The Next Ten Years – Part I: There will be blood - Eric Janszen

[jk]

Re: How can banks take the hit? --It's not thier money!

this coming week's cover

[Slimprofits]

Re: How can banks take the hit? --It's not thier money!

http://www.nytimes.com/2008/09/23/bu...s/23krona.html

Scandinavian banks ^

[jk]

Re: How can banks take the hit? --It's not thier money!

How can banks take the hit?

If mortgages are reduced, banks will go bank-rupt. So shareholders and bondholders are wiped out. (crocodile tears). But then the FDIC and fed will have to make the checking & savings accounts good anyway. So the "middle class" will lose anyway, just by having to print money or bailout FDIC.

Since Banks work with a high degree of leverage, they have no capital to lose, which makes them such a threat to public good. They are trading with other peoples money, which is why they cannot take the losses.

PS

the scandanavian countries had a banking crisis in the '90s. they wiped out the shareholders, gave a stiff haircut to the bondholders, nationalized the banks to protect the savers, and then re-privatized them. i'd rather the gov't held and then sold bank shares in return for its compelled infusion of funds, than they put in the money to protect the current [mis]-mangement, who then proceed to give themselves ever-bigger bonuses.

[Polish_Silver]

How can banks take the hit? --It's not thier money!

We need a private sector debt cut, not a tax cut.

How can banks take the hit?

If mortgages are reduced, banks will go bank-rupt. So shareholders and bondholders are wiped out. (crocodile tears). But then the FDIC and fed will have to make the checking & savings accounts good anyway. So the "middle class" will lose anyway, just by having to print money or bailout FDIC.

Since Banks work with a high degree of leverage, they have no capital to lose, which makes them such a threat to public good. They are trading with other peoples money, which is why they cannot take the losses.

PS

[touchring]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

The advent of nuclear weapons, and the technical inadequacy of defenses against nuclear weapons, make sovereignty-ending wars between the great powers very unlikely.

I agree, but there is nothing to stop nuclear armed nations from engaging in an economic and cyberwar. If you consider what happened to Google, cyberwar has already started.

[bpr]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

That's an excellent question, I too would be interested in hearing from EJ whether this particular view is being espoused in the halls of power.

That would put an accelerated spin on things.....

It would surprise me if these views weren't being offered by those in power. Such confidential whispers are required for them to maintain a sense of purpose as World Leaders, and justification for their existence. I'm not implying that they are not willing to walk the walk or that they are insincere, but only that a certain sense of doomer-like destiny is a job requirement at this time.

If there were a job description for US Senator you could scratch out "determined self-starter" and insert "paranoid egomaniac."

[jpatter666]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

EJ has actually moved about to where I have been, but it still is a surprise that he has. EJ gets to talk to a lot of influential people that any of us. I have to believe that these talks have been part of the reason he has moved to 3 on the doomer scale.

That's an excellent question, I too would be interested in hearing from EJ whether this particular view is being espoused in the halls of power.

That would put an accelerated spin on things.....

[VIT]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

In my opinion, frequent regional warfare may plague many areas of the world in coming decades, but a "third world war" that resembles the two world wars of the 20th century is unlikely if not impossible. If "world war" means a single contest of sovereign survival between the great powers, that spans the globe, that takes place on the soil of at least some of the great powers, and which must end with the complete prostration of one side, then such a thing is virtually impossible.

I tend to think along these lines as well. I would add another 2 factors:
- There were ideological differences in WWII which helped to mobilize/sustain combatants
- Military equipment is more expensive / resource intensive now so countries will deplete fast. If you add what was mentioned that offensive power greater then defensive so this war will quickly become survival exercise for all involved.
So what would be the reason to start a big war if the sum of the game is clearly very negative for all. Another argument that we are still just in the beginning of declining phase of Kondratieff type cycle. Where as wars start at the beginning of growing phase.


It is still a chance to have significant destruction in some places but it would not come from continuous warfare

[jiimbergin]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

that such is possible, none can deny. the same was said to be possible, and of course it was, throughout the course of the long cold-war between the ussr and usa. however, to say it is possible is not to say it is inevitable. i tend to agree with ash that restraint will continue to apply, and direct, open, conflict between superpowers will likely be avoided. the history of the cuban missile crisis shows that we came very close to nuclear war, and similar confrontations may happen in the future which trigger unimaginable consequences. but i don't think so. i'm shocked that you, ej, have moved to a more extreme position on the "doomer" scale than i occupy myself. and my respect for you means i want to think a lot more about this.

meanwhile, ash's picture of regional chaos seems likely to me as the "global policeman" goes into retirement.

