By Aleksandar Kocic

In response to the 2008 financial crisis and the COVID pandemic, central banks suspended the normal constraints of market capitalism and assumed extraordinary powers to stabilize the system. What began as a temporary emergency measure evolved into a prolonged State of Exception, in which markets became structurally dependent on monetary intervention and cheap capital.

More than a decade of quantitative easing and zero interest rates acted as a de facto subsidy for asset owners, technology firms and financial speculation. Capital became abundant, profitability optional and a new class of private actors accumulated unprecedented economic and technological power. Rather than merely influencing governments, many built parallel infrastructures in finance, communications, media, space and artificial intelligence, creating a Counter-Elite whose influence increasingly rivals that of the state itself.

The result is a new political economy characterized by weakened sovereign control, eroding tax base and critical infrastructure concentrated in private hands. Ironically, the same monetary regime that enabled the rise of the Counter-Elite also created its greatest vulnerability.

When monetary policy reverses and central banks shift from accommodation to tightening, the rules of capital change. Cheap money disappears, time horizons shorten and access to financing becomes a strategic constraint. The result is friction for the Counter-Elite and a reordering of competition in the emerging AI arms race. This is how the Empire strikes back.

Puncturing the long-duration illusion

The Counter-Elite’s parallel power relies entirely on their companies commanding massive valuations. These valuations are based on discounted earnings promised decades into the future. [1]

• The Friction: When central banks hike interest rates, the discount rate applied to future cash flows rises significantly.
• The Macro Impact: Mathematically, a dollar earned 20 years from now becomes worth drastically less in the present. This triggers a repricing of long-duration assets, causing tech valuations to compress. When their equity valuations drop, the personal net worth — and therefore the political capital — of the Counter-Elite shrinks accordingly.

Shrinking of the investment horizon: The shift from growth-at-all-costs to capital discipline

During the zero interest rates era, capital was essentially free. Tech monopolies could ignore profit margins and focus purely on sovereign-scale hyper-expansion (e.g., building satellite grids, buying massive AI compute clusters, absorbing competitors).

• The Friction: Higher rates bring back the cost of capital. Capital is no longer a free, limitless resource.
• The Macro Impact: Shareholders and debt markets begin demanding immediate profitability and free cash flow rather than conceptual, multi-decade moonshots. The Counter-Elite is forced to divert capital back into traditional business upkeep (efficiency, restructuring, cost-cutting) rather than funding autonomous parallel state projects.

The sovereign state re-asserts control via financial suffocation

The rise of the Counter-Elite occurred because central banks surrendered control of risk to the markets. Tightening cycles represent the empire striking back — the traditional state re-asserting its authority.

• The Friction: By draining liquidity through Quantitative Tightening and raising the risk-free rate of return, the state changes where money wants to sleep.
• The Macro Impact: Institutional capital flows away from speculative private tech projects and returns to sovereign debt (government bonds), which now actually offers a real yield. The state effectively starves the parallel technocratic ecosystem of the marginal liquidity it needs to run around democratic oversight.

Splintering the tech monopolies under economic stress

In a low-rate world, tech platforms could subsidize massive, loss-making infrastructure experiments using the cash from their core monopolies. Tightening cycles restrict that luxury.

• The Friction: High capital costs force these massive platforms to make zero-sum choices about where to allocate money.
• The Macro Impact: Instead of presenting a unified, impenetrable parallel front against the state, the Counter-Elite begin cannibalizing each other for remaining market share and liquidity. This internal friction weakens their collective ability to cleanly bypass national laws, tax codes and geopolitical boundaries.

The inflection point

Central bank tightening is not just a mechanism to fight inflation; it is a renormalization of the timeline. By raising rates, central banks are forcing the financial world to emancipate itself from addiction of cheap borrowing and high liquidity and return to the reality of finite resources.

For the Counter-Elite, the era of using the public printing press to build private empires is coming to an end as monetary tightening reintroduces friction, scarcity and capital discipline. The traditional state may be fractured, but tightening cycles prove it still holds the power to change the price of the air the technocrats breathe.

The uprising of the Counter-Elite against the previous administration, which solidified in the early post-COVID period, and their defection to the right was a de facto search for a new sponsor due to their discontent with high-rate policy and regulation. This maneuver was effectively a quest for putting their interests ahead of the general wellbeing of society. Continued pressure on (and campaign against) responsible behavior of the Fed under Jerome Powell, during both mandates of the current president, and urgency to lower rates (to zero again) is a testimony to this quest.

Kevin Warsh’s appointment as Fed chairman is interesting in this context. Warsh does not come from venture capital or tech billionaires’ money and, as a former Fed governor, he has a reputation as a hawk. Whether intentional or not, the elevation of figures associated with monetary orthodoxy and traditional financial institutions can be interpreted as part of a broader reassertion of institutional power. If the era of quantitative easing helped create the conditions for the rise of the Counter-Elite, the return of monetary discipline may represent an attempt by the old empire to reimpose constraints on the new one. The significance lies not in any individual’s intentions, but in the structural consequences of a regime shift from abundance to scarcity.

