There is a phrase that keeps coming back in Martin Wolf's vocabulary right now. Not decline. Not crisis. The word is bewildering.
Wolf is the chief economics commentator at the Financial Times - one of the most respected voices in global economics for the better part of four decades. He has watched the US navigate the oil shocks, the Cold War, the 2008 financial collapse, and years of populist turbulence. He does not use words carelessly. So when he says, on the Odd Lots podcast, recorded on May 4, 2026, that the United States has become "completely bewildering" - and that a bewildering superpower is "absolutely terrifying" - it is worth taking seriously.
What makes the statement interesting is not the political content. Plenty of commentators criticize the Trump administration. What makes it interesting is the economic logic underneath it. Unpredictability is not just a diplomatic problem. It is a structural cost. It lands in prices, in investment decisions, in the interest rates countries pay to borrow, in the energy bills of factories in Germany and South Korea. The bewilderment Wolf describes is not abstract. It is measurable. And right now, with a war in Iran disrupting global oil flows and the S&P 500 somehow sitting at record highs, the gap between what the world economy is doing and what anyone would rationally expect has never been harder to explain.
The Background
To understand what Wolf is worried about, you need a short course in how the global economy was actually built.
After the Second World War - a conflict that killed tens of millions in Europe and left the continent economically and psychologically shattered - the United States stepped in as the organizer of a new international order. It created the institutions: the International Monetary Fund and the World Bank, which lend money to stabilize struggling economies. It underwrote NATO - the military alliance that bound Western Europe's security to American power. And critically, it established the dollar as the world's reserve currency, meaning that when countries trade with each other, buy oil, or borrow money on international markets, they generally do so in US dollars.
Reserve currency status sounds like a technical detail. It is not. Because the whole world needs dollars to function, the US can borrow money at lower interest rates than anyone else. It can run large trade deficits - buying more from other countries than it sells - without the usual punishment of a collapsing currency. The dollar is used in roughly 89% of all foreign exchange transactions globally, according to the Bank for International Settlements. That is an extraordinary structural advantage, and it means that when American economic policy becomes erratic, the shockwaves do not stay inside American borders.
Europe, in particular, built its entire postwar architecture around the assumption of American reliability. Its defense was American. Its trade rules were written in American-led forums. Its tech infrastructure - cloud computing, payment systems, software - runs on American platforms. The digital stack of an average European company, from the emails it sends to the servers it runs on, is almost entirely American-owned. That dependency did not feel like a vulnerability when the relationship was stable. It does now.
What Is Actually Happening
The interview was recorded against a specific backdrop: a war in Iran that has closed the Strait of Hormuz - the narrow passage through which roughly a fifth of the world's oil supply travels - and yet a US stock market that keeps hitting records. These two facts should not coexist, and Wolf's analysis of why they do reveals something important about the structure of the modern economy.
The Strait's closure has already caused what the International Energy Agency describes as the single largest oil supply disruption in the history of global energy markets. Brent crude surged 10 to 13% to around $80 to $82 per barrel in the first days of the conflict, with economists warning of risks of stagflation - the combination of high inflation and weak growth that most central banks have no good tools to fight simultaneously.
And yet the S&P 500 - the index tracking the 500 largest American companies - has not only recovered from early losses but climbed to successive records. First-quarter earnings came in far above expectations: S&P 500 companies had been forecast to deliver earnings growth of 13% but reported growth of 28%, with the technology sector delivering the biggest positive surprises.
Wolf's explanation for this paradox is elegant. The market, he argues, is pricing two things simultaneously. First, a belief that Trump will eventually back down - what traders have started calling the TACO trade, shorthand for "Trump always chickens out." Every time the administration has pushed an economic confrontation to the brink, it has pulled back. The Liberation Day tariff pause in April 2025 is the template. Investors have been conditioned to believe that Trump will de-escalate if economic pain becomes intense enough, which is why they seize on any positive headlines hinting at progress in peace talks.
