Economic Insights: Mega Trends 2015, 2010s, 2100s?

by Cees Bruggemans

Technological disruption. Geopolitical radicalisation. Economic shock treatment. Demographic displacement. These are the mega trends, as much initiators as consequences, that seem to shape the present, projecting deep into future years.

Parachuting in from nowhere, one has difficulty in recognising the landscape after only a short lapse of time, even if the shaping tendencies have been with us much longer, counted in years but also (not surprisingly?) in centuries.

Just how revolutionary is all this (breaking with the past, jumping railway tracks, opening up new channels to the future)? A deepening maelstrom, a heating-up caldron, stiffening hurricane winds? And more such tired cliches. Or is all of it passing make-belief? There is more going on here than meets the eye? The world is entering a new phase of upheaval? And resulting renewal?

Technologically, the world today possesses a huge army of tinkerers, as much in the knowledge field as in applied technology, turning new ideas into product applications. This scientific revolution is 500 years old, and is more than ever dominated by those dreaming of "disrupting" established playing fields.

Such disrupting has become an everyday occurrence. And seems to be accelerating – in nearly every direction (like an outwardly accelerating universe). Complacency gets shattered, new norms & standards arise, old players disappear, upstarts everywhere. And all this at an increasingly bewildering speed as old skins are shed & new ones tried on.

In the process, ways of life (work, social, pastime, entertainment, young, adult, elderly, sport, medically, educationally, financially, certainty) are daily being re-engineered. As if standard procedure: out with the old, in with the new, greatly speeded up.

This is the true bedrock of change. So we live in an Age of Renewal, in which all is being re-designed even if we active participants have little inkling of ultimate design or destination.

In a parallel universe, massive long-run geopoliticals also keep restlessly rubbing shoulders, in the process in places (re)igniting inner smouldering fires, inviting eruptions of radicalisation.

The main demarcations? The modern West and various old contemporaries. Russia for one, like a smaller neighbouring Galaxy forever being threatened of being swallowed, but indefinitely resisting, causing endless friction. China as an erstwhile competitor, thoroughly bested but recently reviving and preparing to seriously re-engage. On the fringe, many old ex-colonial possessions recently thrown off, which either already got over it (parts of Asia) or are still struggling deeply, grappling with their new freedoms and convinced anti-west sentiments. The Islamic footprint and its 1400 year competition with western Christianity and its modern inheritors.

So far still largely dormant are the vanquished New World Indian civilisations yet to show evidence of new revival (but with sparking in places – Mexico. But also revolutionary Catholicism throughout).

Whereas the serious challenge to the West this century will come from China (with double to triple its population) and possibly thereafter from India (also with triple its population), these will be forward-looking contests.

The main one marking today's world is a backward-looking one, the Islamic world's rejection of western legacies (Middle East political fragmentation) and its damnable & ever so persuasive cultural imperialism.

Thus we get rebellion in places, and virus-like spreading of radicalisation, igniting into hot wars, setting in motion huge people displacements, and spilling over from the Islamic heartland into the West through terror campaigns.

The resulting infiltration, as much the Islamic culture of millions of migrants as of war by radicalised fringes, is inviting western radicalisation in turn.

The National Front becoming the biggest party in France, US presidential candidate Trump calling for a halt to all Muslim immigration "until we understand better what is going on here".

Fences & walls going up everywhere. First in Israel, but now all over the Balkan, possibly shredding Schengen (the agreement ending all EU internal borders) and possibly even the European Union as disagreement about future direction tears it apart (with no Lincoln or American Constitution capable of quite holding it all together?).

The inner heat so unleashed looks daunting, yet may only be beginning. We don't really understand how far this can go, destroying soft tissue in the process.

Shock & awe was an American military term, until hijacked by central bankers, and after that spreading wider.

Bernanke as Fed chairman, in 2008 facing a repeat of 1929, determined that such an enormity could not again be allowed, if at all humanely possible, and pushed the financial-equivalent of the nuclear button: unlimited liquidity support, a bomb-blanket designed to absorb all loss of private confidence and force holders of financial wealth back into the trenches and face their inner demons. Trade or be damned!

So far it worked. America, though for long a walking wounded, has recuperated sufficiently for first its fiscal policy to normalise (after incurring 11% of GDP budget deficits), its banking & property systems to revive, and thereafter its Fed bond buying to be ended (after the Fed balance sheet had mushroomed to over $4 trill and 30% of US GDP), and now interest rates next week face liftoff (having been held at zero for seven long years).

Such monetary innovation gave new meaning to "shock treatment", the term popularized by the Poles in the late 1980s as Eastern & Central Europe and then Russia were invited to jettison communism & central planning for democracy, freedom & and open market systems. It all happening in a wrenching rush & total shock, apparently the only way to change fervent beliefs quickly & permanently at least cost (all being relative).

And just when you thought you had seen it all, here came Johnny-come-lately Europe, fighting its inner existential doubts, in the person of ECB President Draghi taking a leaf out of the Bernanke book, and giving a safety net to wobbling Europe in its peripheral struggles, then in its Greek encounter, and Russian detour, all this in the present half decade (2009-2015), and now possibly further complicated by the Islamic geopoliticals, its growing refugee influx, and own inner radicalisation.

Way back, Draghi convinced markets to do the heavy lifting when he gave them an one sentence, iron-clad guarantee/promissory note that "we will do whatever it takes, and believe me, it will be enough". This repackaged message was again unloaded on the world last week, at first misunderstood, but than icily re-explained overnight at a New York lunch talk.

Shock & awe indeed. Unlimited liquidity, whatever it takes, to keep asset values afloat, indeed energised, creating paper wealth that reconfigures mindsets, keeps economic recuperation going, prevents deflation from taking hold.

Unprecedented monetary & state inner aggression in democratic settings. Mobilizing the state for survival, not just for external war, but also preventing unnecessary self-wounding through economic inner mistakes, whether private or public initiated, or allowed through failing oversight.

Watch this space. Though Fed chair Yellen is largely finished, Draghi (and any successors) may have a longer path to walk.

Technological disruption, geoplitical radicalisation & globalised macro-policy shock & awe treatment have come together in commodity space this decade as China has started to reposition its development paradigm, and Saudi abandoned its status as global energy swing producer, both decisions in stages creating commodity havoc (and most commodity suppliers slow to catch on…).

Commodity space has traditionally seen massive price volatility & shifts in fortunes. The present era is but yet another instalment. But its sheer size & spread, in time compression & global reach, feels unprecedented.

And possibly far from finished, despite happy rumours that prices will start stabilizing (bottoming) from next year, after which a gradual revival can start to take hold deep into the next decade.

Meanwhile large numbers of commodity producing countries have been laid low, demanding wrenching adjustments and lowered growth potential in the interim.

These are not mild, relaxed, friendly trends. Instead, big bruisers changing huge playing fields virtually overnight, inviting unprecedented scrambling in answering them or paying the price of prolonged agony.

To which SA appears to be adding an Imperial Presidency focused on the well being of one person rather than the nation, and a wholesale change in underlying policy paradigms favouring anti-western styles & beliefs, internally & externally, a costly indulgence getting ever more astronomical with time.

These remain revolutionary times as a New Era takes shape. And we are only in the middle of it, if not still in the foothills. The end destination will look very different from what we can conceive at this remove.

Cees Bruggemans

Bruggemans & Associates, Consulting Economists

Website: www.bruggemans.co.za
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