i think the end of the us-ussr cold war to the some point in the near future will be viewed as analogous to the interwar period between wwi and wwii. the 1920's and, now, the 1930's offer important parallels to roughly the last couple of decades.

from an email i wrote in '07:
i think we are in the midst of geopolitical shift comparable to the one in which the u.s. achieved predominance in place of the u.k. the u.k. was the global hegemon from the end of the napoleonic wars until the interwar period of the 1920's and 1930's or so. the 2 world wars of the early 20th century and their intervening years, including the great depression, can be viewed as part of the process of transition from one global system to another. [i suppose the napoleonic wars, french revolution, etc are part of the prior transition and so on- with commercial leadership going from spain in the 16th century to the netherlands to the u.k.- but let's stick with the 19th century to the present.] the cold war, with its nuclear stand-off, froze the international system in place. the collapse of the soviet union led to the the emergence of the u.s. as the sole superpower, but it also actually unfroze the system and allowed it evolve to its current state of crisis.

i think that the u.k. to u.s. handoff, involving 2 bloody wars and a depression, was nonetheless in some ways easier than the transition we are entering. i say this because of the similar political, social and legal cultures of the 2 states involved.

the first phase, where we are now, is the process of going from the one overarching superpower to a truly multipolar world. meanwhile, there is a shift of dynamism and, eventually i believe, leadership to the asian nations. it remains to be seen whether major military conflicts can be avoided during this process. the world wars, the first perhaps even more than the second, drained england and thus facilitated the power shift. the u.s emerged as the sole industrial power, its homeland unscathed, after wwii. the soviets created a bipolar world by focusing resources on the military and creating a nuclear threat.

the hollowing out of the u.s. economy may be serving the function of ww i. i really see the u.s. as a society in decline. perhaps this decline is reversible; i don't know. but in my imagination it feels like the later days of the roman empire. when i heard about, e.g., tyco's dennis kozlowski throwing his wife a multimillion dollar birthday party, disguised as and paid for as a corporate meeting, on sardinia with an ice sculpture of david urinating stolichnaya vodka, all i could think about was fellini's satyricon.

a factor that might make a significant difference in this process is the emergence of multinational corporations. perhaps it would be more accurate to say "transnational." their stocks may be listed on a national exchange, but they really have no nationality. they may serve to moderate the system, making it less stark, less clear where all the power lies.

EJ has actually moved about to where I have been, but it still is a surprise that he has. EJ gets to talk to a lot of influential people that any of us. I have to believe that these talks have been part of the reason he has moved to 3 on the doomer scale.

[jk]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

I agree that the next great war will not be fought in the way past two world wars were fought, but will have key features in common. The next great war will begin as all previous great wars have, with the shared belief among combatant states that the war will be a half dozen months long, contained, be prosecuted with minimal casualties, and end in a conventional way, with one side giving in to the other. Then, after many years and after expanding unpredictably and uncontrollably, the war ends in a way that was not foreseen at the outset with a scale of casualties beyond imagination. When the history is written after the next great war, the start may be traced back to the Iraq invasion in 2003, or whatever event is seen to tip the balance of power, to get the ball rolling. The war will follow a foreseeable course as you describe as it proceeds according to the logic dictated by the current balance of military power, then suddenly veer offtrack to escalate and develop in ways that no one could have imagined happening. None will choose to fight a "real" world war. The war will happen to them, and could in fact be said to be happening now.

that such is possible, none can deny. the same was said to be possible, and of course it was, throughout the course of the long cold-war between the ussr and usa. however, to say it is possible is not to say it is inevitable. i tend to agree with ash that restraint will continue to apply, and direct, open, conflict between superpowers will likely be avoided. the history of the cuban missile crisis shows that we came very close to nuclear war, and similar confrontations may happen in the future which trigger unimaginable consequences. but i don't think so. i'm shocked that you, ej, have moved to a more extreme position on the "doomer" scale than i occupy myself. and my respect for you means i want to think a lot more about this.

meanwhile, ash's picture of regional chaos seems likely to me as the "global policeman" goes into retirement.

i think the end of the us-ussr cold war to the some point in the near future will be viewed as analogous to the interwar period between wwi and wwii. the 1920's and, now, the 1930's offer important parallels to roughly the last couple of decades.

