Friday, April 27, 2012


It is time now to discuss eventualities and trajectories for the global economy.   The Great Rate Compression that I discussed in years ago is now running its course.  The end-game for the Euro remains tantalizingly close (I have never made my position unclear as to the wisdom of the "European Union" experiment) and the world is beginning to understand that Mercantilist China is an entirely different animal than the United States during its Industrial Revolution.

Once the Great Rate Compression unwinds and capital costs return to historical levels, it will be akin to witholding a drug from a group of addicts.  You quickly see who enjoys a stronger will and stronger physical constitution.  The coming years will test every government and culture on the planet.

Within the decade, we should see the first proxy wars in Africa.  Most likely, they will be waged between the United States and China, but Russia is also a possibility.  Businesses that specialize in weaponry, transportation, logistical assistance, etc. should do very well given newfound interest in Sub-Saharan Africa.  In a gold rush, it is better to sell shovels to the prospector than engage in prospecting, and the U.S. understands the Achilles heel of all developing nations:  raw materials.  Guaranteeing access to these markets and providing security services for same remains a growth business for able sovereigns.

I can't stress this point enough:  the only nation on the planet who can provide these services for anyone and anywhere at any time is the United States.  In times of economic stress (and the conflict that comes with it) these services increase in value.  Ask yourself, dear reader:  Are the coming 10 years likely to be more peaceful than the previous 10 years?

The U.S. should sharpen its "Obama Doctrine" with respect to Latin America after Obama's victory in October.  This strategy synergizes well with U.S. African interests and prohibits any ideological (read: Communist or the quasi-pseudo faith worshipped in the PRC) discord in its geological neighborhood.  I have no doubt the current administration will have a far larger Foreign Policy presence in its second term.

The U.S. practices a military policy of "stratego-diplomacy" and "optical containment" by demonstrating its military capabilities from Australia to the Malacca Straights to the South China Sea while simultaneously employing a liberal trade policy.  This will eventually neutralize the China threat entirely because China is competing on one metric (cost).  However, in the short term China remains an emaciated junky that consistently runs to its dealer when it needs a fix.  As for regional conflicts,  North Korea is an easy target for China.  The ideological currency gained from "freeing one's communist brethren" would do wonders to satiate an angry and skeptical domestic populace.  It would also save the embarrassment (and threat) of a united Korea.

France faces a difficult time.  With regional rivals quickly reverting back to historical "normalcy", its ability to legislate and demand asymmetric terms out of proportion to its importance is coming to a close.  This may change, if France sees itself as a security guarantor for Eastern Europe and the Caucasus.  Providing regional services would be of great benefit to that nation, especially considering Germany seems unwilling to engage in one of its traditional national pastimes.

So, we do indeed live in interesting times.  Emerging Markets will become squeezed by more aggressive nations until the security contractors arrive.  The U.S. benefits from all this and will not experience the inflation that so many have called for.  Other developed nations (the entirety of the EU without Germany, who will most certainly leave the Euro) most certainly will.

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