specialization, and scale. Global supply chains expanded, capital flowed freely, and geopolitical considerations took a back seat to economic growth.

That framework is now under strain.

In recent years, governments have begun to prioritize resilience over efficiency, security over openness, and control over integration. Supply chains are being restructured, trade rules rewritten, and capital flows increasingly scrutinized. These shifts began immediately after the global financial crisis (2009) and have become more visible and consequential in 2025.

Importantly, this does not mean globalization is ending. Instead, it is becoming selective. Nations still trade, invest, and cooperate, but increasingly on conditional terms. Strategic sectors—technology, energy, finance, and critical resources—are no longer treated as neutral economic domains.

For example, the "US-India strategic relationship" experiment started by Bush Jr and MMS has ended. We have gone back to the pre-2009 transactional relationship. People in their 20s may find it hard to assimilate this reversal, but older people find it normal to accept.

This reorganization is messy by nature. Old assumptions coexist with new priorities. Policies are often reactive rather than coherent. Markets oscillate between optimism and caution as they try to interpret incomplete signals.

The danger lies in misdiagnosing the moment. Believing that a clean reset is underway encourages extreme positioning and binary thinking. In reality, the world is navigating a long transition, with overlapping systems and partial adjustments.

For investors, policymakers, and businesses, the challenge is not to predict a final outcome, but to operate effectively during the transition itself. Adaptability matters more than certainty. Flexibility matters more than conviction.

The world is not being rebuilt from scratch. It is being rearranged—slowly, unevenly, and with friction. Understanding this distinction is the first step toward navigating what comes next.

2025: A global reconfiguration in progress

The year 2025 is likely to be remembered not as a moment of rupture, but as a period when several long-term global trends became impossible to ignore. Political realignments, economic fragmentation, and rapid technological change have collectively weakened the assumptions that shaped the global order over the past three decades.

Rather than a sudden “reset,” the world appears to be undergoing a gradual but meaningful reconfiguration. Existing systems continue to function, yet their underlying logic is shifting. Governments, markets, and institutions are adjusting to this reality, though not always in a coordinated or predictable manner.

From integration to strategic competition

For much of the post–Cold War period, economic integration was seen as a stabilizing force. Trade, capital flows, and technology exchange were expected to align national interests and reduce conflict. That assumption is now being tested.

Major economies are increasingly treating economic capabilities as strategic assets. Access to technology, capital markets, critical minerals, and supply chains is no longer viewed as neutral. Instead, these levers are being used to protect national interests and, at times, to influence the behavior of other states.

Examples include export controls on sensitive technologies, higher trade barriers, and the use of financial sanctions. These measures are not new, but their frequency and scope have increased. The result is a more fragmented global economic environment, where efficiency is often sacrificed for resilience and control.

This shift does not signal the end of globalization. Rather, it marks a transition toward selective globalization, shaped by strategic priorities rather than purely economic logic.

Competing power centers and partial decoupling

The United States and China remain the two most influential actors in this evolving system. Their relationship is characterized by deep economic interdependence alongside growing strategic rivalry.

Full decoupling between these economies remains unlikely. However, partial and targeted decoupling—particularly in areas such as semiconductors, artificial intelligence, defense technologies, and critical infrastructure—is already underway. These sectors are increasingly viewed through a national security lens, influencing investment flows and corporate strategies.

Other major players, including Russia, Japan, and the Middle East, are navigating this environment through pragmatic, issue-based alignments rather than fixed alliances. Europe continues to hold substantial economic and regulatory influence, but faces internal constraints that limit its ability to respond quickly and cohesively to global shifts.

The emerging picture is not one of rigid blocs, but of a multipolar system marked by overlapping interests, tactical cooperation, and persistent competition.

Domestic constraints and Policy Uncertainty

At the same time, many countries face significant domestic challenges. Demographic transitions, immigration pressures, social polarization, and fiscal constraints complicate policy choices and limit strategic flexibility.

These internal pressures matter for markets. Political uncertainty and policy inconsistency increase risk premiums and discourage long-term investment. In such an environment, capital tends to favor jurisdictions that offer clarity, institutional stability, and predictable rule-making—even if growth prospects are modest.

Financial markets and the search for stability

Concerns about debt sustainability, fiscal discipline, and the long-term credibility of monetary frameworks have contributed to cautious investor behavior. While fears of an imminent monetary collapse are overstated, the accumulation of structural risks has encouraged diversification.

