Category: Business

  • Internship Opportunity at the U.S. Association of Former Members of Congress

    Internship Opportunity at the U.S. Association of Former Members of Congress

    The U.S. Association of Former Members of Congress (USAFMC) is seeking qualified interns for the Spring of 2009. The Association is a non-profit, bipartisan, non-advocacy organization with over 500 former Representatives and Senators as members. In addition to its programs for former members, USAFMC serves as the secretariat for a number of domestic and international programs involving its membership and the current Congress, such as the Congress to Campus Program, Democracy-Building Campaigns, and the Congressional Study Groups on Germany, Mexico, Japan, and Turkey.

    Your tasks as intern will be focused aiding in the planning of events for the Congressional Study Groups and other Association events.  Other tasks are varied, ranging from providing basic administrative and office support to writing/researching/editing information for the Association’s numerous programs. Interns will also attend and cover Association-sponsored events on the Hill, and be responsible for drafting reports.

    Because the Association plans numerous high-profile events, applicants must be extremely motivated, responsible, and have an in-depth knowledge of internet research and MS Office programs. Knowledge of German, Spanish, Turkish, or Japanese is a plus, but is absolutely not required.

    Although this is an unpaid position, the Association’s balance of domestic and international programs provides invaluable experience in both Political Science and International Affairs, and college credit in these disciplines is available.

    If you would like more information on the Association’s programs and events, please feel free to visit our website at www.usafmc.org.

    If you are interested in applying for this position, please email a cover letter, resume and to Ms. Whitney Novak at wnovak@usafmc.org


    Oya Bain
    oyabain@gmail.com

  • USA: 15 Companies That Might Not Survive 2009

    USA: 15 Companies That Might Not Survive 2009

    Rick Newman
    Friday February 6, 2009, 11:53 am EST

    With consumers shutting their wallets and corporate revenues plunging, the business landscape may start to resemble a graveyard in 2009. Household names like Circuit City and Linens ‘n Things have already perished. And chances are, those bankruptcies were just an early warning sign of a much broader epidemic.

    Moody’s Investors Service, for instance, predicts that the default rate on corporate bonds – which foretells bankruptcies – will be three times higher in 2009 than in 2008, and 15 times higher than in 2007. That could equate to 25 significant bankruptcies per month.

    We examined ratings from Moody’s and data from other sources to develop a short list of potential victims that ought to be familiar to most consumers. Many of these firms are in industries directly hit by the slowdown in consumer spending, such as retail, automotive, housing and entertainment.

    But there are other common threads. Most of these firms have limited cash for a rainy day, and a lot of debt, with large interest payments due over the next year. In ordinary times, it might not be so hard to refinance loans, or get new ones, to help keep the cash flowing. But in an acute credit crunch it’s a different story, and at companies where sales are down and going lower, skittish lenders may refuse to grant any more credit. It’s a terrible time to be cash-poor.

    [See how Wall Street continues to doom itself.]

    That’s why Moody’s assigns most of these firms its lowest rating for short-term liquidity. And all the firms on this list have long-term debt that Moody’s rates Caa or lower, which means the borrower is considered at least a “very high” credit risk.

    Once a company defaults on its debt, or fails to make a payment, the next step is usually a Chapter 11 bankruptcy filing. Some firms continue to operate while in Chapter 11, retaining many of their employees. Those firms often shed debt, restructure, and emerge from bankruptcy as healthier companies.

    But it takes fresh financing to do that, and with money scarce, more bankrupt firms than usual are likely to liquidate – like Circuit City. That’s why corporate failures are likely to be a major drag on the economy in 2009: In a liquidation, the entire workforce often gets axed, with little or no severance. That will only add to unemployment, which could hit 9 or even 10 percent by the end of the year.

    [Want to land a plum job without paying taxes? Here’s how.]

    It’s possible that none of the firms on this list will liquidate, or even declare Chapter 11. Some may come up with unexpected revenue or creative financing that helps avert bankruptcy, while others could be purchased in whole or in part by creditors or other investors. But one way or another, the following 15 firms will probably look a lot different a year from now than they do today:

    Rite Aid. (Ticker symbol: RAD; about 100,000 employees; 1-year stock-price decline: 92%). This drugstore chain tried to boost its performance by acquiring competitors Brooks and Eckerd in 2007. But there have been some nasty side effects, like a huge debt load that makes it the most leveraged drugstore chain in the U.S., according to Zacks Equity Research. That big retail investment came just as megadiscounter Wal-Mart was starting to sell prescription drugs, and consumers were starting to cut bank on spending. Management has twice lowered its outlook for 2009. Prognosis: Mounting losses, with no turnaround in sight.

    Claire’s Stores. (Privately owned; about 18,000 employees.) Leon Black’s once-renowned private-equity firm, the Apollo Group, paid $3.1 billion for this trendy teen-focused accessory store in 2007, when buyout funds were bulging. But cash flow has been negative for much of the past year and analysts believe Claire’s is close to defaulting on its debt. A horrible retail outlook for 2009 offers no relief, suggesting Claire’s could follow Linens ‘n Things – another Apollo purchase – and declare Chapter 11, possibly shuttering all of its 3,000-plus stores.

    [See 5 pieces missing from Obama’s stimulus plan.]

    Chrysler. (Privately owned; about 55,000 employees). It’s never a good sign when management insists the company is not going out of business, which is what CEO Bob Nardelli has been doing lately. Of the three Detroit automakers, Chrysler is the most endangered, with a product portfolio that’s overreliant on gas-guzzling trucks and SUVs and almost totally devoid of compelling small cars. A recent deal with Fiat seems dubious, since the Italian automaker doesn’t have to pony up any money, and Chrysler desperately needs cash. The company is quickly burning through $4 billion in government bailout money, and with car sales down 40 percent from recent peaks, Chrysler may be the weakling that can’t cut it in tough times.

    Dollar Thrifty Automotive Group. (DTG; about 7,000 employees; stock down 95%). This car-rental company is a small player compared to Enterprise, Hertz, and Avis Budget. It’s also more reliant on leisure travelers, and therefore more susceptible to a downturn as consumers cut spending. Dollar Thrifty is also closely tied to Chrysler, which supplies 80 percent of its fleet. Moody’s predicts that if Chrysler declares Chapter 11, Dollar Thrifty would suffer deeply as well.