from an email i wrote in '07:
i think we are in the midst of geopolitical shift comparable to the one in which the u.s. achieved predominance in place of the u.k. the u.k. was the global hegemon from the end of the napoleonic wars until the interwar period of the 1920's and 1930's or so. the 2 world wars of the early 20th century and their intervening years, including the great depression, can be viewed as part of the process of transition from one global system to another. [i suppose the napoleonic wars, french revolution, etc are part of the prior transition and so on- with commercial leadership going from spain in the 16th century to the netherlands to the u.k.- but let's stick with the 19th century to the present.] the cold war, with its nuclear stand-off, froze the international system in place. the collapse of the soviet union led to the the emergence of the u.s. as the sole superpower, but it also actually unfroze the system and allowed it evolve to its current state of crisis.

i think that the u.k. to u.s. handoff, involving 2 bloody wars and a depression, was nonetheless in some ways easier than the transition we are entering. i say this because of the similar political, social and legal cultures of the 2 states involved.

the first phase, where we are now, is the process of going from the one overarching superpower to a truly multipolar world. meanwhile, there is a shift of dynamism and, eventually i believe, leadership to the asian nations. it remains to be seen whether major military conflicts can be avoided during this process. the world wars, the first perhaps even more than the second, drained england and thus facilitated the power shift. the u.s emerged as the sole industrial power, its homeland unscathed, after wwii. the soviets created a bipolar world by focusing resources on the military and creating a nuclear threat.

the hollowing out of the u.s. economy may be serving the function of ww i. i really see the u.s. as a society in decline. perhaps this decline is reversible; i don't know. but in my imagination it feels like the later days of the roman empire. when i heard about, e.g., tyco's dennis kozlowski throwing his wife a multimillion dollar birthday party, disguised as and paid for as a corporate meeting, on sardinia with an ice sculpture of david urinating stolichnaya vodka, all i could think about was fellini's satyricon.

a factor that might make a significant difference in this process is the emergence of multinational corporations. perhaps it would be more accurate to say "transnational." their stocks may be listed on a national exchange, but they really have no nationality. they may serve to moderate the system, making it less stark, less clear where all the power lies.

[jpatter666]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

I agree that the next great war will not be fought in the way past two world wars were fought, but will have key features in common. The next great war will begin as all previous great wars have, with the shared belief among combatant states that the war will be a half dozen months long, contained, be prosecuted with minimal casualties, and end in a conventional way, with one side giving in to the other. Then, after many years and after expanding unpredictably and uncontrollably, the war ends in a way that was not foreseen at the outset with a scale of casualties beyond imagination. When the history is written after the next great war, the start may be traced back to the Iraq invasion in 2003, or whatever event is seen to tip the balance of power, to get the ball rolling. The war will follow a foreseeable course as you describe as it proceeds according to the logic dictated by the current balance of military power, then suddenly veer offtrack to escalate and develop in ways that no one could have imagined happening. None will choose to fight a "real" world war. The war will happen to them, and could in fact be said to be happening now.

So the military-industrial complex would be one of the "investment sectors"? Welcome back Daddy Warbucks -- if you ever indeed left.....

Certainly if we see any serious mobilization, we are on the cusp. I can not recall a situation when there has been a mass mobilization and those forces have *not* been used.

[EJ]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

In my opinion, frequent regional warfare may plague many areas of the world in coming decades, but a "third world war" that resembles the two world wars of the 20th century is unlikely if not impossible. If "world war" means a single contest of sovereign survival between the great powers, that spans the globe, that takes place on the soil of at least some of the great powers, and which must end with the complete prostration of one side, then such a thing is virtually impossible.

Diplomatic institutions may be mired in Cold War era thinking, but several of the factors which constrained the Cold War to play out through a series of proxy wars and competitions for regional influence (economic and political as well as military), rather than a globe-consuming military conflagration, still apply. In a word, the great powers are all too vulnerable to fight wars of national survival with each other -- vulnerable both militarily and economically.

The advent of nuclear weapons, and the technical inadequacy of defenses against nuclear weapons, make sovereignty-ending wars between the great powers very unlikely. That's unlikely to change. Moreover, the economic importance of trade to all major powers makes a truly 'world' war very problematic to all. America's dependence on foreign energy is well-rehearsed, and we also have need of foreign capital and markets; at least we have (for now) the blue water navy, expeditionary military power, and global network of bases required to keep our trade routes open. China (to pick the potential adversary du jour) is heavily dependent upon exports, and also requires imported resources, but lacks the naval and expeditionary forces, and foreign bases, to secure that trade. (One possibly under-commented factor is that China lacks strong allies; China is even aware of this -- they note that many of their neighbors fear China more than they distrust the US, and tend to cleave to the US more firmly as Chinese power rises.) The old Soviet Union, with its captive trade block along largely interior lines of communication, was in some respects in a better position (albeit operating with a much less successful economic model). China's major markets are mostly countries that either embrace Western political values and are allies of the US, or are regional competitors who fear domination by China. China trades globally, so China's lines of trade are exposed globally. While we may well compete over access to resources in, say, Africa, this isn't a strategic picture that permits open hostilities on the scale of past world wars.

