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World Political and Economic Scenarios, 20yrs Ahead

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JASKN
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...And What You'll Do About It.

This thread is for realistic speculation about the future of the world political and economic environment, and how a citizen of the United States should act in preparation for it. We'll take sNerd's suggestion and make it for 20 years out. Naturally, anything over two or three years is rough, but give it your best shot.

I'd say worldwide collapse is unlikely outside of near annihilation. Too much of the world is too educated to not recover in some significant way from any amount of looting or war. If it came down to it, I think Americans would still fight hard for their country.

That said, I see all culture on a sad decline. Every year it seems people get lazier. I think politics will continue to intrude on our lives, and eventually the country will be more-or-less government-controlled. In the next 20 years, I doubt free speech will be repealed openly, but various underhanded laws will continue, as they do now, to pave the way for more control until some politician finally succeeds in convincing people to give up all of themselves to his power, legally. At that point, he will swiftly come in, like dictators of the past, and there will remain no "freedom fighting" kick left in the peoples' souls. It's making me sad just thinking about it.

The wild card is Rand's ideas, and all other rational thought. I truly believe all human action is preceded by thought, and that ideas are the only way to change the course of history -- with action to follow, of course. What I'm not as sure about is how the ideas take hold. When you explain the same rational notion to the same irrational person in 7 different ways and get resistance or a blank stare every time, no change... I am at a loss as to what to do.

Either way, I personally will continue to fight for ideas in whatever practical way I can implement in my life. Since I've got to support myself and make the rest of my life worth living, I'm just going to work as best as I can at whatever I do, for myself and with hope that it might serve as a good example of a good life to others. As to what specific paths of production (career) I should take, I don't know enough to say. I could give some rough observations, but I can't say anything like, "Oh, god, no. Don't go into XYZ because when the political climate shifts to ABC, 123 will definitely happen, rendering your job obsolete." Given the quick pace of the business environment already, general career advice would probably remain the same, good economic/political outlook or not: keep quick on your feet, do a good job.

I'd love to get more perspectives. Also, if you're already solidly in a career, what is your plan in relation to that particular career?

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The European debt crisis probably isn't directly related to the US, but it probably is relevant because of how interwoven the economies are these days, so I thought I'd give my perspective on that in case anyone wants to know :).

I don't think the whole place is going to fall apart, literally, although it is always possible if they have a major panic and for some reason can't muster the political will to paper over any policy differences and bail out whatever countries they need to. Having said that, the system in Europe is absolutely unsustainable, and in the longer term can't stay together unless all the economies there suddenly pull out of a major tailspin and start growing phenomenally. Further integration probably could force the peripheral countries to live within their means, but I really, sincerely doubt the political will is there. The EU is more and more unpopular, and if it goes on too long there will probably be electoral consequences and I think we'll see more and more anti-Europe parties getting into power. Given how they built the EU, any country can block progress over there so it doesn't take much to throw a spoke in the wheels.

I think in the short term they'll probably come up with some new bailout scheme a la TARP, which obviously doesn't fix anything and will likely make matter worse long-term, but it may be enough for them to continue to ignore reality for a while longer. The wildcards there are either one of the core countries putting their foot down (or having elections where someone totally opposed to the bailouts wins), or if one of the peripheral countries decides to leave the Euro, as that will probably get messy. Not end of the world as we know it messy, but if Europe falls off a cliff and they lose half their banks due to government defaults and corresponding insolvencies, our economy will probably also tank because of how big a market the EU is.

Having said that, I don't know if there's much we can do about it. I'd say Greek default is inevitable, but then it is hard to overestimate how much governments and central banks can manipulate matters if they really feel the need... We certainly don't have free bond markets by any stretch of the imagination, and the status quo will probably continue until we run out of other people's money. If China does have their real estate bubble implode we'd probably be in trouble :)

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I think y'all are entirely too optimistic, and that scares the hell out of me.

The "can-kicking" that Maarten ref'd has a finite endpoint beyond which it will simply not work. Eventually, people/governments (the Chinese) will no longer lend us money at effectively 0% interest. This will leave us with two options: 1. Inflate, Zimbabwe-style, to eliminate the debt overhang by paying it down with effectively worthless dollars/euros; 2. Deflate, and allow prices to fall to equilibrium via foreclosures/bankruptcies. This will have the effect of raising interest rates dramatically. BTW, this also entails the effective total dismantling of the Welfare State, as the government will be unable to deficit spend (at the new, higher rates), and will have to live on a cash basis (with a tremendously smaller tax base, at that). This is your classic Depression scenario.