    Realogy Corp. (Privately owned; about 13,000 employees). It’s the biggest real-estate brokerage firm in the country, but that’s a bad thing when there are double-digit declines in both sales and prices, as there were in 2009. Realogy, which includes the Coldwell Banker, ERA, and Sotheby’s franchises, also carries a high debt load, dating to its purchase by the Apollo Group in 2007 – the very moment when the housing market was starting to invert from a soaring ride into a sickening nosedive. Realogy has been trying to refinance much of its debt, prompting lawsuits. One deal was denied by a judge in December, reducing the firm’s already tight wiggle room.

    [See why “Wall Street talent” is an oxymoron.]

    Station Casinos. (Privately owned, about 14,000 employees). Las Vegas has already been creamed by a biblical real-estate bust, and now it may face the loss of its home-grown gambling joints, too. Station – which runs 15 casinos off the strip that cater to locals – recently failed to make a key interest payment, which is often one of the last steps before a Chapter 11 filing. For once, the house seems likely to lose.

    Loehmann’s Capital Corp. (Privately owned; about 1,500 employees). This clothing chain has the right formula for lean times, offering women’s clothing at discount prices. But the consumer pullback is hitting just about every retailer, and Loehmann’s has a lot less cash to ride out a drought than competitors like Nordstrom Rack and TJ Maxx. If Loehmann’s doesn’t get additional financing in 2009 – a dicey proposition, given skyrocketing unemployment and plunging spending – the chain could run out of cash.

    Sbarro. (Privately owned; about 5,500 employees). It’s not the pizza that’s the problem. Many of this chain’s 1,100 storefronts are in malls, which is a double whammy: Traffic is down, since consumers have put away their wallets. Sbarro can’t really boost revenue by adding a breakfast or late-night menu, like other chains have done. And competitors like Domino’s and Pizza Hut have less debt and stronger cash flow, which could intensify pressure on Sbarro as key debt payments come due in 2009.

    Six Flags. (SIX; about 30,000 employees; stock down 84%). This theme-park operator has been losing money for several years, and selling off properties to try to pay down debt and get back into the black. But the ride may end prematurely. Moody’s expects cash flow to be negative in 2009, and if consumers aren’t spending during the peak summer season, that could imperil the company’s ability to pay debts coming due later this year and in 2010.

    Blockbuster. (BBI; about 60,000 employees; stock down 57%). The video-rental chain has burned cash while trying to figure out how to maximize fees without alienating customers. Its operating income has started to improve just as consumers are cutting back, even on movies. Video stores in general are under pressure as they compete with cable and Internet operators offering the same titles. A key test of Blockbuster’s viability will come when two credit lines expire in August. One possible outcome, according to Valueline, is that investors take the company private and then go public again when market conditions are better.

    Krispy Kreme. (KKD; about 4,000 employees; stock down 50%). The donuts might be good, but Krispy Kreme overestimated Americans’ appetite – and that’s saying something. This chain overexpanded during the donut heyday of the 1990s – taking on a lot of debt – and now requires high volumes to meet expenses and interest payments. The company has cut costs and closed underperforming stores, but still hasn’t earned an operating profit in three years. And now that consumers are cutting back on everything, such improvements may fail to offset top-line declines, leading Krispy Kreme to seek some kind of relief from lenders over the next year.

    Landry’s Restaurants. (LNY; about 17,000 employees; stock down 66%). This restaurant chain, which operates Chart House, Rainforest Café, and other eateries, needs $400 million in new financing to finalize a buyout deal dating to last June. If lenders come through, the company should have enough cash to ride out the recession. But at least two banks have already balked, leading to downgrades of the company’s debt and the prospect of a cash-flow crunch.

    Sirius Satellite Radio. (SIRI – parent company; about 1,000 employees; stock down 96%). The music rocks, but satellite radio has yet to be profitable, and huge contracts for performers like Howard Stern are looking unsustainable. Sirius is one of two satellite-radio services owned by parent company Sirius XM, which was formed when Sirius and XM merged last year. So far, the merger hasn’t generated the savings needed to make the company profitable, and Moody’s thinks there’s a “high likelihood” that Sirius will fail to repay or refinance its debt in 2009. One outcome could be a takeover, at distressed prices, by other firms active in the satellite business.

    Trump Entertainment Resorts Holdings. (TRMP; about 9,500 employees; stock down 94%). The casino company made famous by The Donald has received several extensions on interest payments, while it tries to sell at least one of its Atlantic City properties and pay down a stack of debt. But with casino buyers scarce, competition circling, and gamblers nursing their losses from the recession, Trump Entertainment may face long odds of skirting bankruptcy.

    BearingPoint. (BGPT; about 16,000 employees; stock down 21%). This Virginia-based consulting firm, spun out of KPMG in 2001, is struggling to solve its own operating problems. The firm has consistently lost money, revenue has been falling, and management stopped issuing earnings guidance in 2008. Stable government contracts generate about 30 percent of the firm’s business, but the firm may sell other divisions to help pay off debt. With a key interest payment due in April, management needs to hustle – or devise its own exit strategy.

    – With Carol Hook, Danielle Burton and Stephanie Salmon

  • Turkey and the IMF Take a Break to Review Remaining Disagreements

    Turkey and the IMF Take a Break to Review Remaining Disagreements

    Turkey and the IMF Take a Break to Review Remaining Disagreements

    Publication: Eurasia Daily Monitor Volume: 6 Issue: 19
    January 29, 2009
    By: Saban Kardas

    After 18 days of intense negotiations on a new financial package, an International Monetary Fund (IMF) mission failed to reach an agreement with Turkey and left Ankara on Tuesday. Mehmet Simsek, the minister of state responsible for the economy, told reporters on Monday that the talks had briefly been halted and would resume “after the removal of some disagreements on remaining issues.” On Tuesday Prime Minister Recep Tayyip Erdogan said that the talks would continue after a 10-day break (Hurriyet Daily News, January 27).

