Bloggingheads as we know it will be ending with the end of 2011. My last diavlog, recorded with NSN's Heather Hurlburt, covers our fearless predictions for next year, as well as the dream diplomatic postings both of us desire. Enjoy!
Sooo... in the meantime, I have a review of George Friedman's The Next Decade: Where We've Been... and Where We're Going in the latest issue of Texas Monthly. Friedman is the founder and CEO of Stratfor, which is based in Austin, Texas.
Here's how the review opens and closes:
As a rule, those who predict the future of world events should be viewed the same way Hermione Granger viewed Hogwarts’s divination classes—with unremitting skepticism. Social scientists may have something to offer in the way of explanation or short-term speculation, but there are serious limits to any kind of global soothsaying. World politics are simply too complex to forecast anything precisely in the medium term; it’s like asking a meteorologist to predict the weather a decade from now....
Perhaps I exaggerated Hermione’s skepticism of divination a bit. An otherwise stellar student, she was clearly frustrated that she was simply no good at it. Similarly, I should confess a smidgen of envy at Friedman’s conviction that he will be proved right about everything. Some writers are so sure of their beliefs that their assuredness has a viral quality, infecting the reader even if their logic fails. Friedman possesses that certainty in truckloads, and The Next Decade contains a few nuggets of insight as well. But make no mistake: Things will happen over the course of the next decade—and the next year and the next week—that will completely rock George Friedman’s world. (emphasis added)
Hey, are my predictive powers amazing or what??!! OK, those predictive powers were really the result of an excellent editor at Texas Monthly, but you get the idea.
I believe you can read the whole thing. Incidentally, his key insight into Egypt comes on page 92: "Even if the secular Nasserite regime fell, it would be a generation before Egypt could be a threat, and then only if it gained the patronage of a major power." Ah, that explains why Israel is handling these events so calmly. Oh, wait...
For a fun exercise, see if Friedman's current analysis jibes with how he predicts the next decade.
While I'm on vacation at an undisclosed location, feel free to peruse my latest non-blog publication, Alphabet Soup: The Political Economy of the Great Recession (.pdf), commissioned by the Glasshouse Forum. As they put it:
The current global economic crisis, which began as a subprime crisis and developed into a general credit crisis, is the deepest since the Depression of the 1930’s. There are many signs that we are now facing the beginning of a structural sea change. But what will it be like?
To get a better understanding of the medium-term effects of the crisis, Glasshouse Forum asked Daniel W. Drezner, Professor of International Politics at The Fletcher School, Tufts University, and author of the Glasshouse Forum report White Whale or Red Herring? Assessing Sovereign Wealth Funds, to draft scenarios and make qualified estimates based on as much objective data and historical parallels as possible.
I'd like to stress the word "qualified."
Apparently the foreign exchange markets got taken for a ride earlier today in response to Tim Geithner's chat at the Council on Foreign Relations. This makes me wonder if anyone working in forex markets actually listened to the words that came out of Geithner's mouth.
Here's Kathy Lien at FX360 explaining what Geithner said that caused markets to go into a tizzy:
In a blink of an eye, the U.S. dollar has collapsed against the Euro, Japanese Yen and other major currencies. The trigger was comments from Tim Geithner who said that the U.S. is "quite open" to China's suggestion of moving towards a Special Drawing Right (SDR) linked currency system. If the world adopts the SDR, which was created by the IMF as an international reserve asset, it would mean that countries around the world would need to hold less U.S. dollars. (emphasis added)
Except that this is not what Geithner actually said. To be more specific, he did say "quite open," but that's not all he said in his first response. This is from the CFR transcript:
[A]s I understand his proposal, it's a proposal designed to increase the use of the IMF's special drawing rights. And we're actually quite open to that suggestion. But you should think of it as rather evolutionary, building on the current architectures, than -- rather than -- rather than moving us to global monetary union.