#1 will impoverish all but the super-rich and well-connected. It will wipe out savings and encourage capital flight. What capital that does remain will be even more concentrated than it is now. It will be a return to the Middle Ages. Expect riots, with even (formerly) middle-class participation. OTOH, those who invested in PM's will look like geniuses.

#2 will wipe out those who carry debt, and will be a great opportunity for those who do not. The depth of the depression will depend on the amount of debt in the system at that time. The length will depend on governmental actions attempting to mitigate damage. Less gov't action => shorter but sharper. See Depression of 1920-21 and The Great Depression for examples of both types. One big difference between then and today is that we now have a large plurality of humanoids actively receiving money from the government. Money which will likely no longer be available to pass out/buy votes with. There will be a good chunk of these people who will be unhappy. Expect riots, though it will likely be the usual suspects only.

Likely short-term scenario: Obama/Bernanke continue to kick the can until either China's RE bubble implodes (they stop buying T-bills); the Euro implodes (or a reasonable facsimile thereof); or Obama gets re-elected. In any case, the next guy in the Oval Office is going to be the next Hoover (unless he can pawn blame off onto Obama).

Longer-term scenario: A 20-ish year Depression, as whoever is in power will likely do everything they can to mitigate damage, and therefore prolong the necessary pain. At the end, which will likely involve some kind of military activity, we will be even less free than we are today.

I say this because though Rand's ideas are definitely out there and being talked about, they have not yet reached the "critical mass" needed to tip the balance away from the Dark Army of Leeches. While the Atlas Shrugged scenario all happened in a very few years, I'm afraid real life won't be nearly as cooperative.

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That said, I see all culture on a sad decline. Every year it seems people get lazier. I think politics will continue to intrude on our lives, and eventually the country will be more-or-less government-controlled. In the next 20 years, I doubt free speech will be repealed openly, but various underhanded laws will continue, as they do now, to pave the way for more control until some politician finally succeeds in convincing people to give up all of themselves to his power, legally. At that point, he will swiftly come in, like dictators of the past, and there will remain no "freedom fighting" kick left in the peoples' souls. It's making me sad just thinking about it.
Personally, I'm far more optimistic than this. Just as "good times" have a way of making people complacent, bad times can be a wake up call. Man has volition and when he thinks one way fails, he tries another. Bad times -- as opposed to crises -- don't usually send people into the hands of an autocratic tyrant.

We're in a post-communist statist world, where many countries have experimented with the worst forms of statism and shown it to be a failure. I recommend Amity Shlaes's "The Forgotten Man". While it does not provide reasons for the Great Depression, it is a great survey of the political attitudes of the times. At that time, there was intellectual support for free-markets. However, there was also a certain sense of doubt. A significant set of intellectuals thought: our system is more moral because it supported individual freedom, but socialism is more practical. They thought that the Soviet Union would soon end its growing pains and start to ascend faster than the West. This was not an outlier viewpoint. As late as the 1970's my Economics textbook -- by Paul Samuelson who had just won the Nobel prize, still thought Russia would outstrip the U.S. (see here). Similarly, there were others who were anti-communist statists (people like Henry Ford) who thought that German-style National Socialism was the practical solution. Their modern equivalents -- like Krugman -- have less respect for totalitarian statism, and acknowledge a larger role for "markets".

A major recession gets people doubting again. It is only natural that they question the practicality of our mixed economy, along with its morality. Since the perception is that we have had a move away from statism (since the 1980's), it is natural that people will think "we moved too far right". This might well have political implications: a National Health Service, higher tax rates, more welfare, more bureaucracy, union card-check rules, and so on. Even all of this would not add up to old-style Yugoslavian socialism, let alone Soviet or Chinese variants. It would be more like France, god forbid!

The core of Occupy Wall Street folk is extremely statist. A very broad set of voters feels their frustration; but I doubt a broad set of voters will want to take the country statist at the rate the protestors want. The "right" is not going to give up the fight for "free-markets" either. Remember that the network that trounced the others is Fox news! So the right is not some tiny segment. No, I don't think they're fighting for real free-markets, or fighting the right way. Their basic premise is altruistic and statist. To them, the market is the practical way of achieving the same altruistic goals. In practice, this leads them to give in bit by bit (e.g., it is the GOP that expanded Medicare by adding drug coverage; Bush made K-12 to focus on kids at the bottom of the ladder). Remember though, that Adam Smith too shared the same premise. The move toward more statism will probably not be linear: there will be twists and turns as people try things one way and then try to inject some "free-market" aspects. Even Carter started to deregulate some fields, for practical reasons, and Reagan took that further.

