There will be new challenges for investors in the 21st century. The world will now move from a unipolar world where the United States was the sole remaining superpower after the former Soviet Union imploded in the early 1990’s, to a multi-polar world. This is what the international situation was before the First World War I in 1914.
As the Pax Britannia (British Peace) faded in the early 20th century a new and more dangerous international order resulted. It culminated with a general war in Europe that spread throughout most of the world given the preeminence Europe enjoyed at this juncture in history. Many investors were financially destroyed as a result of the war and the resulting economic postwar chaos.
The Great Depression followed. This international economic malady lasted for most of the 1930’s in the industrialized world. This allowed new investment opportunities after wiping out almost an entire generation of their financial and economic security.
Another general war followed within two decades of the first one. World War II lead to a ruinous stage of events that destroyed infrastructure and whole economies in Europe and Asia one after another. It was a time where wealth created over generations was being totally annihilated within a relatively short time.
A new international accommodation resulted with the ending of World War II in 1945. As Europe and East Asia laid in ruins totally economically exhausted, the United States on the other hand, emerged from this calamity mostly unscathed. The Soviet Union although heavily damaged in the war, was as a result of a major land grab in Eastern Europe able to become a competitor of the United States. This was mostly in the strategic and military spheres of influence, less so economically. Within a short time the former allies became antagonistic towards each other leading to the Cold War.
The resulting bipolar world of the postwar era that had existed from the late 1940’s to the late 1980’s changed dramatically in just a few years. The end of the Cold War in the late 1980’s left the United States unchallenged militarily or economically. The implosion of the former Soviet Union in the early 1990’s allowed the United States a period of time to impose its imperial preferences upon the world.
The benign hegemony of the United States allowed an unprecedented creation of wealth throughout the world that allowed hundreds of millions of people to transition from relative poverty to middle class in a generation. Numerous countries and their citizenry under the system of more democracy and market economics were able to become players in the world of investment and industry. Finance and business had truly become internationalized.
Pax Americana for the investor has been a boon for investment and development throughout most of the world. It provided a framework where all nations can participate in world commerce. It is no accident that former adversaries mainly China and Russia, have both decided to join this capitalist system. There is no argument it is what they needed to do to provide a better standard of living for their citizenry.
The ideology wars of the 20th century have all been forgotten and have been replaced with schemes how to get rich quicker. Even the Chinese Communist Party have legitimized their hold on power by promising to continue rapid economic growth and development. Both of these pursuits are dependent on Western technology and more importantly Western markets. Without a way to export their manufacturers China would no longer have the rapid growth of the past generation.
Russia as well depends on energy exports to sustain its economy in the 21st century. The new ideology there is making money and more recently a return to nationalism. The nomenklatura (the elite) of the socialist era has been replaced by the oligarchs of the 21st century. Many of them are the same individuals and families that have learned to reinvent themselves. Russian society is very similar in this respect to the Gilded Age of the late 19th century America. Also it is important to remember that Putin himself, the new “czar” of Russia had a previous career in the KGB. (Russian Intelligence and Security).
The role of the dollar in this American Peace can not be underestimated. Part of the reason why a number of nations have continued to want to hold dollars is a tribute to how well the system has worked over the years.
The decline and the inevitable collapse of the dollar as a world reserve currency is a result of fiscal and monetary mismanagement of the United States government and the Federal Reserve System. Wittingly or not, the policies enacted in recent times have lead to a devaluation and distrust of American money.
The United States has decided to go on a spending spree where politicians have maintained power by promising increasing payoffs to more and more select groups of American society. This unsustainable spending has become so ingrained in the way the government of the United States does business that any proposals to slow down the rate of spending increases is deemed a cut.
The irresponsibility and ignorance of so many government elites in what they are actually doing is astounding. Any suggestion of more responsible spending by some is viewed as being extreme and outdated. The American public continues to watch this debate wanting to believe that the massive spending is possible but a growing segment is coming to recognize that it will eventually destroy not only America’s preeminence in the world but the American economy itself.
The financial security of every American is now at stake with the depreciating currency and the massive debt both begin to work their way through the economy. Generations of wealth have now become jeopardized by the foolish insistence of government elites that the enormous spending on entitlements is affordable and sustainable. It is no wonder that some individuals have theorized that it must be intentional for nefarious reasons because the continuation of these policies will have ruinous consequences not only for the United States but the world as well.