    Since Turkey’s previous $10 billion standby loan agreement came to an end in May, the Justice and Development Party (AKP) government has resisted pressure from Turkish business circles, investors, and international financial/economic institutions to sign a new accord. Although the global financial crisis further heightened the urgency for an IMF program to inject additional funds and ensure trust in the markets, the government preferred to stall the negotiations, because it was reluctant to accept constraints on public spending before the coming elections. It has remained optimistic that it can weather the global crisis with its own resources (EDM, December 10).

    The decision to put the talks on hold came as a surprise. On January 25 the governor of the Central Bank, Durmus Yilmaz, estimated that Turkey would have a foreign financing gap of around $30 billion this year and called on the government to sign the letter of intention before the local elections slated for March. His remarks about the progress in the negotiations and his emphasis on ensuring fiscal discipline were interpreted as strong signals that an agreement might soon be reached. Markets responded to Yilmaz’s remarks with stock prices increasing the next morning. When the news about halting the talks arrived, however, stocks fell (Anadolu Ajansi, January 25; ANKA, January 26).

    News of an agreement had been expected before Erdogan and Simsek left for Davos to attend the World Economic Forum (WEF). In the meantime, there have been questions about the standing of the Turkish-IMF talks and whether Turkey could postpone an agreement until after the local elections in March.

    Disagreements over fiscal regulations and public-sector reforms were the major cause of the deadlock in the talks. Simsek said that although the government did not want to postpone an agreement until the elections, talks on some mid- and long-term structural reforms would continue. According to experts, differences of opinion persist on several issues: local administrations; reform of state-owned enterprises; and the requirements for “financial rule,” which is the IMF’s new criterion for financial discipline. Although the IMF and the Turkish treasury have held workshops about how to define this concept, it remains a mystery to many. One expert claimed that this new requirement included stringent regulations on the budgetary deficit, the interest-free budget surplus, and the ratio of debt stock to the gross national product. These demands will probably require the introduction of new legislation that might limit political influence on economic decisions and curb government spending (www.haberturk.com, January 28; Sabah, January 28).

    Some observers argue that although Simsek did his part in the negotiations, the talks hit a point at which Erdogan needs to be convinced (Milliyet, January 28). The likely constraints on the government demanded by the IMF appear to irritate Erdogan. Before leaving for Davos, he asked the IMF not to bring in new conditions for Turkey. Erdogan criticized the IMF for introducing new issues into the continuing negotiation process and reopening issues to which Turkey had already responded. Erdogan warned that this attitude increased Turkey’s concerns and sensitivity and asked the IMF to take Turkey’s unique conditions into account and stop treating it like any other country in the world (ANKA, January 28).

    These remarks reflect Erdogan’s belief that Turkey needs to invest to create more jobs in order to cushion the effects of the crisis. He evidently thinks that the IMF’s demands for increasing taxes, tightening the budget, and freezing government spending will limit investments and exacerbate the effects of the crisis on the Turkish people.

    Talks between the IMF and Turkey over the new loan agreement continued in Davos. Parallel to the meetings between the Turkish and the IMF teams, Erdogan met IMF Deputy Managing Director John Lipsky on January 28. Following the meeting, both Erdogan and Lipsky told reporters that they had had a fruitful discussion and would resume the talks after the 10-day break (Anadolu Ajansi, January 29).

    Meanwhile, WEF President Klaus Schwab described Turkey as the top country in its region, noting its strategic location on energy routes and recently heightened diplomatic profile. Schwab said that Turkey’s recent structural reforms would help it emerge from the global crisis much stronger than before (Anadolu Ajansi, January 28).

    Other experts also believe that Turkey is much stronger and better equipped to deal with the global crisis than it was with past economic crises. It was noted at a conference that the AKP government’s previous structural reforms might be paying off, particularly because the banking sector was now in good shape and the government had been relatively successful in reducing public debt, easing the inflation rate, and boosting public and foreign direct investments (Today’s Zaman, January 29).

    Nonetheless, most economists have draw attention to the contraction in the Turkish economy. Since the economy is integrated closely into world markets, it is vulnerable to the adverse effects of the crisis. Stagnation in global markets harms Turkish export industries such as textiles and the automotive industry. Consequent drops in industrial production and the utilization of capacity led to a shrinking of the Turkish economy toward the end of 2008, and the growth rate is likely to drop in 2009. Yilmaz urgently called for an IMF accord to avoid liquidity problems and improve credit conditions (www.ntvmsnbc.com, January 28).

    It will be interesting to see how long Erdogan will resist such pressures and insist on driving “a tough bargain” with the IMF.

    https://jamestown.org/program/turkey-and-the-imf-take-a-break-to-review-remaining-disagreements/

  • Is the Russian-Led Consortium Trying to Overcharge Turkey for Its First Nuclear Power Plant?

    Is the Russian-Led Consortium Trying to Overcharge Turkey for Its First Nuclear Power Plant?

    Is the Russian-Led Consortium Trying to Overcharge Turkey for Its First Nuclear Power Plant?

    Publication: Eurasia Daily Monitor Volume: 6 Issue: 16
    January 26, 2009
    By: Saban Kardas

    Turkey is continuing to debate the construction of its first nuclear power plant in Akkuyu, Mersin. After the tender was launched in March 2008, 13 foreign and local companies purchased documents. All but one, however, failed to submit an offer, because they did not have sufficient time to prepare the necessary documentation. The government did not respond to their call for extending the September 2008 deadline; and only one consortium, a joint venture of Russia’s state-run Atomstroyexport, Inter RAO, and the private Turkish company Park Teknik submitted a bid (EDM, October 10).

    Although many within the energy sector called for the cancellation of the tender, the AKP government went ahead with the plans. The sole bidder submitted its offer to the Turkish government; and, upon technical evaluation, the Turkish Atomic Energy Agency (TAEK) concluded in December that the proposal met the necessary criteria.

    On January 19 the Energy Ministry opened the sealed letter with the offer, which also included the price. This was the third and final stage of the tender process. Energy Minister Hilmi Guler announced that the consortium had offered a price of 21.16 cents per kilowatt-hour (kWh) for the electricity it would sell to Turkey. In the coming days, the state-run Turkish Electricity Trading and Contracting Company (TETAS) will evaluate the proposal and present a report to the cabinet for final approval (Dogan Haber Ajansi, January 19).

