(upbeat music)
- Your report is concluding,
that the world has entered
a geopolitical recession.
- Yeah.
- Is it time to panic?
Are we gonna be okay?
- It's time to worry.
I mean I'm an upbeat guy, as you know,
and I've run the firm for 19 years now.
This is, without question,
the most negative
geopolitical forecast
that we've ever given.
Economic recessions
happen pretty frequently;
we recognize a boom cycle, a bust cycle.
Geopolitical recessions are
much longer in duration.
- About how long?
- Well, I mean the last one
we had was World War II,
and since then we've
had the Pax Americana,
first by ourselves, then the Cold War,
us versus the East Bloc,
and then by ourselves
again after 1991, and it's now over.
It would have come to an end
if Hillary had won but it would have been
over a longer period of time and it would
have been more gradual.
The Americans would have had a role
at the table, in what it would look like.
With the victory of Donald Trump,
the shock victory of Donald Trump,
which I certainly had not expected,
and I think very few of us did,
a year ago,
this geopolitical recession
happens immediately,
and the world reacts to the unilateralism,
the unwillingness of the United States,
to take on the responsibilities
of global leadership.
- So is that what a
geopolitical recession is,
is it the lack of leadership?
And what are the consequences?
- The geopolitical
recession is the unwinding
of the old global order.
- I see, so it's a transition phase.
- Yeah, and it's an interregnum,
and it clearly is going
to last for some time.
But we are in it now.
- It's a time of great danger?
- Well, so there are two
ways I can answer that.
The first is that a
global economic recession,
as we saw in 2008 really
affects everybody's economies.
A geopolitical recession
clearly affects a lot
of countries a lot more than
it affects the United States.
I mean we don't have an arms race going on
in the Western Hemisphere.
We don't have border confrontations
or conflicts with Mexico or Canada.
We don't have a refugee challenge;
we've talked about that before.
We don't have a significant
terrorist threat
the way the Europeans
do, the Middle East does,
the Asians with border
issues with arms race.
All of that of kind of thing.
So, in that regard,
you can easily imagine
that the Dow, which is right now hovering
just at 20,000, records almost every day.
And all of the enthusiasm
for the potential
of additional U.S.
growth, that is consistent
with a geopolitical recession,
such as we're entering.
On the other hand, if
you had asked me at any
point in the last 10 years did I think
that war between major
powers was possible,
in the near horizon, I would say no.
And I can't say that anymore.
I don't think it's gonna
happen, but it's possible.
Because of the--
- Between which powers?
- Well first, the erosion of trust
between major governments
and the disillusion
of strength of major
multilateral institutions
and architecture, means that the ability,
the guardrails are off, geopolitically
so that if you have a mistake,
if you have a crisis,
if you have an accident
and it escalates, it's
harder to contain it.
And so--
- Like a nuclear reaction?
- For example, I could see confrontation
with North Korea much more
likely in this environment,
which clearly would have a disastrous
economic set of events.
- Conflict with North
Korea or over North Korea?
- Either.
I mean when Trump tweets
that the North Koreans
will be stopped from
developing nuclear capability
to hit the west coast of the U.S.,
there are only a couple ways he can
accomplish that, right?
He can either directly attack 'em,
or he can put serious
sanctions on the Chinese,
to ensure that they cut
the North Koreans off,
because they're not gonna
consider it otherwise.
Either way--
- What about a trade
embargo around North Korea?
- Well, I mean we're not going
to impose it by ourselves.
We would need the Chinese onboard.
- Absolutely.
- They're not gonna support that.
- It's been floated though,
right? I mean that is--
- By the Americans. Not by the Chinese.
- They're not gonna go along with it.
- They're not gonna go with it.
So again we have to look at
the art of what's possible,
and so either he's throwing up a red line
that he's gonna fail on like
Obama did on Syria, right?
- Yep.
- Which doesn't seem to be
the way Trump wants to go,
or he really thinks that
he can get this done,
in which case there's a greater
chance of confrontation.
Now look, I mean you know, it's possible
he just backs down and it's possible
that in the worst case the Americans
and Chinese still have clear heads,
and I think that those things are likely.
But you know, all I'm saying is,
we're in an environment where clearly
the geopolitics are far more dangerous.
In fact, I would say for
the first time in my career,
that I believe that the principal risks
to the global economy now,
for the near-term future, are political.
Which has never been true.
- Rather than economic.
- Never been true in my history.
Never been true.
- For 20 years you've been--
- I've been a political,
I ran the firm for 19,
I've been a political
scientist since what, '86.
So I mean, that's like 30
years; that's a long time.
So yeah, it feels like
a data point, right?
