The end of the post-WWII world is not the end of the world

Summary:  Slowly people become aware that the post-WWII economic and geopolitical order dies a little every day.  The transition might be long and difficult.  We can only guess at what lies beyond.  Yet we need not fear these things, as they’re less dangerous than what we survived in the 20th century.  Here we take a broad look at the global situation.

Contents

1. The old world ends; a new world will be born
2. Europe
3. Japan
4. America
5. The emerging nations:  China, as an example
6. No fear

(1)  The old world ends; a new world will be born

We’re in the midst of a transition from the post-WWII era to something new, an evolution in many dimensions.

1. A the new economic regime:  resolving the excess debt (public and private), managing global capital flows, ending instability in currency valuations.
2. Geopolitical rebalancing to a multi-polar world of great powers — including emerging nations such as China.
3. A new energy regime:  navigating thru peak oil to new sources.
4. A world where 4th generational war becomes the dominant form of armed conflict (e.g., insurgencies, piracy, failed states, al Qaeda & its franchises).
5. Demographics (the age wave):  aging societies dying gracefully (or not), young societies growing to maturity, and the next fertility collapse following development of a male contraceptive.

How long will it take to complete this transition?  Past ones have been multi-generational (see here for details), and tend to accelerate as they develop.   The last one was painful and took almost 2 generations (1914-1950).  This cycle started (arbitrarily) in 1989 with the fall of Berlin wall (starting global unification, ending the threat of a nuclear firestorm destroying the world), the start of serial US banking crises, and accelerated debt growth.   Guessing, it should be competed by 2040.

The transition will be driven by our responses to the specific crises that are destroying the post-WWII regime.  The choices we make will define the new order.  This post examines only the first two on the list.  For more information:

1. The post-WWII geopolitical regime is dying. Chapter One , 21 November 2007 — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
2. Death of the post-WWII geopolitical regime – death by debt, 8 January 2008
3. Governments cannot go bankrupt, 2 April 2010
4. Our government’s finances are broken. How do we compare with our peers?, 8 April 2010
5. We can try to inflate away the government’s debt, but we’ll go broke before succeeding, 16 April 2010
6. A look at the future of the world’s political and economic order, 4 June 2010
7. Is there any way out from the burden of government debt?, 10 June 2010
8. The end of the world. That is, the end of the world we’ve known since WWII, 7 November 2010
9. Two regions diverging, tearing the world apart. Birth pangs for a new geopolitical order., 18 November 2010
10. For all posts about this see the FM reference page End of the post-WWII geopolitical regime

(2)  Europe

Europe nears the end of its great gamble, attempting economic before political unification.  The moment of choice nears, to political unification or economic fragmentation.  Bank runs have started, slowly — the most frequent sparks to burn down a currency union.  Political dysfunctionality is Europe’s greatest problem.

For more information see these valuable articles:

• “Greece Must Exit“, Nouriel Roubini, Roubini Global Economics, 18 May 2012
• “Europe’s Depressing Prospects: Two Reasons Why Spain Will Leave the Euro“, Michael Pettis, Roubini Global Economics, 18 May 2012

See these posts forecasting and analysis of these events:

1. Can the European Monetary Union survive the next recession?, 11 July 2008
2. The periphery of Europe – a flashpoint to the global economy, 8 February 2010
3. Status report on Europe’s slow re-birth (first, the current system must die), 10 November 2011
4. Europe begins its endgame.  Watch and learn, for Europe’s problems are the world’s., 11 November 2011
5. Will Italy stay in the Euro-zone?, 14 November 2011
6. Looking ahead to see the new shape of Europe, 22 November 2011
7. Hot news! The Wehrmacht failed to take Greece. Now Germany tries again, with a different method., 28 January 2012
8. Europe passes the last exit.  A great crisis lies ahead., 21 February 2012
9. Europe has chosen a harsh future.  All the paths for Greece lead into darkness., 24 February 2012

(3)  Japan

It’s in the endgame, both demographic and economic.  They’ve managed to defer the pain of the inevitable transition, but only by stopping the transition.  Every year the stress builds; they’ve probably passed the point at which a smooth evolution can be done.  Their aging society appears to lack the ability to adapt except when forced by a crisis.  Soon the faults will rupture.

