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We Are Sleeping On a Volcano

In January of 1848, months before the wave of revolutions known to history as the "Spring of the Peoples” would sweep across Europe, the continent was at peace. Alexis de Tocqueville famously addressed the French parliament with a warning of things to come:

“I am told there is no danger because there are no riots. I am told that because there is no visible disorder on the surface of society that there is no revolution at hand. Gentleman, permit me to say that I believe you are mistaken…We are sleeping on a volcano. Do you not see the Earth trembles anew? A wind of revolution blows, a storm is on the horizon."

I fear we are sleeping on a volcano now. The geopolitical and economic foundations of our world order, which have been stable since the end of the Second World War, have turned to sand beneath our feet. It is not clear how long these foundations will survive – but it is clear that several shocks are fast approaching.

The geopolitical foundations have eroded over the past twenty-five years as the fall of the Soviet Union changed the geopolitical calculus for the world’s last superpower. Now, the rise of fracking has made the US energy independent. These two facts have removed all incentive for the United States to act as security guarantor for the world. This power vacuum makes it likely that hot wars will develop in several specific regions as nation states revert to warring over resources and strategic position. This will be exacerbated by and exacerbate the economic difficulties the world is walking into.

In the forty-six years since the Nixon Shocks, when the convertibility of the US dollar to gold ended, the era of free-floating fiat currencies has reigned and sovereign debt has exploded worldwide. The response to the recent Great Recession was to save the world economy by increasing sovereign debt to levels not seen since the midst of the Second World War. This trend cannot continue forever – not least because a demographic time bomb is slowly exploding around the world. The working population of China, Japan, Russia, and most of Europe will plummet in the next fifteen years. With this decline of the working population, the era of low interest rates that has prevailed for the last forty years is about to end. The absolutely crucial question is how long world governments will be able to continue to expand their sovereign debt in this environment – and what happens when they cannot?

I am bewildered by the failure of these issues to reach into the public consciousness. Fear of the end of antibiotics, climate change, and artificial intelligence, is widespread. Clearly, people are ready and willing to be concerned about the future. However, the idea that the political and economic world would shift under our feet still feels so unthinkable.

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