What will the end of Pax Americana bring? There is no superpower waiting in the wings as was the case when Britain was forced to “pass the torch”. There are a list of candidates to be sure but none of them will qualify for various reasons in each case. It is most likely that the world will return to a more traditional balance of power on a global scale.
As a former superpower the United States will continue to dominate North America with an increasing allowance made to Mexico and Canada as those countries continue to develop. The energy renaissance in North America guarantees that the United States will continue to hold sway in this area of the world. The large American economy will continue to offer opportunity to people in this area of the world once the painful period of adjustment has passed. This accommodation will be reached when the currency and debt issues (domestic and international) in the United States have finally been dealt with one way or the other.
In South America Brazil will emerge as the new hegemonic power. Argentina once again because of its poor judgment in fiscal and monetary policy will be unable to fulfill the promise of a strong influence. Brazil with a combination of other economic powers like Colombia, Chile and Peru will form a new condominium where they will cooperate to advance the economic interests of the member states. As more nations get their economies in order they will be allowed to join this growing economic cooperative. The model will be a South American version of the European Economic Community (EEC) with Brazil playing the role of Germany.
In Europe whether they wish it or not the long awaited Pax Germania will finally have arrived. It will ultimately be up to the Germans to maintain order within the EEC and to make an accommodation with a resurgent Russia. It was done before in the 1920’s and will need to be achieved once more. Russian natural resources in exchange for German investment and markets. This agreement will be essential if Russia wants to do business in Europe. The Russians need to sell their commodities especially those in the all important energy market.
Russia will dominate as the leading economy in Central Asia. The former Soviet Republics of Kazakhstan, Kyrgyzstan,Tajikistan, Turkmenistan, and Uzbekistan will move to a closer association with Russia as will some of the other Stans in the region. There will be some expected competition with both China and India in the periphery area.
In East Asia as expected, China will predominate. Japan will need to come to an accommodation with China much like Germany did with France in the past. It will happen because it needs to. With the American exit from East Asia, Japan will have no choice but to make the adjustment. The only alternative would be an East Asian alliance in combination with Japan in opposition to China. Historical and cultural differences between these countries make this highly unlikely.
In South Asia the dominant power will be India. It is the country with the largest economy in the region. India is one of the top ten economic powers in the world. The large population of the country (well over a billion) and natural resources makes it the obvious choice. It has a huge internal market and a rising educated middle class workforce. India has more college graduates then any other country in the world. It’s present rising military aspirations will coincide nicely with the new reality. There will be competition with China in Southeast Asia and some resistance from large nations like Indonesia, but India will be the force to reckon with in this part of Asia.
Competition among regional powers will continue in the Middle East for geopolitical and natural resource reasons. The role of energy exports from this area will continue to be important to the world economy. Iran will attempt to dominate this area of the world to possibly recreate a modern Persian Empire but the effort will fail. In combination, the Gulf States will be strong enough to resist this effort.
Africa will also be an area of competition between China, India, Russia and Europe. There is no dominant power on the continent of Africa in the near term. Past attempts of alliance and economic cooperation have not flourished. Stronger nations like Nigeria and South Africa may be able to resist this outside influence but other nations on the continent need the foreign investment. This will be the only way to continue economic development for a rapid expanding population.
International trade between countries within these new regional blocks and throughout the world will need a new medium of exchange. Especially with the dollar no longer playing that role in the future. There will be a period of adjustment where various currencies will compete in a “basket of currencies”. Eventually attempts will be made towards a one world money system. The reason being for a new stability in the international economy. Traders, investors, manufacturers, bankers, industrialists and corporations will all put pressure on their political leaders to move in this direction. Eventually, politicians in each region will come forward with their own plans to accommodate it. An international conference will follow much like Bretton Woods in 1944.
The result will be a new world currency for international trade and finance. It will also be claimed at the time that it is the first step in attempting to deal with a world economy addicted to domestic and sovereign debt. In the beginning domestic currencies may continue to exist for individual markets but these will be gradually replaced by the new world monetary and currency system.
This will establish the foundation for what will come next. The movement over time will continue to gather supporters in the next monumental international effort. That will be the creation of a new world government.