I think the model for the next couple of decades will be that of post-Soviet regional instability (e.g. Balkans), as America's ability to project hegemonic power beyond its borders diminishes, and no hegemonic power rises to take its place. Rising powers are likely to push us out of regions of the world where our hegemony imposed some stability between regional rivals, and we will likely withdraw from others. Local conflicts will develop in those areas. We will lose our ability to dominate international institutions, or what's equivalent, the writ of international institutions will be attenuated as our power declines. And we probably will fight over resources through proxies. However, in my opinion, it is unlikely that China, or other rising powers, will develop in the next couple of decades the capacity for expeditionary warfare required to fight far beyond their borders while sustaining their economies. They may become regional hegemons in our stead, but none will choose to fight a "real" world war, in the 20th century usage of the term.

I agree that the next great war will not be fought in the way past two world wars were fought, but will have key features in common. The next great war will begin as all previous great wars have, with the shared belief among combatant states that the war will be a half dozen months long, contained, be prosecuted with minimal casualties, and end in a conventional way, with one side giving in to the other. Then, after many years and after expanding unpredictably and uncontrollably, the war ends in a way that was not foreseen at the outset with a scale of casualties beyond imagination. When the history is written after the next great war, the start may be traced back to the Iraq invasion in 2003, or whatever event is seen to tip the balance of power, to get the ball rolling. The war will follow a foreseeable course as you describe as it proceeds according to the logic dictated by the current balance of military power, then suddenly veer offtrack to escalate and develop in ways that no one could have imagined happening. None will choose to fight a "real" world war. The war will happen to them, and could in fact be said to be happening now.

[ASH]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

From where I sit, I see the machine of global political economy churning its way inexorably toward a third world war, its institutions of diplomacy mired in cold war era thinking.

In my opinion, frequent regional warfare may plague many areas of the world in coming decades, but a "third world war" that resembles the two world wars of the 20th century is unlikely if not impossible. If "world war" means a single contest of sovereign survival between the great powers, that spans the globe, that takes place on the soil of at least some of the great powers, and which must end with the complete prostration of one side, then such a thing is virtually impossible.

Diplomatic institutions may be mired in Cold War era thinking, but several of the factors which constrained the Cold War to play out through a series of proxy wars and competitions for regional influence (economic and political as well as military), rather than a globe-consuming military conflagration, still apply. In a word, the great powers are all too vulnerable to fight wars of national survival with each other -- vulnerable both militarily and economically.

The advent of nuclear weapons, and the technical inadequacy of defenses against nuclear weapons, make sovereignty-ending wars between the great powers very unlikely. That's unlikely to change. Moreover, the economic importance of trade to all major powers makes a truly 'world' war very problematic to all. America's dependence on foreign energy is well-rehearsed, and we also have need of foreign capital and markets; at least we have (for now) the blue water navy, expeditionary military power, and global network of bases required to keep our trade routes open. China (to pick the potential adversary du jour) is heavily dependent upon exports, and also requires imported resources, but lacks the naval and expeditionary forces, and foreign bases, to secure that trade. (One possibly under-commented factor is that China lacks strong allies; China is even aware of this -- they note that many of their neighbors fear China more than they distrust the US, and tend to cleave to the US more firmly as Chinese power rises.) The old Soviet Union, with its captive trade block along largely interior lines of communication, was in some respects in a better position (albeit operating with a much less successful economic model). China's major markets are mostly countries that either embrace Western political values and are allies of the US, or are regional competitors who fear domination by China. China trades globally, so China's lines of trade are exposed globally. While we may well compete over access to resources in, say, Africa, this isn't a strategic picture that permits open hostilities on the scale of past world wars.

I think the model for the next couple of decades will be that of post-Soviet regional instability (e.g. Balkans), as America's ability to project hegemonic power beyond its borders diminishes, and no hegemonic power rises to take its place. Rising powers are likely to push us out of regions of the world where our hegemony imposed some stability between regional rivals, and we will likely withdraw from others. Local conflicts will develop in those areas. We will lose our ability to dominate international institutions, or what's equivalent, the writ of international institutions will be attenuated as our power declines. And we probably will fight over resources through proxies. However, in my opinion, it is unlikely that China, or other rising powers, will develop in the next couple of decades the capacity for expeditionary warfare required to fight far beyond their borders while sustaining their economies. They may become regional hegemons in our stead, but none will choose to fight a "real" world war, in the 20th century usage of the term.

