In November 2008, the National Intelligence Council released a landmark study, Global Trends 2025: A Transformed World. The report lays out the possibility of a future very different from the reality to which most of the world is accustomed. Among the key possible futures:
1. U.S. influence and power will wane, and the United States will face constricted freedom of action in 2025. China and Russia will grow in influence. Wealth will also shift away from the United States toward Russia and China.
2. A broader conflict, possibly a nuclear war, could erupt between India and Pakistan. This could cause other nations to align themselves with existing nuclear powers for protection.
3. Rising world population, affluence, and shifts in Western dietary habits will increase global demand for food by 50% by 2030 (World Bank statistic). Some 1.4 billion people will lack access to safe drinking water.
As the report was published in November of 2008 in the midst of a historic financial crisis, some of these scenarios now seem not so much wild cards as prescient depictions of a near certain future. Others, in retrospect, seem further away. The once-indomitable engine of Chinese growth now seems significantly less robust. At 6% the country's GDP is scheduled to grow at half of last year's pace, but still much faster than the United States. The question becomes, which scenarios remain credible, which no-longer apply?
THE FUTURIST asked four experts—Newt Gingrich, former U.S. House speaker; Elaine C. Kamarck, a senior policy adviser for Democrat Al Gore's 2000 presidential campaign; Peter Schiff, economics adviser to Republican Ron Paul's 2008 presidential campaign; and Democratic congressman Dennis Kucinich—for their views on the report's key forecasts and what the future of the United States, Asia, and the global economy looks like now, in the wake of the global financial crisis. (Original interview date December, 2008)
THE FUTURIST: In your television interviews and your books you talk a lot about the wealth transfer to Asia. According to your Webs site, it’s one of the key components of your investment strategy at EuroPacific Capital. To what extent do you agree or disagree with some of the scenarios in the Global Trends 2025 report?
Peter Schiff: Rising influence in Asia? I definitely agree with, China more so than Russia. But there are other countries in the equation, like India. Japan will also have more clout in 2025. It won’t merely be China and Russia that will see an increase in their influence and wealth. I think the United States will see a reduction in its economic, political, and military power. We’re in serious trouble.
Our economy is mess, but more worrisome is that the U.S. government is poised to completely destroy it. What Obama is seeking to do could ruin the economy.
The economy is a mess because of bad fiscal and monetary policy in the preceding years. But what we need in order to recover is more capitalism, more free markets. We need more savings to make credit more available to businesses that could borrow to build more factories and start producing again to repair the industrial base. We should make repairs to our infrastructure but only when we can afford it. There’s a lot of serious work to be done. Unfortunately, President Obama seems intent on building roadblocks that will just prevent market forces from correcting the problems in our economy. By assuming more and more control and micro-managing our economy, by making the government bigger, our economy is going to be much less dynamic. The standard of living is going to fall more precipitously than would otherwise be the case. We’re going to recreate another great depression, only this one will be worse than the one the government created in the 1930s.
THE FUTURIST: How can individuals, particularly people in the United States, cope with the trends you’ve laid out? What’s an action plan for them?
Schiff: Their action plan is to get out of U.S. assets entirely. Don’t hold bonds or U.S. currency. Get out of U.S. real estate. U.S. assets are going to lose substantial value especially relative to assets in other parts of the world and certain commodities. People need to understand that U.S. assets are going to be substantially marked down.
THE FUTURIST: Is this something that will have an effect geopolitically and militarily going forward?
Schiff: Of course. As the dollar loses value, it becomes more expensive to maintain the military—to supply it with food, fuel, and ammunition. Most of U.S. military equipment runs with imported components and imported parts. If we’re going to keep our planes in the air, our tanks rolling, ships steaming, we’re going to have to import more expensive foreign components. We have military bases all around the world. As the dollar loses value, it’s more expensive to maintain those bases.
THE FUTURIST: What about the argument that the United States will maintain its dominance because it has a unique culture of innovation, with the world’s best universities?
Schiff: We don’t have a unique culture of anything. American citizens aren’t innately smarter or harder working than people anywhere else. We’re no better than the Italians, the French, the Mexicans, or the Chinese. What enabled Americans to be so much more successful than people of other countries was that we were freer. We had a better system of government because we had a constitution that limited the power of government so we had minimal regulation and minimal taxes relative to the rest of the world... Now, I think, there’s more entrepreneurial capitalism going on in places like China than there is in the United States.
FUTURIST: Many developing nations face tremendous political uncertainty in the years ahead. To what degree will they become more open? To what degree will they become more democratic? Will there be social upheavals?
Schiff: There will be social upheavals in the United States. We’re going into a situation with severe economic hardship in this country. The inflation that the U.S. government is unleashing will lead to spectacular increases in the cost of living. Ultimately, it will lead the Obama administration to implement price controls for products including food and energy, which will result in food and energy price wars. When people are cold and hungry, there’s a tendency to commit crimes, and this will lead to social unrest. There are a lot of problems in that respect coming to the United States. There’s also the chance the United States government will act in much more oppressive ways. I think the U.S. government might start seizing assets from its citizens such as precious medals and foreign stocks. There could be outright confiscation and seizure. Moving money out of the country could be very difficult.
THE FUTURIST: Do you think there is any chance that the U.S. government would begin to pursue an open market strategy?
Schiff: I don’t see that happening soon. I see a lot more damage occurring in our economy before Obama comes to that revelation. But hopefully he comes to it in time. The failure to come to it in time will produce a hyperinflation. The dollar will be wiped out completely. That economic crisis will be far worse than the one we’re dealing with today. The United States will not be the largest economy based on GDP well before 2025. It will be China. The United States will still be behind Japan and it will no longer be in the top twenty countries in per capita GDP. We’ll see a significant reduction in our stature in the world.
THE FUTURIST: Do you think China and Japan will be able to shift from being export economies toward being economies that stimulate domestic consumer spending?
Schiff: They will certainly be consuming a lot more domestically, particularly China. But Japan and a lot of countries that are now exporting to the United States will simply export to other countries. For instance, Japanese exports to China will pick up significantly. It’s certain that a country that’s going to see one of the most dramatic increases in domestic consumption will be a country like China.
THE FUTURIST: When does it get very bad for the United States?
Schiff: When the only buyer left for U.S. debt is the Federal Reserve itself, that’s when hyperinflation kicks in. That’s when the bond market plunges and consumer prices really take off. That’s when we’re really up against a serious crisis.
THE FUTURIST: That can happen anytime between now and…
Schiff: That can happen any day. It could happen tomorrow morning, next year, two years. You just don’t know. The fact is it will happen. Even Bernie Maddoff knew he would be found out eventually. Ponzi schemes can’t go on forever. That’s why they’re illegal. If you could make it work then it wouldn’t be illegal.
About the Interviewee
Peter Schiff is the president of Euro Pacific Capital in Darien, Connecticut. He is also a contributing commentator for Newsweek International and served as an economic advisor to Republican Ron Paul's 2008 presidential campaign. His book Crash Proof: How to Profit from the Coming Economic Collapse was published by Wiley & Sons in February of 2007. His second book, The Little Book of Bull Moves in Bear Markets: How to Keep Your Portfolio Up When the Market Is Down was published by Wiley & Sons in October of 2008.
This interview was conducted by Patrick Tucker, senior editor of THE FUTURIST magazine