In this context, increased interest in traditional stores of value such as gold reflects prudent risk management rather than panic. Investors are not abandoning the financial system, but they are reassessing assumptions about stability and correlation across asset classes.

Markets are adapting to a world where geopolitical developments increasingly influence financial outcomes.

India’s strategic position: opportunity and execution

India enters this period of global reconfiguration with significant potential. Its large domestic market, demographic profile, and geopolitical relevance position it well in a multipolar world. The stated objective of strategic autonomy—maintaining relationships across power centers while avoiding excessive dependence—is conceptually sound.

The challenge lies in execution.

For strategic autonomy to be credible, it must be supported by sustained economic reforms, infrastructure development, regulatory predictability, and capital formation. At present, private investment remains cautious, and foreign capital flows have moderated. This reflects not a lack of interest in India, but uncertainty about policy consistency and long-term direction.

Markets tend to distinguish between stated intent and demonstrated capability. Reducing this gap will be critical if India is to translate geopolitical relevance into durable economic influence.

Looking Ahead

The global environment over the next few years is likely to remain complex and fluid. While uncertainty poses risks, it also creates opportunities for countries that can adapt quickly, offer stability, and integrate strategically with global supply chains.

The world is not breaking apart, nor is it returning to old models of dominance. It is evolving toward a more competitive, less predictable equilibrium. Success in this environment will depend less on alignment with any single power and more on institutional strength, policy clarity, and economic resilience.

For policymakers, investors, and businesses alike, the task ahead is not to predict a final outcome, but to navigate a transition that is already underway.

Stay in bunkers till sirens are blowing

As I mentioned yesterday (see here), the current conditions are very different from the conditions in the 1980s when the US Federal Reserve under the chairmanship of Paul Volcker, managed to kill inflation with a deeper recession, but without pushing the world into an economic depression. But this does not imply that we have nothing to learn from history.

A key learning from the past 150 years of economic history is that every major economic cycle has been a function of a different set of factors like war; decolonization; politics triumphing over economics; major demographic shifts; major technological evolution (industrial or technical revolution); etc. The policy responses to various economic cycles have depended upon the mix of factor that were responsible for the cycle.

Industrial revolution, destruction due to world wars and then reconstruction effort; emergence of Communism (command economies) and cold war; decolonization of European colonies; population boom (baby boomers); conflict in middle east and emergence of American hegemony (end of Bretton Wood, beginning of petro dollar, invasions in Vietnam, Afghanistan etc.); end of cold war, falling of Berlin Wall, dissolution of USSR, induction of China into WTO and relocation of American and European manufacturing to Asia; democratization of internet & advent of digital commerce, dematerialization of money, commodities & trade; and pandemic, etc. have been some of the events which catalyzed major economic cycles (up and down) in the world.

In the post war period, until the mid-1990s, the role of the major central bankers was limited to regulation of monetary policy. They regulated the money policy, not necessarily in tandem with the fiscal policies, to manage the economic cycles. The monetary policy responses were marked in most periods of economic imbalances, averting major economic disruptions. Up-cycles (economy overheating) were also treated with due alacrity as were the down-cycles (recessions). However, since late 1990s, the central bankers have been assigned the additional duty to support economic growth also.

This additional (and often contradictory) assignment perhaps distorted the function of monetary policy in the past two decades. The central bankers were expected to not only support the economic growth but also ignore the instances of economic overheating. They were expected to stimulate demand during periods of low growth and sit on the fringes (or even keep fueling the furnace) during the growth phase. This has made the global financial system fragile and susceptible to frequent disruptions.

This tendency of the central bankers during past two decades is now a source of concern for markets. The massive monetary and fiscal stimulus, palpably to mitigate the impact of Covid pandemic; prolonged phase of widespread inclement weather conditions; intensified Sino-US cold war and invasion of Ukraine by Russian forces triggering a global energy & food crisis, has unleashed a massive global inflation crisis.

The governments and markets continue to expect the central bankers to control prices and stimulate growth. In the past 9-10 months the central bankers have however focused more on price control, mostly at the expense of economic growth; conscious of the fact that most of the factors causing inflation may be beyond their realm. Juxtaposing this central bankers’ predicament to the fact that most of the government may have already run out of the fiscal ammunition to stimulate growth, it is not too difficult to assess the depth of the quagmire global market are sinking in.