[necron99]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

Would be interesting to know his thoughts on Charles Smith's article here:
http://www.oftwominds.com/blogoct10/...game10-10.html
Or, have these comments been addressed in the subscriber section? (Don't have the money to resub atm, hoping too by Jan of next year)

A quick, brutal, dirty, inaccurate summary of Smith's article says -- when the world economy hits its next trainwreck, within a year or two, oil demand will plummet; the oil despots will pump for all they're worth in order to prop up their income and maintain their grip on power, causing oil prices to plummet; those countries' despotic governments will collapse; and then the US, with its keenly strategic web of bases and military power ready to take over the Middle East, returns to its position as the global hegemon and consumer of cheap oil. The dollar's status as reserve currency may be a casualty of that conflict, but the US will still remain the strongest economy and move forward from there. That's what I get out of Smith's article, YMMV.

I don't know if these things have been addressed here on iTulip, nor have I read Charles Smith before your link, but it seems to me that Smith's analysis -- while very interesting -- has its flaws:

* Considering how much money, effort, pain, protest and expense that it has cost the US to project its force, with questionable success, in relatively primitive countries like Iraq and Afghanistan, I am not confident in the US ability to simply control the rest of the shattered Middle East after the world trainwreck. Many people believe the US is a paper tiger. Oh sure we can kill a huge number of people and blow up a lot of infrastructure, but that is not the same as control and influence, as Charles Smith himself points out at the beginning of the article when talking about other countries besides the US. Our "soft power" is in the toilet at this point, and _we_, not China, may be the ones wishing we could buy it back. Smith's vision seems to rely tacitly on a re-instatement of the US draft, a three-million-man US Army moving into every street corner in not only Baghdad and Tehran, but also Riyadh and Turkmenistan... and I just don't think that dog's going to hunt anymore. Certainly not in the next three years; I could imagine a 3-million-man Imperial US Army only after five or eight years of bread lines here at home.
Instead of a clean re-assertion of US Hegemony, we get a confused chaotic WWIII including major losses for the US, and the whole board is in play once again. It's not clear who will win or prosper from the chaos. Ultimately the US may lose control of major portions of the oil supply... and the highly petroleum-dependent US economy (including, inseparable from, its war machine) could fall apart like the car at the end of that first (only) "Blues Brothers" movie... ending all prospects of renewed US hegemony.

* It's far from clear that the oil-producing nations can ramp up their production on demand anymore. That's what "Peak Cheap Oil" means. Nobody (probably not even the oil producers in question) knows whether world oil production has plateau'ed in recent years because the producers want to prop up prices, or because they have simply reached physical extraction limits. All the huge new oil field discoveries you hear about these days seem to require massive investment and new technology to achieve limited flows, while the old reliable oil fields appear to be petering out. When TSHTF, the massive international finance and technological co-operation needed to harvest this 'tough oil' may dry up, hence no oil glut. Oil prices may swing from very low lows to absurd heights in the near future, but volatility has most of the same drawbacks as high prices; not lows. I don't think any oil producer, or group of them, will be able to maintain $25.00 oil as anything more than a brief gesture. Essentially, Iraq was supposed to do that for the US: after the 2003 invasion, the US was supposed to control and ramp up Iraq's oil production, and channel it into our economy. Didn't happen; we can't control the country, we've failed to control who the Iraqis sell their oil to, and Iraq can barely even achieve anymore the production levels Saddam used to achieve. Without a sustained oil glut, Smith's scenario doesn't obtain; the populist governments which replace the oil despots can pick and choose their customers; the US can't exert dominance, and eventually the US economy and war machine crumbles as it does in my above point, because we are too stubborn, committed, overwhelmed and economically disrupted to shift it all over to other energy sources nearly as fast as it would take to avoid collapse.

That's my opinion, for what it's worth, which is roughly zero...

[touchring]

Re: The Next Ten Years – Part I: There will be blood - Eric Janszen

I would like to know who are the real creditors and debtors in USA.
In my understanding
creditors - pension funds, money market in 401K, foreign govts via Treasury bonds, US companies with lots of cash, people who hold company and Govt bonds.
debtors - commerical real estate owners, home owners, car owners, credit card holders.

For middle class, I think their debt cancels their wealth mostly. For others, who are mostly debtors, Iprefer dollar devaluation, so that their loans are paid back in devalued dollar.

Why not just cancel the debt instead? No inflation + debt canceled. Problem solved!