    Under the bid, the consortium would build “four units of the Russian VVER-1200 pressurized water reactors that generate 1,200 megawatts of electricity each.” The plant would produce around 4,800 megawatts of electricity per year. Since the Turkish government must commit itself to buying electricity from the company for 15 years, it would be paying $86.3 billion for 415.5 billion kWh during that period (Hurriyet Daily News, January 20).

    Turkey is considering the construction of nuclear plants as a source of clean and cheap energy and as a means for reducing energy dependency. By 2020 it seeks to produce 8 percent of its electricity from nuclear plants and increase that amount to 20 percent by 2030 (www.ntvmsnbc.com, January 20).

    The price of electricity is a crucial factor. Earlier, Turkish officials had said that they expected the consortium to make a reasonable offer. Some observers had predicted a price offer in the vicinity of 12 to 15 cents. Many observers found the price excessive, arguing that 21.16 cents per kWh was above market prices. Experts and representatives from the energy sector noted concerns about a price that was almost four times higher than the current rates in the Turkish market, which varied from 4 cents to 14 cents. Some described it as the world’s most expensive electricity generated at a nuclear plant, arguing that the world average was around 10 to 15 cents per kWh. Others noted that Turkey had cancelled another tender for the construction of a coal-fired power plant, because even the anticipated 14.7 per kWh had been found too expensive. Turkey also is investing extensively in natural gas power plants, which reportedly produce electricity for around 7 to 10 cents per kWh (Referans, January 20; Today’s Zaman, January 20).

    The chairman of the Electricity Producers Association, however, cautioned that although the price was high, it was also important to remember that this tender model was a first in the world. Under this model, the private sector was assuming all the risks for such a large-scale investment, which might account for why the offer turned out so high. A board member of the Chamber of Electrical Engineers, however, said that since there was no competition, the chamber deemed the tender illegal and incompatible with Turkey’s national interests (ANKA, January 20).

    The same day, the consortium submitted another letter with a revised price. Since the 21.16 cents was offered in September, the company said it wanted to adjust the price, reflecting changes in the world economy and energy costs (www.cnnturk.com, January 19). Guler avoided commenting on the amount but said that there was no obstacle to renegotiating the price. TETAS, however, concluded that the rules regulating the tender prohibited submission of revised
    , because a new price would in essence constitute a new offer. On a TV show the same night, Guler said that the revised letter had been rejected (Anadolu Ajansi, January 19).

    The Turkish press speculated that in its report to the cabinet, TETAS would probably suggest rejecting the consortium’s offer (Vatan, January 21). Responding to questions on this subject, Guler told reporters that the tender process was proceeding well, and a cancellation was not on the agenda (Anadolu Ajansi, January 23).

    The government is keen on building nuclear power plants to diversify Turkey’s energy sources, and plans for the construction of two more plants are also underway. For obvious reasons, environmentalist groups have opposed Turkey’s nuclear energy projects since the beginning. Even the representatives of the energy sector continue to question the government’s policy on nuclear energy, in particular its hasty approach. Moreover, as Turkey is seeking to reduce its dependence on Russian gas, which accounts for 35 percent of Turkey’s electricity production, it would be ironic to award the tender to a Russian company. The government’s disregard of the global financial crisis and insistence on proceeding with these costly projects is also a cause of concern (Today’s Zaman, January 20).

    Guler continuously emphasizes that although Turkey is looking to increase its use of hydroelectric and renewable energy sources, it does not have the luxury to ignore nuclear energy. Nonetheless, it remains to be seen whether the government will be able to realize Turkey’s nuclear energy ambitions, which have been thwarted for decades. As things stand, most observers see little chance that the cabinet will approve the Russian offer for the Akkuyu plant. In the unlikely event that the cabinet does endorse the Russian offer, Turkey will most probably bargain to decrease the price before it signs the final agreement.

    The government, however, might have learned some lessons from its handling of the project so far. Preparations are reportedly under way to streamline the nuclear energy policy. As a first step, it would push for revising the Nuclear Tender Law. Since the current law prevents opening a second tender, allowing flexibility on that score would be the first rule to change. Also, the current competition model, which discourages many possible contenders from participating, is likely to be amended. Instead of a free market model of private companies undertaking construction, a model based on greater public involvement is likely to be considered (www.ntvmsnbc.com, January 21).

    https://jamestown.org/program/is-the-russian-led-consortium-trying-to-overcharge-turkey-for-its-first-nuclear-power-plant/

  • Poor Richard’s Report

    Poor Richard’s Report

    Contact John Mauldin
    Print Version

    Volume 5 – Special Edition
    January 22, 2009

    The Next 100 Years
    By George Friedman

    Much of the world is focused on the next 100 days—what Obama is going to do. That’s important. But today in a special Outside the Box from my good friend George Freidman of Stratfor We will look out a bit further George is just about to release his latest book, The Next 100 Years: A Forecast for the 21st Century. (Even pre-release it’s already at #11 on Amazon’s non-fiction bestseller list!) Here’s my quick summary; and to cut to the chase, it’s just fascinating.

    What reads like a geopolitical thriller gives a thought-provoking glimpse into what the world will look like in the coming century. George’s strength is his ability to take geopolitical patterns and use them to forecast future events, sometimes with startling and counterintuitive results.

    For example, he forecasts:

    By the middle of this century, Poland and Turkey will be major international players
    Russia will be a regional power – after emerging from a second cold war
    Space-based solar power will completely change the global energy dynamic
    The border areas between the US and Mexico are going to be in play again, like 150 years ago
    Shrinking labor pools will cause countries to compete for immigrants rather than fighting to keep them out
    I confess when George first told me about these ideas, I raised an eyebrow. But after reading the book, and going through the analysis, I find myself sometimes nodding in agreement and other times not being sure what I was reading. But like all the analysis reviews I do, I pay as much attention to the methods, the logic, and the arguments as the conclusions. Do that, and what seems hard to believe all of a sudden makes sense.

    Don’t let short-term fears blind you to long term opportunities. George’s company, Stratfor, is my source for this kind of geopolitical analysis on an on-going basis. I’ve included the full introduction to the book below; and I heartily recommend that you click here for a special offer on a Stratfor Membership that includes a copy of George’s upcoming book.