After WW-II, Britain voted Churchill out in 1945 and moved increasingly statist (continuing their post WW-I trend). People will rebel against the King or against Gaddafi if they have suffered enough. However, when the statist policies are seen to have flowed from the votes and choices of the majority, there's no need to rise in revolt. Instead, they look for a strong leader offering solutions. Yes, this could be Hitler; but it could also be Margaret Thatcher.

China and India have been moving away from statism. China could see a major collapse of its real-estate boom, and perhaps that will lead to back-tracking. However, it is extremely unlikely that it will return to Maoism. The Muslim world is throwing out their dictators. Some of these new democracies may stay very statist, others may turn religious, but it is likely that some will move into the modern age. Democracy is messy, and can often seem to be heading in the wrong direction, but some will come out right. And, each one that does set an example for their neighbor.

This post has mainly been about broad political ideas, rather than economics; I'll save that for later. Briefly: we can expect the unemployment rate to stay high for many years, we can expect some inflation (not hyper-inflation) to return at some point, but every passing year also brings repair. People have been fixing their personal balance sheets. Local governments have cut growth rates in their spending. Major union contracts have been re-negotiated to be more reasonable and competitive. For all the talk of more government support, there is also a pretty strong countervailing notion that we should not grow the deficit too fast. Gridlock in Washington is likely to act as some check against the worst type of fiscal stimulus. Foreclosures may remain high, but this also means that bad debts are being written off and lenders and debtors are moving on with their lives.

Every year also brings some degree of raw technical and industrial progress that counteracts the negatives of government policy. Adam Smith says it well:

... the desire of bettering our condition,... never leaves us till we go into the grave. ... An augmentation of fortune is the means by which the greater part of men propose and wish to better their condition. ... This desire is so powerful that even the greatest follies perpetrated by Governments have never succeeded in annulling its beneficial effects. The uniform, constant, and uninterrupted effort of every man to better his condition, the principle from which public and national as well as private opulence is originally derived, is frequently powerful enough to maintain the natural progress of things toward improvement, in spite both of the extravagance of government, and of the greatest errors of administration. Like the unknown principle of animal life, it frequently restores health and vigor to the constitution, in spite, not only of the disease, but of the absurd prescriptions of the doctor.

Finally, Bronson's "Death Wish" is formulaic, but it is a nice way to immerse oneself in a negative stereotype of the 70's. Imagine you have to live through the 1970's again. Does that sound horrible? I suppose it does in relative terms. However, as someone who lived in a third-world country at the time, the U.S. of the 70's was a rich utopia in comparison. Even in that third-world country, I knew that the two essentials were in the reach of a middle-class person: a rewarding career and spouse. It is hard not to be disheartened when things are going far worse than you know they ought to go. I don't know what the solution is. Perhaps a degree of disengagement has to come through sheer self-discipline. Ideally, it would come because one was very engaged in one's chosen productive work.

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I'm somewhere between utabintarbo and softwareNerd. I do think there is real potential for things to get very nasty. As such, I've prepared the best I can without getting too crazy about it: freeze dried food supply, plenty of guns and ammunition, precious metals, etc.

That being said, I do think that progress will continue, despite the continual onslaught from the collectivist filth. I chose a career based on what I knew would be profitable (Computer Science). In a "down market" I'm not only gainfully employed, but I get regular calls and emails from recruiters. In the short term, I plan to continue work on my Master's degree while working full time and building up savings that isn't dollar-denominated. At some point in time, it will be time to invest in stocks again, namely genetic engineering, nanotechnology, and artificial intelligence (which is a field I plan to be involved with in the future).

Human beings have an amazing drive to create and innovate, in spite of the second-handers. If innovation doesn't continue here in America, I may consider moving elsewhere (East Asia). But that's a worst case scenario.

So in some ways I'm very nervous about the future, but also cautiously optimistic. It could definitely all come crumbling down very quickly. If we can just hang in there past this rough patch, I think we're about to accomplish some very amazing things as a species.

"Moon Pie.... what a time to be alive."

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America is not alone in the world. Relative to the rest of the world America retains some enduring advantages.

From the concluding paragraphs of World Power Swings Back to America in the Telegraph (UK newspaper)by Ambrose Evans-Pritchard

The switch in advantage to the US is relative. It does not imply a healthy US recovery. The global depression will grind on as much of the Western world tightens fiscal policy and slowly purges debt, and as China deflates its credit bubble.