Second, and more structurally, the tech sector now accounts for close to half of the S&P 500's total market value, and it operates on a logic almost entirely disconnected from oil prices, tariffs, or Gulf shipping lanes. Its inputs are electricity and engineers. Its profits are software margins. Artificial intelligence momentum has continued unabated, with semiconductor stocks handily outperforming the broader market even as the Strait of Hormuz remains closed and crude prices stay elevated.
The world economy, Wolf argues, is deeply resilient - more than most people intuitively believe. Since 1950, global GDP has contracted in only two calendar years: 2009, during the financial crisis, and 2020, during the pandemic. Every other year, despite wars, oil shocks, financial collapses, and political upheavals, the world economy grew. That is not luck. It is the cumulative result of billions of people making, trading, and investing in things other people want
The Money Trail
Here is where Wolf's analysis cuts deepest. The United States is not just unpredictable. It is unpredictable in a way that is uniquely costly - because of the specific economic advantages it holds.
The dollar's reserve status is, in Wolf's framework, the core of American power. America's net international investment position was minus $27.54 trillion at the end of 2025 - US residents held $42.96 trillion in foreign assets, while US liabilities to the rest of the world stood at $70.49 trillion. The US can run up this kind of external debt because the world needs dollars to function, and it will accept US Treasury bonds - government IOUs - as the safest form of savings on the planet. Japan holds about $1.239 trillion in US Treasury securities, the United Kingdom about $897 billion, and mainland China about $693 billion. These flows are the plumbing of the global system: surplus earnings and savings from around the world, recycled into US government debt.
This is an extraordinary arrangement. It lets the US borrow cheaply, consume freely, and run deficits that would sink any other country. Wolf calls it a system that works "sensationally well" for the US. Which is why he finds it almost impossible to understand why so many Americans seem determined to dismantle it.
The Iran situation illustrates the distributional logic Wolf is describing. The US is, as he notes, the major economy least exposed to the oil shock. It is a large domestic producer. Its tech sector does not run on Gulf crude. Meanwhile, Europe and China - the primary losers - are precisely the countries that the Trump administration views with the most hostility. Russia, which is benefiting from elevated oil prices, is not on anyone's worry list in Washington.
This is not an accident. It is incentive alignment. When Wolf says "they wouldn't have started it if that wasn't at the back of their minds," he is pointing to a precise economic logic: a policy that hurts rivals more than it hurts you is not irrational, even if it looks chaotic from the outside.
The danger is not the calculation. The danger is what happens to the system that underlies the calculation. Trust is an economic asset. Analysts have warned that markets are displaying "extremely misplaced euphoria" by continuing to dismiss the energy squeeze as primarily an Asian problem, with the risk of a significant global recession being underpriced. If the world's largest economy keeps behaving unpredictably, the premium it earns for providing stability - lower borrowing costs, dollar dominance, the ability to run persistent deficits - starts to erode. Slowly at first. Then faster.
IMF data shows the dollar's share of global foreign exchange reserves has declined to 56.92% in the third quarter of 2025, its lowest level since 1994. That is not a collapse. But it is a direction.
What People Are Doing About It
Europe's response to its vulnerability is the most economically consequential story running in parallel to the headlines about markets and missiles.
Wolf describes Europe as being in a state of "absolute intellectual and moral confusion" - not as an insult, but as an accurate description of a structural position that has no clean exit. The dependency is deep and multi-dimensional. Defense. Technology. Trade architecture. The ideological foundations of liberal democracy itself, which Wolf argues were largely imported from America after 1945.
Some European governments have begun spending seriously on defense for the first time in decades - Germany above all, having passed a constitutional change to allow defense spending outside its strict debt rules. The European Commission has launched initiatives to reduce dependence on American cloud infrastructure, though the practical timelines stretch years into the future.
On energy, the shock has accelerated the renewable transition in ways that no policy announcement could. The Iran war fuel crisis has made renewable energy significantly more cost-competitive, with the need for solar and wind power reinforced by the vulnerability exposed by Middle Eastern supply disruptions. Countries that had been gradually expanding solar and wind capacity now have an urgent economic case, not just an environmental one.
