Thursday, January 1, 2015

2015 as a ‘The Year of Chaos’, Part 2: Possible Examples of Disorder in the Year Ahead

“When the fabric of society is so rigid that it cannot change quickly enough, adjustments are achieved by social unrest and revolutions.”  - John Boyd Orr

“There are decades where nothing happens; and there are weeks where decades happen.”  - Vladimir Lenin (1870 – 1924)

Though I am not alone in calling for next year to be an exceptionally turbulent one, I don’t agree with those who are predicting collapse of calamitous proportions for next year… Especially those who are assuming this next year will herald an epic dollar collapse or gigantic stock market crash in the US.  While I can’t dismiss it as a possibility, given the other factors in play I simply see the odds of that happening next year as quite low.  Yes, the stock prices and to a lesser extent the general economy are kept afloat in part by the Federal Reserve’s money-printing and easy money policies.  And yes, the US government’s spending habits are out of control and it will eventually take its toll on the dollar.  But hard as it is to believe sometimes, many countries are in worse straits.  Chris Martenson of coined a phenomenon he calls ‘From the Outside In’, which more or less states that economic instability is likely to express itself at the economic fringes first and then make its way towards the center.  

In the context of this oncoming crisis, the ‘center’ of the Western economies would be the US, and the ‘fringe’ would probably include countries like Venezuela, Ukraine, Russia, and the weaker Eurozone economies such as Greece.  While I do see a very high probability (if not near-certainty) of an eventual currency crisis with the US dollar, I think we will need to see some of the other dominoes fall first before it’s our turn.  Venezuela and Argentina have been in the midst of currency crises for a while now, more recently followed by Ukraine and just now starting to play out in Russia (though Russia is a bit of a special case given the unusual external pressures, i.e. sanctions, being put on it).  I expect more of the peripheral countries in Europe and some Middle East nations would be next.  Once that occurs and we start to see the same occurring in the EU and Japan, THEN I think we have to brace ourselves for America’s turn.  I expect this will take some time to play out given the size of some of the economies involved, as larger economies usually have a certain amount of ‘inertia’ (for the lack of a better term) that prevents them from seeing the same degree of rapid declines that smaller economies sometimes do.  On the other hand I do expect counterproductive reactions by those running America’s political machine, which will hasten America’s approach to an eventual currency crisis.  I just don’t think it will happen in a year or less.

While I predict that 2015 will be a pivotal point in history, that doesn’t mean we’ll experience the most turbulent of what’s to come that particular year.  Rather, it will merely herald the start of a ‘new normal’, where a major change in peoples’ expectations and the political & economic status quo across most of the world BEGINS. 

So getting down to the nitty-gritty, what are the likely expressions of instability for next year going to be and (in my amateur assessment) their likelihoods of occurring?

1) Deteriorating economic conditions across the majority of the world (80% likelihood)

This seems pretty obvious to me, but I suppose it might not be if one is not exposed to alternative news sources or news media outside the US.  In a nutshell, we have the European Union pretty much either in economic stagnation or outright recession, we have emerging markets experiencing a lot of pain, and China’s economy is expected to slow further (the big question there is HOW MUCH slower), and the countries that are in the business of providing raw materials to China (like Australia) are feeling the pinch from China’s slowdown.  While things are not exactly rosy in America’s economy that matters to most of us (i.e. the economy minus the bloated financial sector and its shenanigans), by comparison with much of the rest of the world we’re doing alright.  In most places outside the US, however, things are looking grim, with nothing in sight at this time showing that they are likely to improve.  So basically, next year I expect economic recession in many nations outside the US, or a ‘global recession’ as it were.  

Economically, the US might take a hit but will probably still manage to do better than most nations next year, as the ‘flight to safety’ of foreign money to the US buoys the economy here for a little while.  In fact, I half expect the US will do well enough initially where the pundits and so-called “experts” will say something like “the US economy has decoupled from the world” or “this is proof America is the greatest nation on earth and our economy has nowhere to go but up”.  If you happen to be in the US, take advantage of this to shore up your savings and use the time to plan a strategy to thrive when the US economy does eventually get taken out to the woodshed.  Eventually though, I’m guessing 1-3 years later, the US economy will join the rest of the world as inflows of foreign money will dry up and central bank stimulus loses effectiveness.  Now regarding the collapse in oil prices, if it gets worse or persists more than 6 months from now, I do expect that will devastate to the US oil industry (especially offshore oil and shale oil sectors) and in turn negatively affect the US economy.  However, I expect a certain amount of lag time (a year maybe?) before it will start really hurting the broader economy.  There is some possibility however that a prolonged oil price collapse can create a systemic crisis in the financial system (seeing as there is a lot of borrowed money involved with these unconventional oil plays), but I’ll be mentioning that a little later.

