CitiGroup have released a new report that suggests the current geopolitical world order is coming to an end, and that America will soon cease to exist as the world’s superpower.
The report is centered around the idea that “Pax Americana” (a state of relative international peace regarded as overseen by the US) is in its final death throes.
“Pax Americana” is the term often used to define the (previously) current geopolitical order. That the general peace and stability of the Post-WWII world is due to America’s dominant economic and political power, backed up by its huge military.
Citi says that the Pax Americana era is over, and that the future holds nothing but uncertainty, chaos, and instability.
The report says:
2016 has begun, as 2015 ended, amid a significant worsening of the global political climate and along with that, considerable volatility in financial markets. Investors and businesses are increasingly aware of the need to understand the drivers and the implications of a greater level of event risk exacerbated by shifting social patterns.
What’s more, we see little sign of this trend of political risk cutting across advanced and emerging economies reversing. We think it’s unlikely that the moderate global growth that Citi’s economists forecast as their central scenario will dampen these risks. If anything, the data we have analyzed for this report, combined with our combined expertise in comparative political science and international relations and security and defense analysis, underscores how, by many measures, these risks are on the rise and indeed could endanger even the already modest prospects for global growth.
In other words, the global economy is about to crash.
In our view, political and business leaders will need to be more attuned to the new shape of global political risk, a paradigm shift that means that previous policies will fail to keep pace and uncertainty will remain high, with the potential to interact in unexpected ways. Among the key implications of this more fragile and interconnected risk outlook is that so-called Black Swan events — in this case, geopolitical events producing instability spanning several orders of magnitude — may be both more likely and more difficult for leaders and global financial institutions to resolve.
The Black Swan theory was developed by Nassim Nicholas Taleb, as the disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology.
The 9/11 attacks are a good example of a “Black Swan”.
The report closes with:
Over the long-term, failure to devise policies to address middle class anxiety and declining living standards increases the likelihood that Vox Populi risk — including mass protests and government collapses — could move from being episodically disruptive to systemic, undermining globalization in the process. And we are deeply concerned that the political capital necessary to stem the refugee crisis and terrorist threat, perhaps best-characterized as the collision between previous foreign policy failures and current governance capacity, exceeds that available to government leaders, who have relied upon central banks to manage the lion’s share of global crises over the past several years. 2016 could be a very political year for markets.
Global Political Risk: The New Convergence Between Geopolitical and Vox Populi Risks, and Why It Matters