The AI arms race as a high-stakes battleground between the state and the Counter-Elite

In this macro framework, the AI arms race serves as the definitive geopolitical and structural battleground between the traditional state and the Counter-Elite. Artificial Intelligence is not just a technological upgrade; it is the ultimate tool for national sovereignty versus private sovereign bypass. When this battle shifts into a high-rate environment, the stakes escalate dramatically, turning a theoretical race for innovation into a brutal war of financial attrition and structural survival. Each form of friction introduced by high rates creates a distinct arena of conflict that reshapes the balance of power between the sovereign and the Counter-Elite.

1. Capital attrition: The death of the Infinite CapEx playbook

Under the old State of Exception (QE + ZIRP), the Counter-Elite could build AI models by burning unconstrained amounts of free liquidity.

• The High-Rate Friction: Generative AI is the most capital-intensive technology in human history, requiring hundreds of billions of dollars for specialized chips, hyper-scale data centers, and massive electrical grids.
• The Battleground: In a high-rate environment, the cost of capital skyrockets. The Counter-Elite can no longer fund an infinite AI runway purely through speculative equity inflation. They face intense pressure to monetize AI immediately. The state leverages this by using high interest rates to starve pure tech speculation, forcing tech giants to focus on basic unit economics rather than building a purely parallel world.

2. The compute squeeze: The state controls the physical layer

The Counter-Elite functions best in a borderless, digital reality. However, AI requires immense physical infrastructure: silicon, data facilities and copper lines.

• The High-Rate Friction: As inflation and capital costs restrict private construction, the physical bottleneck of AI becomes a weapon for the state.
• The Battleground: Traditional nation-states are using national security frameworks to nationalize or dictate the physical supply chains of AI (e.g., chip export bans, power grid regulations and subsidizing domestic factories). In a high-rate world where building a new data center costs twice what it did a decade ago, the Counter-Elite must increasingly rely on the state’s regulatory approval and subsidies to keep their infrastructure growing.

3. Intelligence disintermediation: Who owns the Superintelligence?

By 2030, frontier AI models are projected to achieve a form of superintelligence, acting as a massive regime break rather than a simple automation tool.

• The High-Rate Friction: The entity that commands this intelligence commands the execution of global economic and military policy.
• The Battleground: If the Counter-Elite retains total control over frontier models, they achieve the ultimate sovereign bypass — rendering local laws, corporate borders and state administrative systems obsolete through proprietary, autonomous algorithms. However, under high rates, the state is the only actor with a resilient enough balance sheet (funded via tax revenues and sovereign debt issuance) to unconditionally bankroll the next generation of hyper-scale computing. The state is attempting to capture AI by integrating it into national defense grids, effectively forcing the tech elite to act as government contractors.

4. Regulatory warfare and financial suffocation

The state can no longer match the technical agility of the tech overclass, so it uses structural levers to fight back.

• The High-Rate Friction: Tech monopolies are highly vulnerable to localized antitrust suits, data sovereignty laws and copyright litigations when their stock valuations are compressed by high interest rates.
• The Battleground: The state is using the legal friction of AI (e.g., copyright laws, algorithmic bias rules, safety mandates) to force the Counter-Elite into costly compliance battles. In a zero-rate world, tech companies could absorb these legal fees easily. In a high-rate environment, these compliance costs act as a tool of financial suffocation, draining the excess capital that the Counter-Elite would otherwise use to buy up state-like functions.

The political dialectic of power re-composition

Through several maneuvers, the State of Exception has created the hyper-concentrated wealth that birthed the Counter-Elite, which has altered the socioeconomic landscape and defined the future struggle. This is the causality chain of that process:

State of Exception -> Suppressed Volatility & ZIRP -> Compression of Risk Premia & The Yield Chase -> Outsized Tech Valuations -> The Counter-Elite -> Sovereign Bypass -> AI arms race -> The Empire Strikes Back

When this process is understood, the current socioeconomic predicament comes as no surprise. It is a logical point on a well-defined trajectory.

The AI arms race under high rates is where the two contesting centers of power (sovereign and Counter-Elite) collide. The AI arms race is being redirected, not stopped. By raising rates and tightening the monetary loop, the traditional state is forcing the technocrats into a cage match, a battle they want to avoid at all costs.

Presently, the Counter-Elite is racing to achieve autonomous, self-sustaining AI systems before high capital costs compress their valuations to a point where the sovereign state can comfortably step in, regulate them, and absorb their technology into the machinery of national security.

The dialectics of monetary power is that the state and the Counter-Elite remain deeply interdependent. The same monetary regime that enabled the rise of private power now serves as one of the few mechanisms capable of constraining it. Political theater may dominate headlines, but the decisive struggle is occurring in the architecture of finance, technology and AI.

Central bank tightening is therefore more than a tool of macroeconomic stabilization. It is a reallocation of power. The Empire strikes back not through direct confrontation, but through the reintroduction of scarcity, discipline and capital constraints into a world that had grown accustomed to abundance.

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[1] By raising interest rate from 1% to 5%, the discounting over the 20-year horizon increases by a factor of two – a discounted present value of a $100 promise 20 years in the future in a 1% interest rate environment is about $80; in a 5% environment, it is about $37.

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Aleksandar Kocic was a derivatives analyst at Deutsche Bank AG from 2002-2023. From 1996-2002 he worked at Lehman Brothers. Prior to Wall Street, he studied theoretical physics.

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