    John Mauldin, Editor
    Outside the Box

    The Next 100 Years

    OVERTURE
    An Introduction to the American Age
    Imagine that you were alive in the summer of 1900, living in London, then the capital of the world. Europe ruled the Eastern Hemisphere. There was hardly a place that, if not ruled directly, was not indirectly controlled from a European capital. Europe was at peace and enjoying unprecedented prosperity. Indeed, European interdependence due to trade and investment was so great that serious people were claiming that war had become impossible—and if not impossible, would end within weeks of beginning—because global financial markets couldn’t withstand the strain. The future seemed fixed: a peaceful, prosperous Europe would rule the world.

    Imagine yourself now in the summer of 1920. Europe had been torn apart by an agonizing war. The continent was in tatters. The Austro-Hungarian, Russian, German, and Ottoman empires were gone and millions had died in a war that lasted for years. The war ended when an American army of a million men intervened—an army that came and then just as quickly left. Communism dominated Russia, but it was not clear that it could survive. Countries that had been on the periphery of European power, like the United States and Japan, suddenly emerged as great powers. But one thing was certain—the peace treaty that had been imposed on Germany guaranteed that it would not soon reemerge.

    Imagine the summer of 1940. Germany had not only reemerged but conquered France and dominated Europe. Communism had survived and the Soviet Union now was allied with Nazi Germany. Great Britain alone stood against Germany, and from the point of view of most reasonable people, the war was over. If there was not to be a thousand-year Reich, then certainly Europe’s fate had been decided for a century. Germany would dominate Europe and inherit its empire.

    Imagine now the summer of 1960. Germany had been crushed in the war, defeated less than five years later. Europe was occupied, split down the middle by the United States and the Soviet Union. The European empires were collapsing, and the United States and Soviet Union were competing over who would be their heir. The United States had the Soviet Union surrounded and, with an overwhelming arsenal of nuclear weapons, could annihilate it in hours. The United States had emerged as the global superpower. It dominated all of the world’s oceans, and with its nuclear force could dictate terms to anyone in the world. Stalemate was the best the Soviets could hope for—unless the Soviets invaded Germany and conquered Europe. That was the war everyone was preparing for. And in the back of everyone’s mind, the Maoist Chinese, seen as fanatical, were the other danger.

    Now imagine the summer of 1980. The United States had been defeated in a seven-year war—not by the Soviet Union, but by communist North Vietnam. The nation was seen, and saw itself, as being in retreat. Expelled from Vietnam, it was then expelled from Iran as well, where the oil fields, which it no longer controlled, seemed about to fall into the hands of the Soviet Union. To contain the Soviet Union, the United States had formed an alliance with Maoist China—the American president and the Chinese chairman holding an amiable meeting in Beijing. Only this alliance seemed able to contain the powerful Soviet Union, which appeared to be surging.

    Imagine now the summer of 2000. The Soviet Union had completely collapsed. China was still communist in name but had become capitalist in practice. NATO had advanced into Eastern Europe and even into the former Soviet Union. The world was prosperous and peaceful. Everyone knew that geopolitical considerations had become secondary to economic considerations, and the only problems were regional ones in basket cases like Haiti or Kosovo.

    Then came September 11, 2001, and the world turned on its head again. At a certain level, when it comes to the future, the only thing one can be sure of is that common sense will be wrong. There is no magic twenty-year cycle; there is no simplistic force governing this pattern. It is simply that the things that appear to be so permanent and dominant at any given moment in history can change with stunning rapidity. Eras come and go. In international relations, the way the world looks right now is not at all how it will look in twenty years . . . or even less. The fall of the Soviet Union was hard to imagine, and that is exactly the point. Conventional political analysis suffers from a profound failure of imagination. It imagines passing clouds to be permanent and is blind to powerful, long- term shifts taking place in full view of the world.

    If we were at the beginning of the twentieth century, it would be impossible to forecast the particular events I’ve just listed. But there are some things that could have been—and, in fact, were—forecast. For example, it was obvious that Germany, having united in 1871, was a major power in an insecure position (trapped between Russia and France) and wanted to redefine the European and global systems. Most of the conflicts in the first half of the twentieth century were about Germany’s status in Europe. While the times and places of wars couldn’t be forecast, the probability that there would be a war could be and was forecast by many Europeans.

    The harder part of this equation would be forecasting that the wars would be so devastating and that after the first and second world wars were over, Europe would lose its empire. But there were those, particularly after the invention of dynamite, who predicted that war would now be catastrophic. If the forecasting on technology had been combined with the forecasting on geopolitics, the shattering of Europe might well have been predicted. Certainly the rise of the United States and Russia was predicted in the nineteenth century. Both Alexis de Tocqueville and Friedrich Nietzsche forecast the preeminence of these two countries. So, standing at the beginning of the twentieth century, it would have been possible to forecast its general outlines, with discipline and some luck.

    The Twenty-First Century
    Standing at the beginning of the twenty-first century, we need to identify the single pivotal event for this century, the equivalent of German unification for the twentieth century. After the debris of the European empire is cleared away, as well as what’s left of the Soviet Union, one power remains standing and overwhelmingly powerful. That power is the United States. Certainly, as is usually the case, the United States currently appears to be making a mess of things around the world. But it’s important not to be confused by the passing chaos. The United States is economically, militarily, and politically the most powerful country in the world, and there is no real challenger to that power. Like the Spanish-American War, a hundred years from now the war between the United States and the radical Islamists will be little remembered regardless of the prevailing sentiment of this time.

    Ever since the Civil War, the United States has been on an extraordinary economic surge. It has turned from a marginal developing nation into an economy bigger than the next four countries combined. Militarily, it has gone from being an insignificant force to dominating the globe. Politically, the United States touches virtually everything, sometimes intentionally and sometimes simply because of its presence. As you read this book, it will seem that it is America- centric, written from an American point of view. That may be true, but the argument I’m making is that the world does, in fact, pivot around the United States.