Yet America retains a pack of trump cards, and not just in sixteen of the world’s top twenty universities.

It is almost the only economic power with a fertility rate above 2.0 - and therefore the ability to outgrow debt - in sharp contrast to the demographic decay awaiting Japan, China, Korea, Germany, Italy, and Russia.

Europe's EMU soap opera has shown why it matters that America is a genuine nation, forged by shared language and the ancestral chords of memory over two centuries, with institutions that ultimately work and a real central bank able to back-stop the system.

The 21st Century may be American after all, just like the last.

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There's little doubt that America remains the premier super-power, both economically and militarily. The old adage goes that when America sneezes, the world gets a cold. That likely will be the case. Given the scenario I see for America, I fully expect it to be substantially worse elsewhere.

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There's little doubt that America remains the premier super-power, both economically and militarily. The old adage goes that when America sneezes, the world gets a cold. That likely will be the case. Given the scenario I see for America, I fully expect it to be substantially worse elsewhere.

This, I don't agree with. Other nations have been subsidizing America's consumption by trading their goods for our paper. When U.S. debt is discovered to be worthless, other countries will start consuming the resources that they currently export to us. America's economic decline will be good for the rest of the world.

Edited by iflyboats
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This, I don't agree with. Other nations have been subsidizing America's consumption by trading their goods for our paper. When U.S. debt is discovered to be worthless, other countries will start consuming the resources that they currently export to us. America's economic decline will be good for the rest of the world.
Does this mean America will change to be a manufacturing country and net exporter again?
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Does this mean America will change to be a manufacturing country and net exporter again?

Only if the government makes it possible to manufacture here again by repealing taxes and regulations. That's why we'll never recover until we have a philosophical revolution.

Edited by iflyboats
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Only if the government makes it possible to manufacture here again by repealing taxes and regulations. That's why we'll never recover until we have a philosophical revolution.
I agree that the government needs to deregulate. However, let's assume we do not have much change from where we are today. In that scenario, let's assume that China decides to consume more instead of sending as many goods to the U.S. and accepting U.S. bonds in return. So, I assume you're implying a situation where the Chinese stop running up a positive trade-balance vis-a-vis the U.S. Is that what you're talking about?

If so, then it is the same thing as saying that the U.S. will no longer run a negative trade-balance with China. Do you agree?

Assuming for a moment that it is not just China, but that other foreign countries (at least as a whole) stop valuing our paper as much as they do today, you're positing a situation where the U.S. trade-accounts are back in balance? Is that true?

I'm trying to understand the exact situation you're positing, because that's the starting point to understand how likely it really is.

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I agree that the government needs to deregulate. However, let's assume we do not have much change from where we are today. In that scenario, let's assume that China decides to consume more instead of sending as many goods to the U.S. and accepting U.S. bonds in return. So, I assume you're implying a situation where the Chinese stop running up a positive trade-balance vis-a-vis the U.S. Is that what you're talking about?

If so, then it is the same thing as saying that the U.S. will no longer run a negative trade-balance with China. Do you agree?

Assuming for a moment that it is not just China, but that other foreign countries (at least as a whole) stop valuing our paper as much as they do today, you're positing a situation where the U.S. trade-accounts are back in balance? Is that true?

I'm trying to understand the exact situation you're positing, because that's the starting point to understand how likely it really is.

I envision a situation where America's negative trade balance comes to an end. But the case may very well be that we end up exporting more than we import, because foreigners will be able to outbid Americans for the things still made in America.

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why would that be a good thing in contrast of America being a creator of products to manufacture elsewhere, and importer of those products invented at home?
I don't imply that it would be. However, from Iffyboats post I got the impression he considers the current "stance" of America and China via-a-vis saving/consumption/import to be a bad thing. Therefore, I was asking if the feared scenario will simply bring about a role-reversal.
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That makes sense, and no a "reversal of roles" (or for that matter a going back in time) is not possible - except the latter and by cataclysm which is not a good thing.

So general questions regarding this topic

1) What about Ray Kurzweil's predictions of exponential technological growth. He began in the 80s and the predictions are proving consistently correct. Within all the many ramifications we find ephemerization (a neologism by Buck Fuller). This would explain the continuing success of San Francisco bay area and the continuing decay of the Rust Belt at the same time. But what will happen with that tension?

2) What about the opposite of Ray? Dmitry Orlov who predicts not total but momentary social collapse in America by drawing fastidiously correct parallels with the Soviet Union?

