Comparing Old And New Realities
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The document compares historical causes of major conflicts to potential future causes. It discusses four historical causes: 1) Economic volatility, 2) Ethnic disintegration, 3) Empires in decline, and 4) Eastern resurgence. It then examines whether similar factors are at play today, specifically looking at potential volatility in the Middle East, ethnic meltdown in Iraq, the decline of the US empire, and the rise of Iran and China. While financial markets appear calm, the document warns of "low probability, high-impact events" that are hard to predict but could significantly impact the global economy and geopolitical order.
Comparing Old And New Realities
- 1. Comparing Old and New Realities: Are We Going Forward to the Past?
- 2. Past causes of megaconflict Economic volatility Ethnic disintegration Empire(s) in decline Eastern resurgence
- 5. 3. Empires in decline
- 7. Future causes of megaconflict? Middle East volatility? Ethnic meltdown in Iraq US empire in decline? Iran and China advance
- 8. 1. No shortage of vol. in ME Source: World Bank
- 9. 2. Iraq: Insurgency to civil war Source: Brookings
- 10. 3. America’s overstretched ‘empire’
- 11. 4. The descent of the West Source: Goldman Sachs NB US/China per capita income ratio forecast to fall from 23 to 6
- 12. So where’s the financial fear? Source: MSCI NB Of BRICs + N-11 (15), 9 are in the bottom third of the world as ranked by the Global Peace Index, and 3 are in the bottom 10.
- 13. Where’s the political risk premium?
- 14. Are we being fooled by liquidity?
- 15. … and the joy of “Chimerica”?
- 17. Have we been here before?
- 18. Long-term rates were low …
- 19. Credit spreads narrowed … “ The Sterling Carry Trade”
- 20. Stock markets trended upwards
- 21. … and volatility declined
- 22. —despite rising energy prices
- 23. British savings c/w Asian today
- 24. But then … The Times , July 22, 1914, p. 19 (Note: Assassination of Franz Ferdinand June 28)
- 25. August 1, 1914 The Times , August 1, 1914, p. 13 (Note: Britain declares war on Germany, August 4)
- 26. What might have happened? London reopens: January 4, 1915
- 27. What did happen
- 29. The price of imperial decline? Source: Global Financial Data
- 30. Looks familiar?
- 31. The big problem A “low probability, high-impact event” like a major war (or revolution) is less improbable than we assume … But like all “black swans” it’s impossible to predict with any accuracy … So it’s easier to ignore, because if it happens we’ll all go down together
- 32. That’s no bell curve
- 33. That’s no bell curve
- 34. The limits of history I can’t promise you a Third (or Fourth) World War The First World War was unexpected The Second World War was expected, but came later than investors feared The Third World War was expected, but didn’t happen (or only in the Third World) A Great Middle Eastern War is more likely today than a World War I can’t advise you on the optimal wartime portfolio, so don’t ask
- 35. The limits of history I can’t promise you a Third (or Fourth) World War The First World War was unexpected The Second World War was expected, but came later than investors feared The Third World War was expected, but didn’t happen (or only in the Third World) A Great Middle Eastern War is more likely today than a World War I can’t advise you on the optimal wartime portfolio, so don’t ask
- 36. Conclusion: They do exist © Niall Ferguson 2007