Sunday, November 21, 2010

Stratfor's Top Predictions for the Next Decade

This was sent to me by a friend way back in February. It’s long, but I thought you'd find it worth reading. The message that went with the email… Prognostication is often problematic; but Stratfor's predictions are interesting, if nothing else. Optimistic little article, isn't it?

STRATFOR’S Top Predictions for the Next Decade 

1) China: doomed
"China’s economy, like the economies of Japan and other East Asian states before it, will reduce its rate of growth dramatically in order to calibrate growth with the rate of return on capital and to bring its financial system into balance. To do this, it will have to deal with the resulting social and political tensions."
It explains: "First, China’s current economic model is not sustainable. That model favors employment over all other concerns, and can only be maintained by running on thin margins."
"Second, the Chinese model is only possible so long as Western populations continue to consume Chinese goods in increasing volumes. European demographics alone will make that impossible in the next decade."
"Third, the Chinese model requires cheap labor as well as cheap capital to produce cheap goods. The bottom has fallen out of the Chinese birthrate; by 2020 the average Chinese will be nearly as old as the average American, but will have achieved nowhere near the level of education to add as much value. The result will be a labor shortage in both qualitative and quantitative terms."
"Finally, internal tensions will break the current system. More than 1 billion Chinese live in households whose income is below $2,000 a year (with 600 million below $1,000 a year). The government knows this and is trying to shift resources to the vast interior comprising the bulk of China. But this region is so populous and so poor — and so vulnerable to minor shifts in China’s economic fortunes — that China simply lacks the resources to cope."

2) Europe: heightened native-immigrant tension
"A deep tension will emerge in Europe between the elite — who will see foreign pools of labor in terms of the value they bring to the economy, and whose daily contact with the immigrants will be minimal — and the broader population. The general citizenry will experience the cultural tensions with the immigrants and see the large pool of labor flowing into the country suppressing wages. This dynamic will be particularly sharp in the core states of France, Germany and Italy."
It adds: "The elites that have crafted the European Union will find themselves under increasing pressure from the broader population. The tension between economic interests and cultural stability will define Europe. Consequently, inter-European relations will be increasingly unpredictable and unstable."

3) Turkey: rising
"Turkey is emerging as a self-confident regional leader, with a strong military and economy. We expect that trend to continue, and see Turkey emerging as the dominant regional power."
"The dynamic in the region between the Mediterranean and Iran — and even in the Caucasus and Central Asia — will be redefined by Turkey’s re-emergence."

4) Egypt: rising
"By 2020, Egypt will be changing from the type of country it has been since the 1970s — for the past generation it has lacked the capacity to influence developments beyond its borders. Like Turkey, Egypt is caught between secularism and Islam, and that tension could continue paralyzing it."
"However, as Turkey rises, Ankara will need a large source of cheap labor and markets for exports. The result will be a "coattails" effect for Egypt. With this synergetic fortification we expect not only an end to Egyptian quiescence, but increased friction between Egypt and all other regional players."

5) India: not a factor
"India has always been a country of endless unrealized potential, and it will remain so in the 2010s." "Its diversity in terms of regulations and tensions, its lack of infrastructure and its talented population will give rise to pockets of surprising dynamism. The country will grow, but in a wildly unpredictable and uneven manner; the fantastic expectations will not materialize."
As Zeihan notes, "Whether it's because of a geographic, social, or economic dysfunction, India just -- to put it bluntly -- can't get its sh*t together. India is the country of the future and always will be."

6) Iran: pacified
"We also see the Iranian situation having been brought under control. Whether this will be by military action and isolation of Iran or by a political arrangement with the current or a successor regime is unclear but irrelevant to the broader geopolitical issue. Iran will be contained as it simply does not have the underlying power to be a major player in the region beyond its immediate horizons."
"We don't think Iran's going to matter at all. Iran has absorbed American attention really spectacularly for the last couple of years. That might last a couple of years in the new decade, but after that Persia just does not have the strength, never has had the strength to project power."