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2) Dmitry Orlov who predicts not total but momentary social collapse in America by drawing fastidiously correct parallels with the Soviet Union?

Yes, economically America is repeating some of the mistakes but this is where the ground for parallels ends. America (despite everything) is nothing like the Soviet Union philosophically and culturally so drawing strong similarities between the two countries is absurd and Orloy's wishful thinking. US is very unlikely to experience Russia-style collapse.

Orloy attributes economic problems caused by the crash in oil revenues for the Soviet collapse as if it was incidental. This may have been what triggered it but it was not the cause. The collapse of the system was eminent and oil profits only delayed the correction.

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Yes, economically America is repeating some of the mistakes but this is where the ground for parallels ends. America (despite everything) is nothing like the Soviet Union philosophically and culturally so drawing strong similarities between the two countries is absurd and Orloy's wishful thinking. US is very unlikely to experience Russia-style collapse.

Orloy attributes economic problems caused by the crash in oil revenues for the Soviet collapse as if it was incidental. This may have been what triggered it but it was not the cause. The collapse of the system was eminent and oil profits only delayed the correction.

I've thought the guy was thinking wishfully too - for a couple of years now. My first argument was that the Soviet Union was more of an experiment than the USA which is organic; and my persisting argument is that Americans simply don't behave like Russians!

More recently I began to understand what he really means by superpower collapse. A superpower needs actual energy to maintain an overseas presence. Drawing parallels to the Soviet Union is quiet laughable indeed, but also fastidious when reconsidered until it makes some sense.

Just consider that the British Empire collapsed like a house of cards in only three decades and right after its apex.

Britain didn't cease to exist, parliament continued functioning, but they did experienced a brief period of collapse, particularly worse after than during the war that buried them with their victory.

This also applies to the other 6 European countries that formally controlled all the World but the Americas, Ethiopia, China, Siam and Japan.

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and as Sophia pointed out the USSR and its sphere of influence, acted as the World's mineral reserves. Just as oil revenues might have delayed USSR's collapse, the USA is at this very moment using its abundant "well backed*" currency to delay its.

The difference is that a World reserve currency is something infinitely more abstract than oil or uranium. If successful in delaying it, a collapse can be postponed indefinitely while American inventions continue to fuel grow.

In that I still see more parallels with the British than with the Soviet.

Here where Kurzweil enters the play. If the military holds out they might just be able to provide more time for the geeks to program further strictly American inventions that do not require manufacture (such as google, craigstlist, airbnb, FB).

*well backed not by gold or oil but by a worldwide military power - much like Britain. But as the USAF spreads thinner and thinner I wonder if they can really protect worldwide peace and trade. The British thought so at the beginning of the century and then Singapore and Malacca were snatched just like that. Australia would have been as well but for the Americans. And they didn't even learn as 35 years later they don't bother two station more than a land garrison in the Falklands.

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US != former Soviet Union in so many ways, but chief among them (in this context) is that the US enjoys reserve currency status. This acts as a brake on any collapse that may happen, and why the rest of the world generally suffers more than the US does.

What if the U.S. were to lose reserve currency status?

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We are heading towards a Nazi style dictatorship like Peikoff suggests in The Ominous Parallels, but if I were to guess we are still about 40 to 50 years out unless we have more Obama type politicians elected in the near future. I don't think there is a realistic way to fight it anymore. The average person doesn't think through things deeply enough. We should let it collapse and even help the process along so that it happens decades faster. Then rebuild from the ashes.

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We should let it collapse and even help the process along so that it happens decades faster. Then rebuild from the ashes.

This is another strategy for change, actually. So why not try to change before a "collapse" instead?
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What if the U.S. were to lose reserve currency status?
To lose reserve currency status implies that people who hold claims on the U.S. call in those claims: i.e. exchange those claims for real goods from the U.S. For instance, if China was to sell $1 trillion of its US$ bonds, it would get $1 trillion US$ currency. If it then took this and bought gold from (say) South Africa, the US$ balances previously held in China would now be in South Africa. Whoever holds this US$ currency can again decide to buy US$ bonds. The ratio of US$ currency versus US$ bonds (which are basically two types of claims on US-based people) will impact interest rates, but there is little reason for the ratio between them to change in a lasting way. The real impact on the U.S. will be when the total of US$ currency & US$ bonds held externally is reduced.

Continuing the example above, if the South Africans decide to buy a whole lot of Boeing aircraft, the US$ will return to the US.

Edited by softwareNerd
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