2) Severe economic crises (and potentially currency crises) in nations on the economic periphery (60% likelihood)

If you wonder what exactly a severe economic crisis is like, look at what Greece has gone through the past several years.   And if you wonder what a currency crisis is like, look at what’s starting to happen in Russia and what’s already well underway in Belarus and Venezuela right now.  For next year, I expect two or more small-to-midsize countries will have their economies imploding from a combination of extreme indebtedness, poor political decisions catching up to them, lack of access to further credit, and in some cases the drop in oil prices.  Nigeria, Ukraine, Iran, Iraq, and Russia I think are the lead possibilities, though those are by no means the only possibilities (I consider Japan likely to have its economy crash sometime in the next 3 years).  It is likely you’ve noticed the thing that most of these countries have in common…. namely, most happen to be heavily dependent on oil exports and most don’t have any significant savings to fall back on.  I don’t expect oil prices to stay low more than another year or two, but I don’t think it will take that long to cripple some of these nations’ economies (which is IMO the real reason Saudi Arabia chose not to cut production).  As to currency crises I’m less certain that we’ll see anything new emerge that isn’t part of the already deteriorating situations in Venezuela and Belarus, but if there are I think the contenders are Ukraine and possibly Greece (should it remove itself or be kicked out of the EU and reinstate its own currency).  Now as I mentioned earlier there is a disturbing possibility that sustained low oil prices might create a systemic crisis in the financial markets.  IF this happens then we could see a truly GLOBAL crisis in 2015, one from which the US would NOT likely get a free pass.

3) A spike in civil unrest, domestic turmoil, and even outright revolution in both developed and emerging nations (90% likelihood)

Some of you might say, “hey we are already seeing this!”, but what I’m saying is that you should expect it to get worse for next year.  This is one of next year’s chaotic events that, unlike with the economy, I think the US won’t get to enjoy a temporary reprieve.  For the US I expect it will take two forms.  The first will be a resurgence of something like the Occupy movement, with protests focusing on economic inequality as well as certain aspects of government and/or corporate corruption & misbehavior.  The second form is likely to eclipse the first, taking the form of a larger, more widespread version of what happened in reaction to the police shooting in Ferguson, MO and most likely will be sparked by a similar event.  We have a greater number of people on the edge now, many of them disgruntled and holding fresh resentment over the situation in Ferguson, the death of Eric Garner in NYC, and the increasingly militarized (and in some cases outright oppressive) nature of law enforcement.  At this point many of those are simply looking for an excuse to take to the streets (either to protest or to riot, depending on their scruples or lack thereof).  So I expect this time it will spread faster than the local or federal authority’s ability to contain it.  While I think they will be surprised by the suddenness and intensity of the civil unrest at first, I expect the eventual response by authorities will be brutal, intense, and include some.  Those particular protests and riots will probably be crushed, but it is reasonable to assume the resentment will grow in response, leading to further outbreaks of civil unrest and possibly more violent riots.  In the wake of this we will probably see the next stage of the expansion of the police state in the US, where popular outcry against the riots will give lawmakers and politicians the political cover to do what they already want to do…. namely, further restrict civil liberties and to expand the size & scope of police power as well as surveillance on citizens.  As the authorities become more desperate and eager to discourage any dissent, the lines between nonviolent protesters and rioters/looters will become more blurred and nebulous.  Possibly even getting to the point of expanding the definition of ‘terrorism’ to rioters, looters, and those providing aid to or even associating with said people.  I know this seems very far out or even conspiratorial to some of you, but I implore you to bear with me here.  People in power tend to exercise that power in order to stay in power, whether they are police chiefs, mayors, governors, members of congress, or presidents.  Examine the people in power throughout history and look at the extreme measures many had taken to crush threats to their power, and you’ll find a number of American examples (such as the Sedition Act of 1918).