Political dysfunctionality is their greatest problem, as predicted in Karel van Wolferen’s The Enigma of Japanese Power (1989). For more information see

• A bearish perspective on Japan by Hayman Capital Management, a Harvard Business School Case Study, 12 April 2012
• As Japan sails into the shadows, let’s wish them well and wave good-by, 14 July 2009

(4)  America

America faces similar problems to Europe.  Excess household and government debt, ethnic and demographic change, an ossified political structure (eg, rotten boroughs in the Senate), an aging class of leaders (inflexible and conservative elderly billionaires and old politicians), and a mad unprofitable imperial-like grand strategy.  The 2008 crash created an opportunity for change, but Obama choose instead to reenforce the existing system — massive borrowing but no reforms or rebuilt infrastructure.

There are alternative paths, such as this described by ecnoomist Robert Schiller:  How National Belt-Tightening Goes Awry, New York Times, 19 May 2012.

Our problems are easier to fix than those of Japan or Europe.  Political dysfunctionality is our greatest problem.  For more information:

1. Is America’s decline inevitable? No. 21 January 2008
2. Our metastable Empire, built on a foundation of clay, 3 March 2008 — More thoughts on the “dreamland” described by Wolfgang Schivelbusch in The Culture of Defeat, and what it tells us about the foundation of the American empire.
3. A picture of the post-WWII debt supercycle, 26 September 2008
4. A look at our government’s debt – rising because we like to spend, 29 December 2009
5. See the very essence of the US government’s financial problems (clue: it’s us), 2 April 2010
6. Slashing R&D in favor of more important things, like wars and profits. Who cares about America’s future?, 26 August 2010
7. Globalization and free trade – wonders of a past era, now enemies of America, 16 March 2009
8. Beginning of the end of the Republic’s solvency. Soon come the first steps to a reformed regime – or a new regime., 14 August 2009
9. Update on our government’s deteriorating solvency, 1 October 2009
10. The falling US dollar – bane or boon?, 14 October 2009
11. Another crack in Republic’s foundations: not the size of the debt, but when it’s due, 30 October 2009
12. Would a default by the US government help America?, 21 February 2010
13. Why the U.S. cannot inflate its way out of debt, 15 March 2010

(5)  The emerging nations, such as China

China is the global wildcard.  Most experts expect its growth to slow from the fantastic 10%/year of the past decade.  Some expect a hard landing; a few expect a crash.  With an unreliable and small economic information collection systems for its rapidly changing economy, nobody (not even its leaders) can reliably forecast.  China’s growth has made imperative large-scale financial and regulatory policy changes, but these will require strong political determination for the next generation of leadership scheduled to take over in October — since power entrenched interest groups benefit from the current system.

China’s leaders since Mao have proven themselves among the best in the world.  We’ll soon see if that was luck or the product of an efficient (if non-democratic) system.

1. Power shifts from West to East: the end of the post-WWII regime in the news, 20 December 2007
2. China becomes a super-power (geopolitical analysis need not be war-mongering), 9 July 2008
3. China – the mysterious other pole of the world economy, 22 July 2009
4. Another big step for China on its road to becoming a great power, 27 July 2009
5. Will China collapse?, 5 August 2009
6. A revolution is not a dinner party. Thoughts about the future of China, 19 August 2009
7. Update about China: a new center of the world, 13 December 2009
8. China moves to the center of the world. America moves to the edge, 6 January 2010
9. Today’s example of the inscrutable mystery of China’s economic statistics, 13 May 2010
10. How China builds its commercial empire, 12 July 2010
11. A look at the future (it’s already here, but it’s not in the USA), 29 September 2010
12. Why China will again rise to the top, and their most important advantage over America, 11 November 2010
13. Will China become a superpower?, 9 September 2011
14. What China Wants Us to Understand about China’s Rise, 12 March 2012

(6)  No fear

We passed through the shadow of nuclear firestorms perhaps destroying the world (although regional atomic wars remain possible).  Our problems today are one of finding new paradigms by which to organize societies for a new millennium.  For an explanation see:

1. An important thing to remember as we start a New Year, 29 December 2007
2. Let us light a candle while we walk, lest we fear what lies ahead, 10 February 2008 – Putting the end of the post-WWII regime in a larger historical context.
3. Fears of flying into the future, 25 February 2008 — Reasons we need not fear the future.
4. For all posts about this see the FM reference page Good news about America