    This is not only due to American power. It also has to do with a fundamental shift in the way the world works. For the past five hundred years, Europe was the center of the international system, its empires creating a single global system for the first time in human history. The main highway to Europe was the North Atlantic. Whoever controlled the North Atlantic controlled access to Europe—and Europe’s access to the world. The basic geography of global politics was locked into place.

    Then, in the early 1980s, something remarkable happened. For the first time in history, transpacific trade equaled transatlantic trade. With Europe reduced to a collection of secondary powers after World War II, and the shift in trade patterns, the North Atlantic was no longer the single key to anything. Now whatever country controlled both the North Atlantic and the Pacific could control, if it wished, the world’s trading system, and therefore the global economy. In the twenty-first century, any nation located on both oceans has a tremendous advantage.

    Given the cost of building naval power and the huge cost of deploying it around the world, the power native to both oceans became the preeminent actor in the international system for the same reason that Britain dominated the nineteenth century: it lived on the sea it had to control. In this way, North America has replaced Europe as the center of gravity in the world, and whoever dominates North America is virtually assured of being the dominant global power. For the twenty-first century at least, that will be the United States.

    The inherent power of the United States coupled with its geographic position makes the United States the pivotal actor of the twenty-first century. That certainly doesn’t make it loved. On the contrary, its power makes it feared. The history of the twenty-first century, therefore, particularly the first half, will revolve around two opposing struggles. One will be secondary powers forming coalitions to try to contain and control the United States. The second will be the United States acting preemptively to prevent an effective coalition from forming.

    If we view the beginning of the twenty-first century as the dawn of the American Age (superseding the European Age), we see that it began with a group of Muslims seeking to re- create the Caliphate—the great Islamic empire that once ran from the Atlantic to the Pacific. Inevitably, they had to strike at the United States in an attempt to draw the world’s primary power into war, trying to demonstrate its weakness in order to trigger an Islamic uprising. The United States responded by invading the Islamic world. But its goal wasn’t victory. It wasn’t even clear what victory would mean. Its goal was simply to disrupt the Islamic world and set it against itself, so that an Islamic empire could not emerge.

    The United States doesn’t need to win wars. It needs to simply disrupt things so the other side can’t build up sufficient strength to challenge it. On one level, the twenty-first century will see a series of confrontations involving lesser powers trying to build coalitions to control American behavior and the United States’ mounting military operations to disrupt them. The twenty-first century will see even more war than the twentieth century, but the wars will be much less catastrophic, because of both technological changes and the nature of the geopolitical challenge.

    As we’ve seen, the changes that lead to the next era are always shockingly unexpected, and the first twenty years of this new century will be no exception. The U.S.–Islamist war is already ending and the next conflict is in sight. Russia is re-creating its old sphere of influence, and that sphere of influence will inevitably challenge the United States. The Russians will be moving westward on the great northern European plain. As Russia reconstructs its power, it will encounter the U.S.-dominated NATO in the three Baltic countries—Estonia, Latvia, and Lithuania—as well as in Poland. There will be other points of friction in the early twenty-first century, but this new cold war will supply the flash points after the U.S.–Islamist war dies down.

    The Russians can’t avoid trying to reassert power, and the United States can’t avoid trying to resist. But in the end Russia can’t win. Its deep internal problems, massively declining population, and poor infrastructure ultimately make Russia’s long- term survival prospects bleak. And the second cold war, less frightening and much less global than the first, will end as the first did, with the collapse of Russia.

    There are many who predict that China is the next challenger to the United States, not Russia. I don’t agree with that view for three reasons. First, when you look at a map of China closely, you see that it is really a very isolated country physically. With Siberia in the north, the Himalayas and jungles to the south, and most of China’s population in the eastern part of the country, the Chinese aren’t going to easily expand. Second, China has not been a major naval power for centuries, and building a navy requires a long time not only to build ships but to create well-trained and experienced sailors.

    Third, there is a deeper reason for not worrying about China. China is inherently unstable. Whenever it opens its borders to the outside world, the coastal region becomes prosperous, but the vast majority of Chinese in the interior remain impoverished. This leads to tension, conflict, and instability. It also leads to economic decisions made for political reasons, resulting in inefficiency and corruption. This is not the first time that China has opened itself to foreign trade, and it will not be the last time that it becomes unstable as a result. Nor will it be the last time that a figure like Mao emerges to close the country off from the outside, equalize the wealth—or poverty—and begin the cycle anew. There are some who believe that the trends of the last thirty years will continue indefinitely. I believe the Chinese cycle will move to its next and inevitable phase in the coming decade. Far from being a challenger, China is a country the United States will be trying to bolster and hold together as a counterweight to the Russians. Current Chinese economic dynamism does not translate into long-term success.

    In the middle of the century, other powers will emerge, countries that aren’t thought of as great powers today, but that I expect will become more powerful and assertive over the next few decades. Three stand out in particular. The first is Japan. It’s the second- largest economy in the world and the most vulnerable, being highly dependent on the importation of raw materials, since it has almost none of its own. With a history of militarism, Japan will not remain the marginal pacifistic power it has been. It cannot. Its own deep population problems and abhorrence of large- scale immigration will force it to look for new workers in other countries. Japan’s vulnerabilities, which I’ve written about in the past and which the Japanese have managed better than I’ve expected up until this point, in the end will force a shift in policy.

    Then there is Turkey, currently the seventeenth-largest economy in the world. Historically, when a major Islamic empire has emerged, it has been dominated by the Turks. The Ottomans collapsed at the end of World War I, leaving modern Turkey in its wake. But Turkey is a stable platform in the midst of chaos. The Balkans, the Caucasus, and the Arab world to the south are all unstable. As Turkey’s power grows—and its economy and military are already the most powerful in the region—so will Turkish influence.

    Finally there is Poland. Poland hasn’t been a great power since the sixteenth century. But it once was—and, I think, will be again. Two factors make this possible. First will be the decline of Germany. Its economy is large and still growing, but it has lost the dynamism it has had for two centuries. In addition, its population is going to fall dramatically in the next fifty years, further undermining its economic power. Second, as the Russians press on the Poles from the east, the Germans won’t have an appetite for a third war with Russia. The United States, however, will back Poland, providing it with massive economic and technical support. Wars—when your country isn’t destroyed—stimulate economic growth, and Poland will become the leading power in a coalition of states facing the Russians.