Overseas I expect the civil unrest will take on a somewhat different flavor, with economics, jobs, and government corruption being the primary drivers in some countries and government repression driving civil unrest in others.  My best model for what to expect is something like what we've already seen in Greece a few years ago and what we saw in the so-called 'Arab Spring', though I think in a few areas it may come closer to actual revolution.  Perhaps Catalonia's push for independence will become more forceful should Spain's government continue to ignore and threaten them, or maybe the Greeks will get REALLY fed up with the EU puppets running their country, or it could be that Iran will finally crumble under the economic stress of low oil prices and public discontent.  I think that in most nations the people aren't that upset quite yet, but the handful that are will set the stage for others in future years.

4) A significant military action that, in hindsight, will probably be considered the start of a series of regional conflicts that will rival World Wars 1 & 2 in the impact it has on the world (50% likelihood)

I want to be careful here, because I don't want to go on record expecting a global military conflict on the scale of WW2 in our future, and neither do I expect it to start off in a major way like WW1 did.  Rather, I think it's most likely that there will be a large number of smaller regional conflicts across the world, many of them unrelated to each other except that some will have in common one or more larger players supporting one side or another (directly or indirectly).  The larger players will most likely be US, Russia, China, and the core (economically stronger) EU nations, each pursuing its own agenda and forming alliances of convenience as they wage proxy wars with one or more large powers through these various regional conflicts.  At this point I expect US and the EU core to work together initially, and the same with Russia and China.  As the years go on and the balance of power shifts, however, this could easily change, and which way it goes is anyone's guess.  But as for 2015, I expect just one or two small conflicts to break out with some of the larger powers taking a side.  I'm thinking the top candidates for the first region or regions involved would be between the Ukraine, the Middle East, the South China Sea, and North Africa.  My guess is the Ukraine will be the first to herald the official start of this global set of proxy wars given Russia's strong strategic interest and the short-sighted aggressiveness of the US and Europe, but we will just have to see how this shakes out.

5) Some (big) rules will be broken or changed (80% likelihood)

To paraphrase another maxim from Chris Martenson, “when the going gets tough, they will change the rules (in their favor)”.  I expect this will be very true of next year, to the same (or even greater) degree as we had seen how ‘rules’ were changed to bail out the big banks and financial institutions in 2008-2009 and how ‘rules’ were ignored by neglecting to pursue criminal prosecution for said entities or the individuals running them for their criminal misconduct leading up to the housing crisis.  What’s hard to predict is WHAT rules will be changed or broken.  We can pretty much guarantee that however it’s done, it will screw over the vast majority of people in order to support or benefit the wealthiest and most connected corporations, politicians, and interest groups.  One possible example we might see next year could be the rewriting or breaking of the European Union charter in order to change an EU member nation’s status in the EU, from setting up some special category of EU membership and/or currency (to separate the weak nations from the strong) or ejecting them out of the EU entirely.  Another even more likely example might be a bigger repeat of what happened in Cyprus recently with bank depositors footing the bill for a banking crisis, though technically that rule has already been changed in many countries so it is just the widespread realization and pain that's yet to come when it gets put into use.  One big rule change I just have to mention is the potential for the IMF's Special Drawing Rights (SDR's) to be adopted as a new global reserve currency to replace the dollar, though I expect that the chance of that happening in 2015 is small and more likely to happen in later years.  Though we may see some serious planning for it to happen in 2015...


Given their generally gloomy nature, it doesn't make me happy to throw out these things as probable events for 2015.  But I think we're approaching the limits to how far the various authorities and corporate powers can kick the can down the road, and my intuition is telling me that 2015 is the year that instability will no longer be contained.  Unfortunately for us, all the can kicking in the form of Quantitative Easing (money printing), bank bailouts, short-sighted foreign military entanglements, etc. has just allowed the potential instability to build, so we're likely to be in for a far wilder time than if they'd done nothing at all.  We are in the process of a reversion to a more natural or sustainable state, and the more they intervened the further from that sustainable state we get and the more painful the change and transition will be.

So I will be surprised if only one or none of these come to pass in 2015.  At the same time though I'll be equally surprised if all five come to pass, as I consider these to only likely possibilities and not certainties.  At any rate I write this not to scare people, but only so they don't get blindsided by rapid change and sudden instability.  And remember that there are potential opportunities associated with this rapid change.  Which ones and how and when you decide to take advantage of them is up to you.  We need to ride the wave in order to not be crushed by it. 

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