Individual governments are making smaller, more immediate adjustments. Canada suspended federal fuel taxes. India received an emergency US waiver to buy stranded Russian oil cargoes. Japan released 80 million barrels from its strategic reserves. These are defensive moves, not structural ones. They buy time.
The UK, Wolf argues, offers a useful case study in the limits of national autonomy. Brexit was sold partly on the premise that independence from European structures would unlock new freedoms. Instead, Britain remains a European economy in every practical sense - sharing the same deindustrialization pressures, the same technology weaknesses, the same exposure to Chinese competition - without the collective bargaining weight that membership provided. The promised free trade deal with America never materialized. The promise of controlled immigration was overtaken by higher non-European migration. Wolf's verdict is unsentimental: Britain is "just another European country" that briefly forgot it was a small one.
The Bottom Line
The reason a bewildering superpower is terrifying, in Wolf's framework, is not sentiment. It is structural. The global economy was built around a specific assumption: that the country issuing the world's reserve currency, running the world's largest military, and hosting the world's dominant technology platforms would behave with some minimum degree of predictability. That assumption is now in question. The S&P 500 can hit record highs because American tech companies are largely insulated from the disruption - they run on AI momentum and software margins, not Gulf crude. But the rest of the architecture - the dollar's premium, the trust that makes US Treasuries the world's safest asset, the willingness of allies to coordinate on shared problems - depends on something the market cannot easily price: the accumulated credibility of decades of reliable behavior, being spent down, one bewildering decision at a time.
Timeline
- Post-1945 - The United States establishes the Bretton Woods system, cementing the dollar as the world's primary reserve currency and positioning itself as the security guarantor of Western Europe through NATO
- 1970s - Two major oil shocks disrupt the global economy; the US Federal Reserve, under Paul Volcker, eventually triggers a US recession to bring inflation under control, though the world economy continues growing
- April 2025 - President Trump announces sweeping "Liberation Day" tariffs against most US trading partners; markets crater before Trump announces a 90-day pause within days, establishing the template for what traders begin calling the TACO trade
- February 28, 2026 - The US-Iran war begins, triggering closure of the Strait of Hormuz; oil prices surge 10 to 13% within days
- March 2026 - The IEA describes the conflict as the greatest global energy security challenge in history; Japan begins releasing 80 million barrels from strategic reserves
- End of March 2026 - S&P 500 reaches its low point since the Iran war began, down nearly 10% from pre-conflict levels
- April 15, 2026 - S&P 500 closes above 7,000 for the first time, beginning a sharp recovery driven by strong tech earnings and TACO trade positioning
- May 1, 2026 - S&P 500 hits a new all-time intraday high of 7,230; energy analysts warn of "extremely misplaced euphoria" in markets
- May 4, 2026 - Martin Wolf records the Odd Lots podcast interview, describing the US as a "bewildering" superpower and warning of the structural cost of unpredictability
- May 11, 2026 - S&P 500 closes at 7,412, a new record, as AI and semiconductor stocks continue to drive gains despite the unresolved Iran conflict
Summary
Who: Martin Wolf, chief economics commentator at the Financial Times, in conversation with Bloomberg's Odd Lots podcast hosts Tracy Alloway and Joe Weisenthal
What: Wolf argues that the United States has become dangerously unpredictable - not merely politically but economically - and that the structural costs of this unpredictability are being systematically underpriced by markets focused on tech earnings and AI momentum
When: The interview was recorded on May 4, 2026, against the backdrop of ongoing US-Iran conflict and a US stock market at successive record highs
Where: London, where the Odd Lots team was recording; the analysis covers the global economy, with particular focus on the US, Europe, China, and the Middle East
Why: With the Strait of Hormuz closed and oil markets disrupted, the gap between financial markets and the real economy has become a central puzzle; Wolf's explanation is that the world economy is more resilient than most believe, but that resilience is being tested by the erosion of the one thing that makes the dollar system function: the predictability of American power