    Japan, Turkey, and Poland will each be facing a United States even more confident than it was after the second fall of the Soviet Union. That will be an explosive situation. As we will see during the course of this book, the relationships among these four countries will greatly affect the twenty-first century, leading, ultimately, to the next global war. This war will be fought differently from any in history—with weapons that are today in the realm of science fiction. But as I will try to outline, this mid-twenty-first century conflict will grow out of the dynamic forces born in the early part of the new century.

    Tremendous technical advances will come out of this war, as they did out of World War II, and one of them will be especially critical. All sides will be looking for new forms of energy to substitute for hydrocarbons, for many obvious reasons. Solar power is theoretically the most efficient energy source on earth, but solar power requires massive arrays of receivers. Those receivers take up a lot of space on the earth’s surface and have many negative environmental impacts—not to mention being subject to the disruptive cycles of night and day. During the coming global war, however, concepts developed prior to the war for space- based electrical generation, beamed to earth in the form of microwave radiation, will be rapidly translated from prototype to reality. Getting a free ride on the back of military space launch capability, the new energy source will be underwritten in much the same way as the Internet or the railroads were, by government support. And that will kick off a massive economic boom.

    But underlying all of this will be the single most important fact of the twenty-first century: the end of the population explosion. By 2050, advanced industrial countries will be losing population at a dramatic rate. By 2100, even the most underdeveloped countries will have reached birthrates that will stabilize their populations. The entire global system has been built since 1750 on the expectation of continually expanding populations. More workers, more consumers, more soldiers—this was always the expectation. In the twenty-first century, however, that will cease to be true. The entire system of production will shift. The shift will force the world into a greater dependence on technology—particularly robots that will substitute for human labor, and intensified genetic research (not so much for the purpose of extending life but to make people productive longer).

    What will be the more immediate result of a shrinking world population? Quite simply, in the first half of the century, the population bust will create a major labor shortage in advanced industrial countries. Today, developed countries see the problem as keeping immigrants out. Later in the first half of the twenty-first century, the problem will be persuading them to come. Countries will go so far as to pay people to move there. This will include the United States, which will be competing for increasingly scarce immigrants and will be doing everything it can to induce Mexicans to come to the United States—an ironic but inevitable shift.

    These changes will lead to the final crisis of the twenty-first century. Mexico currently is the fifteenth-largest economy in the world. As the Europeans slip out, the Mexicans, like the Turks, will rise in the rankings until by the late twenty-first century they will be one of the major economic powers in the world. During the great migration north encouraged by the United States, the population balance in the old Mexican Cession (that is, the areas of the United States taken from Mexico in the nineteenth century) will shift dramatically until much of the region is predominantly Mexican.

    The social reality will be viewed by the Mexican government simply as rectification of historical defeats. By 2080 I expect there to be a serious confrontation between the United States and an increasingly powerful and assertive Mexico. That confrontation may well have unforeseen consequences for the United States, and will likely not end by 2100.

    Much of what I’ve said here may seem pretty hard to fathom. The idea that the twenty-first century will culminate in a confrontation between Mexico and the United States is certainly hard to imagine in 2009, as is a powerful Turkey or Poland. But go back to the beginning of this chapter, when I described how the world looked at twenty-year intervals during the twentieth century, and you can see what I’m driving at: common sense is the one thing that will certainly be wrong. Obviously, the more granular the description, the less reliable it gets. It is impossible to forecast precise details of a coming century—apart from the fact that I’ll be long dead by then and won’t know what mistakes I made.

    But it’s my contention that it is indeed possible to see the broad outlines of what is going to happen, and to try to give it some definition, however speculative that definition might be. That’s what this book is about.

    Forecasting a Hundred Years Ahead
    Before I delve into any details of global wars, population trends, or technological shifts, it is important that I address my method—that is, precisely how I can forecast what I do. I don’t intend to be taken seriously on the details of the war in 2050 that I forecast. But I do want to be taken seriously in terms of how wars will be fought then, about the centrality of American power, about the likelihood of other countries challenging that power, and about some of the countries I think will—and won’t—challenge that power.

    And doing that takes some justification. The idea of a U.S.–Mexican confrontation and even war will leave most reasonable people dubious, but I would like to demonstrate why and how these assertions can be made. One point I’ve already made is that reasonable people are incapable of anticipating the future. The old New Left slogan “Be Practical, Demand the Impossible” needs to be changed: “Be Practical, Expect the Impossible.” This idea is at the heart of my method. From another, more substantial perspective, this is called geopolitics.

    Geopolitics is not simply a pretentious way of saying “international relations.” It is a method for thinking about the world and forecasting what will happen down the road. Economists talk about an invisible hand, in which the self-interested, short-term activities of people lead to what Adam Smith called “the wealth of nations.” Geopolitics applies the concept of the invisible hand to the behavior of nations and other international actors. The pursuit of short-term self-interest by nations and by their leaders leads, if not to the wealth of nations, then at least to predictable behavior and, therefore, the ability to forecast the shape of the future international system.

    Geopolitics and economics both assume that the players are rational, at least in the sense of knowing their own short-term self-interest. As rational actors, reality provides them with limited choices. It is assumed that, on the whole, people and nations will pursue their self-interest, if not flawlessly, then at least not randomly. Think of a chess game. On the surface, it appears that each player has twenty potential opening moves. In fact, there are many fewer because most of these moves are so bad that they quickly lead to defeat. The better you are at chess, the more clearly you see your options, and the fewer moves there actually are available. The better the player, the more predictable the moves. The grandmaster plays with absolute predictable precision—until that one brilliant, unexpected stroke.

    Nations behave the same way. The millions or hundreds of millions of people who make up a nation are constrained by reality. They generate leaders who would not become leaders if they were irrational. Climbing to the top of millions of people is not something fools often do. Leaders understand their menu of next moves and execute them, if not flawlessly, then at least pretty well. An occasional master will come along with a stunningly unexpected and successful move, but for the most part, the act of governance is simply executing the necessary and logical next step. When politicians run a country’s foreign policy, they operate the same way. If a leader dies and is replaced, another emerges and more likely than not continues what the first one was doing.