7) Iraq and Afghanistan: U.S. out
"The two major wars in the region will have dramatically subsided if not concluded by 2020."

8) Former Soviet states: rising
"We expect to see rapid economic development in this region."
"The repressed creativity of the Soviet period, plus the period of adjustment in the past 20 years, has created societies that are more flexible and potentially dynamic — even given demographic issues — than the rest of Europe."

9) Russia: scrambling
"Russia will spend the 2010s seeking to secure itself before the demographic decline really hits. It will do this by trying to move from raw commodity exports to process commodity exports, moving up the value chain to fortify its economy while its demographics still allow it."
"Russia will also seek to reintegrate the former Soviet republics into some coherent entity in order to delay its demographic problems, expand its market and above all reabsorb some territorial buffers. Russia sees itself as under the gun, and therefore is in a hurry. This will cause it to appear more aggressive and dangerous than it is in the long run. However, in the 2010s, Russia’s actions will cause substantial anxiety in its neighbors, both in terms of national security and its rapidly shifting economic policies."

10) Brazil: regional driver
"Brazil, the world’s 11th-largest economy, is a major regional driver and will become more so as Argentina collapses."
"But aside from extending its influence southward, the South American geography of deserts, jungles and mountains prevents Brazil from reaching beyond its immediate neighborhood. It will be a regional power — even a dominant regional power — but it will not exert strength beyond that scale."

11) Japan: desperate for labor
"Japan will face an existential crisis in the next decade, deciding who it is and what kind of nation it is going to be.".
"Its demographic problem is particularly painful, and Japan has no tradition of allowing massive immigration. When it has needed labor it has established colonies in Korea and China. As China shifts its economic pattern, it will need outside investment badly. Japan will still have it to give, and will need labor badly. How this relationship evolves will define Asia in the 2010s."

12) Africa: non-factor
"I don't think most of Sub-Saharan African ever thinks that they're the country of the future." "Africa has not ever functioned on the global scale."
"It is always whether other countries go to fight their proxy wars. Because their is no peer power to the United States and we don't see one rising in the next decade, there is no peer conflict to be had in Africa. For awhile it looked like the Chinese might have played a role, and they still are poking around looking for things to invest in, but it's very, very small scale, and -- to be perfectly blunt -- the Africans just don't trust the Chinese. You're going to be seeing a brewing conflict, for example, between Angola and South Africa, but that's a very local event."

13) U.S. dangers
STRATFOR says two issues will haunt the U.S.: Mexico and retirees. The report says America's southern neighbor poses several issues: "First, Mexico is a rapidly growing but unstable power on the U.S. border. Second, Mexico’s cartels are gaining power and influence in the United States. Third, the United States will be trapped by a culture that is uneasy with a massive Mexican immigrant population and an economy that cannot manage without it."
On its aging population, "The United States’ biggest demographic- related problem in the 2010s will be financial: retiring baby boomers will generate a capital crunch that will have to be dealt with by not allowing them to retire, cutting retirement benefits sharply or both. This is a serious concern

14) 4 Key Reasons an Economic Collapse is Likely Imminent
The U.S. has unprecedented, massive amounts of current and coming debt.
Over $11.4 trillion in current debt and growing
$1.8 trillion deficit in current budget - $9.3 trillion over next decade (likely to be higher)
Outstanding future debt of $43 trillion to $102 trillion from entitlements
Foreign countries have experienced their own crises, and they cannot offer added levels of debt funding for the U.S. Even if they could, they are unlikely to do so.
Productivity is declining, and everything the government is doing is further hurting productivity.
The U.S. is printing unprecedented, massive amounts of money and no longer has an ability to control inflation and deflation.

15) Many Economic issues remain unresolved
Coming inflation
Consumer credit
Banking industry
Rising interest rates
Commercial real-estate
Residential real-estate
Falling real incomes and wages
Federal Deposit Insurance Corporation (FDIC)

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