George Friedman’s World of Geopolitics via John Mauldin
(…) Well, what is on page 1 right now, or should be, is the fact that Eurasia, understood as Europe and Asia taken together, is in complete chaos while North America and the rest of the Western Hemisphere are not.
- In Europe, we see the entire European Union dream fragmenting.
- Russia is engaging in more and more aggressive behavior and simultaneously suffering an economic crisis.
- The Chinese economic miracle, like Japan’s before it, has reached the point of normalization, where growth returns to more normal rates, though those rates will still be higher than in the developed world. Yet China still has a billion people living in abject poverty.
- The Middle East is in chaos.
The heartland of humanity, if you will – the Eurasian land mass from the Atlantic to the Pacific – is now riddled with crises. Worse, the crises are merging. The Russian crisis, the Middle Eastern crisis, and the European crisis are all starting to merge into one perfect storm.
The other part of the equation is the relative isolation of the North American “island.” Latin America too is stable relative to the rest of the world, so we are seeing a huge differentiation in the world. On one side, the Eastern Hemisphere is plunging into deeper and deeper chaos. On the other side, the Western Hemisphere is increasingly stable in relative terms.
(…) The EU founders never explained how they would manage the inevitable economic and other crises that would arise. Europeans assumed that if they created a united Europe, they would enjoy perpetual prosperity. That plan stopped working after 2008, and they have never decided how to manage the pain.
Secondly, they have always needed labor. The Muslims didn’t sneak into Europe; Europe invited them, first as guest workers in the 1960s and ’70s, then as citizens of all of the rapidly developing European countries.
Europeans have never been good at integrating aliens into their midst, unlike the United States or Australia or Canada, each of which is built on layer after layer of migrants. Europeans have a more nationalist vision of the state. To be French means you must have a lineage that is French. Others can gain citizenship, but that makes native Frenchmen very uncomfortable.
So, you have a deeply fragmented continent, united only by the quest for prosperity. With a declining population, that prosperity depends in part on immigration. The Europeans don’t know how to manage immigration, and yet they don’t want to live without prosperity.
The EU project was destined to fail. Its leaders could never decide whether the nation state or the Brussels bureaucracy ultimately governed. It was chaos from the beginning, intellectually, and it took just one major misstep for all the flaws to become evident. (…)
With no sense of a shared fate in Europe, the idea that an economic problem will be solved by a joint fiscal policy suggests that other countries and other interests must dictate to the German economy or the Spanish or British economies. The Europeans are simply not prepared to trust each other in that way. Nothing in their history justifies their trusting each other. They are not prepared to give up their sovereignty.
(…) In recent decades China has been the low-wage, high-growth economic engine of the world. Through the past 150 years, we have always had one such country. In the late 19th century it was the United States.
Such economies cannot sustain themselves forever, simply because wages will rise. In China’s case, wages can rise naturally, or they can rise because China is maintaining a no-unemployment policy and is lending to corporations that really should go out of business; but in any case, at this point China’s exports are too expensive. China is now more expensive than Mexico in terms of wages and many other variables, such as transportation.
The Chinese solution is to build a domestic market. The problem is that about a billion Chinese live in households that earn less than $3 a day. (…) So Chinese leaders have this vision of developing domestic demand, but they don’t have nearly enough money or time to do that; so they are embroiled in a huge crisis, and the crisis is not just economic. It is social, in that the expectations of the Chinese are being dashed. The poorest citizens are never going to participate in the country’s prosperity.
China can go in one of two directions from here. The country could fragment, as it did through most of the century before World War II, or it could evolve into a dictatorship. What I see happening in China is the imposition of a dictatorship by Xi Jinping. He is both ruthlessly purging the party of any potential opposition and suppressing dissent. He sees that he has little choice, because China has gotten itself into an economic situation where any solution short of dictatorship will rip the society apart. The leadership will now have to clamp down very hard on both society and the economy.
(…) The traditional model in China after the central government fails is regionalism. For example, the coastal regions are more closely tied to the American and the European economies than they are to China’s. The party machinery in the coastal areas (which is right now undergoing a purge) has a great interest in maintaining those relationships and very little interest in supporting the interior.
(…) No matter how much you spend, you are not going to bring subsistence farmers up to a level that lets them support a modern economy or consume enough of the products China is producing.
China’s fantasy now is that it will be a high-tech producer. To accomplish this they must compete with Japan, South Korea, Germany, and the United States, among others. That is a tough club to break into. The Chinese can’t sustain the model they have had; they can’t really adopt the high-tech model very effectively; and they can’t develop domestic demand, because they are just too poor and have too many people to do so effectively.
(…) The normal historical pattern would be for China to break apart into different regions with different interests. Xi is trying to prevent that by utterly breaking any organization that shows signs of serious dissent.
So the two choices in China are either a fairly brutal dictatorship or regionalism and the conflict that will follow. Until 1947, regionalism was normal for China. We all assume that what happened after 1947 is the new normal. Is that right, or was it just an aberration? (…)
USD and U.S. equities anybody?
The consumer sector in 2030: Trends and questions to consider (McKinsey & Company)
(…) Right now, he has 25 to 30 percent of the vote in polls among theroughly 25 percent of Americans who identify as Republican. (That’s something like 6 to 8 percent of the electorate overall, or about the same share of people who think the Apollo moon landings were faked.) As the rest of the field consolidates around him, Trump will need to gain additional support to win the nomination. That might not be easy, since some Trump actions that appeal to a faction of the Republican electorate may alienate the rest of it. Trump’s favorability ratings are middling among Republicans (andawful among the broader electorate). (…)
That 25 or 30 percent of the vote isn’t really Donald Trump’s for the keeping. In fact, it doesn’t belong to any candidate. If past nomination races are any guide, the vast majority of eventual Republican voters haven’t made up their minds yet. (…)
So, could Trump win? We confront two stubborn facts: first, that nobody remotely like Trump has won a major-party nomination in the modern era.4And second, as is always a problem in analysis of presidential campaigns, we don’t have all that many data points, so unprecedented events can occur with some regularity. For my money, that adds up to Trump’s chances being higher than 0 but (considerably) less than 20 percent. Your mileage may vary. But you probably shouldn’t rely solely on the polls to make your case; it’s still too soon for that.