    I am not arguing that political leaders are geniuses, scholars, or even gentlemen and ladies. Simply, political leaders know how to be leaders or they wouldn’t have emerged as such. It is the delight of all societies to belittle their political leaders, and leaders surely do make mistakes. But the mistakes they make, when carefully examined, are rarely stupid. More likely, mistakes are forced on them by circumstance. We would all like to believe that we— or our favorite candidate—would never have acted so stupidly. It is rarely true. Geopolitics therefore does not take the individual leader very seriously, any more than economics takes the individual businessman too seriously. Both are players who know how to manage a process but are not free to break the very rigid rules of their professions.

    Politicians are therefore rarely free actors. Their actions are determined by circumstances, and public policy is a response to reality. Within narrow margins, political decisions can matter. But the most brilliant leader of Iceland will never turn it into a world power, while the stupidest leader of Rome at its height could not undermine Rome’s fundamental power. Geopolitics is not about the right and wrong of things, it is not about the virtues or vices of politicians, and it is not about foreign policy debates. Geopolitics is about broad impersonal forces that constrain nations and human beings and compel them to act in certain ways.

    The key to understanding economics is accepting that there are always unintended consequences. Actions people take for their own good reasons have results they don’t envision or intend. The same is true with geopolitics. It is doubtful that the village of Rome, when it started its expansion in the seventh century BC, had a master plan for conquering the Mediterranean world five hundred years later. But the first action its inhabitants took against neighboring villages set in motion a process that was both constrained by reality and filled with unintended consequences. Rome wasn’t planned, and neither did it just happen.

    Geopolitical forecasting, therefore, doesn’t assume that everything is predetermined. It does mean that what people think they are doing, what they hope to achieve, and what the final outcome is are not the same things. Nations and politicians pursue their immediate ends, as constrained by reality as a grandmaster is constrained by the chessboard, the pieces, and the rules. Sometimes they increase the power of the nation. Sometimes they lead the nation to catastrophe. It is rare that the final outcome will be what they initially intended to achieve.

    Geopolitics assumes two things. First, it assumes that humans organize themselves into units larger than families, and that by doing this, they must engage in politics. It also assumes that humans have a natural loyalty to the things they were born into, the people and the places. Loyalty to a tribe, a city, or a nation is natural to people. In our time, national identity matters a great deal. Geopolitics teaches that the relationship between these nations is a vital dimension of human life, and that means that war is ubiquitous. Second, geopolitics assumes that the character of a nation is determined to a great extent by geography, as is the relationship between nations. We use the term geography broadly. It includes the physical characteristics of a location, but it goes beyond that to look at the effects of a place on individuals and communities. In antiquity, the difference between Sparta and Athens was the difference between a landlocked city and a maritime empire. Athens was wealthy and cosmopolitan, while Sparta was poor, provincial, and very tough. A Spartan was very different from an Athenian in both culture and politics.

    If you understand those assumptions, then it is possible to think about large numbers of human beings, linked together through natural human bonds, constrained by geography, acting in certain ways. The United States is the United States and therefore must behave in a certain way. The same goes for Japan or Turkey or Mexico. When you drill down and see the forces that are shaping nations, you can see that the menu from which they choose is limited.

    The twenty-first century will be like all other centuries. There will be wars, there will be poverty, there will be triumphs and defeats. There will be tragedy and good luck. People will go to work, make money, have children, fall in love, and come to hate. That is the one thing that is not cyclical. It is the permanent human condition. But the twenty-first century will be extraordinary in two senses: it will be the beginning of a new age, and it will see a new global power astride the world. That doesn’t happen very often. We are now in an America-centric age. To understand this age, we must understand the United States, not only because it is so powerful but because its culture will permeate the world and define it. Just as French culture and British culture were definitive during their times of power, so American culture, as young and barbaric as it is, will define the way the world thinks and lives. So studying the twenty-first century means studying the United States.

    If there were only one argument I could make about the twenty-first century, it would be that the European Age has ended and that the North American Age has begun, and that North America will be dominated by the United States for the next hundred years. The events of the twenty-first century will pivot around the United States. That doesn’t guarantee that the United States is necessarily a just or moral regime. It certainly does not mean that America has yet developed a mature civilization. It does mean that in many ways the history of the United States will be the history of the twenty-first century.

    John F. Mauldin
    johnmauldin@investorsinsight.com

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  • Obama becomes president -DOW’s Industrial Average fell 14 percent – the biggest decline ever since 1933

    Obama becomes president -DOW’s Industrial Average fell 14 percent – the biggest decline ever since 1933

    Worst Dow Drop Since Election Meant Rally in ’33 (Update1)

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    By Jeff KearnsBloomberg.com: Worldwide

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    Jan. 20 (Bloomberg) — The Dow Jones Industrial Average fell 14 percent between Barack Obama’s election and Inauguration Day, the biggest decline ever. The second-biggest drop gave way to a 75 percent rally in 1933.

    The CHART OF THE DAY compares the Dow’s retreat since Nov. 4 with the 13 percent slide between Franklin D. Roosevelt’s election and his inauguration on March 4, 1933. The red line goes on to show the Dow’s surge during FDR’s first 100 days. No other new president since the beginning of the last century produced gains or losses of 10 percent or more in the analogous periods.

    “Obama is realizing the historic parallels,” said Richard Sylla, an economic and financial historian at New York University’s Leonard N. Stern School of Business in New York. “The situation isn’t quite as serious as the 1930s but it’s serious enough that I expect Obama to take a page from FDR’s book to restore some of the confidence that’s been shattered.”

    Obama becomes president today during the most severe economic crisis since Roosevelt was sworn in 76 years ago. Like his fellow Democrat, Obama plans to create jobs and boost the economy by investing in roads, bridges and public buildings and increasing oversight of the securities industry.

    Stock exchanges closed for more than a week when FDR declared a bank holiday and enacted reform days after becoming president. The Dow jumped 15 percent on the day markets re- opened.

    The Dow average declined 187.25 points, or 2.2 percent, to 8,093.97 as of 1:12 p.m. in New York.

    To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.

    Last Updated: January 20, 2009 07:09 EST