This entire narrative of India escaping the global turmoil (decoupling); market bottoming; a shallow recession etc. seems rather optimistic to me. I believe that the global policy reset will be a protracted and painful effort for almost everyone across the globe. Of course this reset journey will be dotted with phases of relief and false hopes, when it would appear that all is well and we are back to business as usual.

But the recent instance like fiscal policy fiasco in UK; BoJ’s and PoBC’s reluctance to join the global monetary tightening bandwagon; and fissure in RBI’s MPC over effectiveness of monetary tightening have shown that policymakers are mostly clueless and they shall be using trial and error method to control the situation. Each new trial would trigger a wave of hope; and each error would trigger a wave of despair. Legends like Russell Napier are expecting a major shift in political paradigm in this phase. He expects a major shift to 'command economy', de-globalization and an end to era of free markets that we have seen in the past three decades. (read here)

We can argue that the domestic investors in India may not be impacted materially by this global reset as we have a stable financial system; strong domestic economy; manageable debt at government; corporate and household level; and favorable demographics, among other positives.

My view is that all this is true. But all this was also largely true in 2000 (dotcom bubble); 2008 (global financial crisis) and 2020 (pandemic); nonetheless our economic growth slowed down; corporate and financial stress increased; stock markets corrected 50%; risk premiums on our bonds rose sharply; and investors panicked and incurred huge losses, in each of these instance. A similar pattern repeating this time cannot be completely ruled out. So it is better to stay in the bunker and shun adventurism, at least till the sirens are blowing full force.

It is true that these periods of turbulence usually throw brilliant opportunities. But to avail these opportunities you need to survive till the peace is fully restored. A few brave men will take their chances; but I am a normal person with very ordinary resources. I will avoid adventure of any kind and try to survive this period of reset.

…to continue tomorrow 

Some random thoughts Post COVID-19 world

Little more than a decade ago, a global financial crisis engulfed the global markets. The impact of the crisis on financial markets was mitigated in couple of years by collective efforts of the governments and central bankers. However, the social, geo political and economic impacts of the crisis largely remain unmitigated.

The "Reset" button pressed by the crisis has resulted in widening of socio-economic divide across the world. The geo political tensions have intensified materially. The rise in protectionism has adversely impacted the global trade. The rising unemployment in Europe and most commodity dependent economies in Asia, Africa and Latin America, declining growth in China, substantial cut in developmental aid to least developed nations due to fiscal pressures, has caused widespread human suffering for over a decade now.

The onslaught of novel coronavirus (COVID-19), in my view, will accelerate the "Reset" process leading to a new global order in next 5 years. But for COVID-19, the process might have taken 10-15 years.

I have written this before, but it would be in order to reiterate a brief account of the changes in world order that have taken place since advent of 20th century.

In 1917, Russian revolution successfully dismantled the Tsarist autocracy and laid the foundation of USSR. In the following decades, many smaller independent European states became subservient to a mighty Russian socialist army, and together formed one pole in the emerging bi-polar world, forever shrouded by the specter of cold war.

In the same year, USA decided to join the War as an associate of the Allies - a development that tilted the scale in favor of the Allies, bringing the War to an end in 1918. In the following decades, USA evolved into a formidable military and economic power that lead the democratic allies to become the second pole in the emerging bi-polar world.

The imperialist global order that existed in preceding centuries began to dismantle. Many colonies of European empires gained freedom. The British Empire that was built in three centuries and covered almost one fourth of the world population and area before the War, was completely dismantle in the following three decades.

It took three decades for the new order to consolidate. The new order was characterized by UN, NATO, WARSAW, Mao, Israel, NAM, Bretton Woods, World Bank, Cold War, energy cartel (OPEC), et. al. The globalization that was a norm prior to the first War was completely overpowered by the forces of nationalism and protectionism.

The post WWII order lasted till the German Wall fell and USSR disintegrated in early 1990s. This unleashed a new wave of globalization. Global Trade (WTO), Internet, dematerialization of assets, Europe integration into a single market, China's entry into mainstream global trade (through WTO), free flow of capital, G-20, BRICS, numerous FTAs, global war on Islamic fundamentalism, energy security, climate control and global financial crisis, dominated this phase.

After three decades, we are on the threshold for a fresh reset in the global order. I do not subscribe to the ideas that the process of globalization is reversible. I am therefore not anticipating that the emerging world order will be based on localization of trade and closed borders.

Tomorrow, I shall share my thoughts on the likely shape of the emerging global order and likely opportunities in post COVID-19 induced lockdown world.