Geithner is asked about China (not my question) and the IMF's new proposals for expanded lending. He responds by praising Zhou Xiaochuan, China's central bank governor, but claims that he hasn't read his proposal in detail. Geithner makes it clear that he is quite open to expanding the IMF's Special Drawing Rights for less developed countries. Still, he wants it to evolve and be integrated within the current international monetary system -- as opposed to the de novo creation of a new global currency.
I've read the report (Tim, it's not that long, take a look!) and Zhou is not proposing anything so radical so soon, so this is a bit of a red herring. Still, Geithner's statement here carries the same kind of firm pushback that Obama gave yesterday about any move ending the dollar as the global reserve currency.
SDRs are intended for least developed countries, so expanding that program would not profoundly affect the distribution of currency reserves among the world's principal players.
And yet, after Geithner reaffirms this point later in the talk, Lien interprets it as follows:
A few minutes after saying the U.S. is open to an SDR linked currency, Geithner clarified his comments by saying that there is "no change in dollar as world's reserve currency and likely to remain so for long time." In our alert, we said that the dollar would rebound if he attempts to clarify his comments. These contradictory statements are clearly the act of an amateur Treasury Secretary that has been thrust onto the public forum and is struggling with the need to be very particular in his choice of words.
Okaaaaaay..... except there was no contradiction between his statements, and anyone who's been following this stuff for the past week should have understood Geithner's point the first time.
Question to readers: shouldn't the forex markets have interpreted these statements better than your humble blogger? What does this say about the wisdom of crowds?
UPDATE: The Financial Times' Krishna Guha, Tom Braithwaite and Peter Garnham provide more precise reporting on this point:
The dollar fell 1.3 per cent against the euro as headlines saying “Geithner open to SDR currency” flashed across traders’ screens. With the currency falling, Mr Geithner’s interviewer – Roger Altman, a deputy Treasury secretary in the Clinton administration – gave Mr Geithner the chance to clarify.
The Treasury secretary said: “I think the dollar remains the world’s dominant reserve currency.” The dollar subsequently recovered much of its losses.
One fuzzy headline, and you get majoy gyrations in the forex markets.
James Carville once said, "I want to come back as the bond market. You can intimidate everybody." I want to be reincarnated as a headline editor.
Four new power brokers—Asian sovereign investors, petrodollars, hedge funds, and private equity firms—are having a growing impact on global capital markets. In this update to a 2007 report, MGI examines how the new power brokers have fared since then, during the turmoil of skyrocketing oil prices, evaporating liquidity, and disappearing leverage.
MGI finds that the financial and economic events since mid-2007 have, if anything, accelerated the trends identified earlier: The power brokers' wealth and clout have grown. They have adapted by expanding their investment strategies. And they have increased the use of private financing as an alternative to public markets. Their actions have brought clear benefits in containing the financial market crisis but also have highlighted the risks associated with their rise....
Despite the financial crisis, MGI projects that the power brokers will continue to grow in wealth and clout. Under a conservative, base–case scenario, their combined assets will grow to $21 trillion (excluding overlap between them) by 2013. If, instead, they grow more briskly, at their 2000 to 2007 pace, their wealth would rise to $31 trillion, equivalent to roughly 60 percent the expected size of global pension funds or mutual funds in 2013.
The rapid rise of the new power brokers also poses potential risks. The report examines four main concerns: that the additional liquidity might foster asset price inflation; that state investors might use their wealth for political purposes; that hedge fund failures might destabilize the financial system; and that private equity firms' heavy leverage might increase credit defaults. MGI concludes these concerns remain on the table and justify careful consideration and monitoring. But overall, the rise of these new power brokers has been largely beneficial to global capital markets.
The possibility of hedge funds destabilizing the system certainly remains in play, but most of the rest of this looks pretty silly. Of MGI's four new power brokers, only Asian sovereign investors still look like their power will be growing.I really don't mean to pick on McKinsey. In fact, readers are strongly encouraged to comb through the archives of danieldrezner.com to see what I got wrong. Here's my prediction post from the end of last year -- I only batted .500, but I do think I got the big things right.
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.