Stratfor’s Big Seven(aka Stratfor 201)

• The Preponderance of American Power

• Seeking a Balance in the Persian Gulf• Russia’s Resurgence and Fall –now with more Georgia!

• Asian Financial Instability

• Germany’s Reemergence

• Brazil’s Rise

• Tomorrow’s Depression

Successful Countries Have...

• Ample sheltered sea access

• Large plain/prairie regions cut by useful, interconnected rivers

• Minimal internal buffers

• Large external buffers (mountains good, oceans better)

• Limited to no sea access

• Flat regions connecting them to those of other states

• Lack of internal natural waterways

• Internal mountain chains or impenetrable forests

Unsuccessful Countries Have...

Preponderance of American Power:Land, Labor, Capital and Global Power

The United States

• The result is manic depression– Sputnik– Vietnam– Oil shocks,

Japanphobia and the 1980s recessions

– September 11, 2001

Preponderance of American Power• No challenger

state boasts the geographic capability of challenging North America’s advantages

• Their only option for resisting American power is to form coalitions with states that they see as rivals and create a single Eurasian superpower

Preponderance of American Power

• The U.S. is only losing ground by one measure – relative total economic size

• Power projection is about relative economies of scale and absolute levels of disposable income (how much can you build? how much wiggle room do you have?)

• The United States leads in both categories – and has since roughly 1870

• Result: No matter how badly managed, the US (under current technology) is immune to the cycles that rule the ebb and flow of the major powers – and has the freedom to intervene in Eurasia when and where it chooses

Geopolitics 101:A Survival Guide to

Dealing with theUnited States

• Don’t get in the way of the five precepts:– Secure control over North

America – Secure strategic depth– Control sea approaches– Dominate the oceans– Keep Eurasia divided

How We Got Here• 9/11: Al Qaeda’s strength• Nukes: The limits of hegemony• War: Ditching the dirty work• Aftermath: Iraq is no Wisconsin• Buyer’s Remorse: dealing w/Iran• The Crux: striking a deal

Iraq: From Beginning to End The Battle of Nightmares

• The American Fear

• Iraq is 60 percent Shia• Mesopotamia has never

been so weak• The western coast of the

Arabian Peninsula is similarly Shia

• That coast houses the bulk of the region’s oil production and export capacity

• One country controlling 25 percent of global oil production

• The Iranian Fear

• Every time “Iraq” has ever been united, it has invaded Iran/Persia

• The last invasion cost one million casualties and set the country back a generation

• The Shia have never ruled Iraq

• The Gulf Arabs – and their pocketbooks – would rather see a new Saddam than a resurgent Iran

Seeking a Balance in the Gulf• Man of the Hour:• Gen David Petraeus

• Forget healing Iraq: shatter the bitch (especially the Shia)

• From surge to symmetry

• Bye-bye Sadr

• The Great Satan and the Axis of Evil do lunch

• Target: Pakistan

Seeking a Balance in the Gulf

Seeking a Balance in the Gulf: Aftermath

• The United States– Large transfer of

forces to Afghanistan– Free hand to deal with

the rest of the world (The Great Rotation)

• Iran– Become an energy

superpower– Explore options

• Russia– Begin panic mode

• Saudi Arabia– Begin panic mode

• Israel– Begin panic mode

Russia: Resurgence and Fall

Jan-July 2008: Besiegement

• Kosovo’s independence made a mockery of Russian power

• The U.S. followed Kosovo up with battalion level exercises in Georgia -- the latest challenge that cannot go unanswered

• The EU is implementing an energy policy that could eliminate Russian dependence

• NATO more coherent than ever

• Shrinking strategic and demographic window

• China’s Central Asian land grab

• One bright spot: the U.S. is distracted

This Year: What’s Needed

• Rejection of erosion and demonstration of power where the West cannot respond: Georgia– Token NATO protection– Strong Western energy interests– Russian forces pre-positioned– Pro-Russia regions– Core to Russian identity– Core to Russian security

• The Problem– Putin’s fear of losing control has led

him to install a patsy as president– Medvedev has earned neither

experience nor respect– The shift from indirect to direct

power– Personalization of leadership =

failure to institutionalize stability– Can real authority be transferred?

One Last Burn

• Within three years Russian “stability” will be exposed for what it is (and that assumes the internal power struggles end)– Energy/financial crunch now inevitable– Demographics bite hard– EU/NATO expansion fills the horizon

• Everything must be put into place now – Russia will never be stronger, and the U.S. will never be more distracted

• 2008 is Russia’s last chance to shift momentum

Russia: Resurgence and FallThe Window of Opportunity

Jumping Through the Window of Opportunity

• Russia • Iran

Asian Finance:The Japanese System

• Key goal of the Japanese economic model: restore faith, profitability and return on capital are secondary concerns

• Maximize employment, firm size, market share, activity and throughput

• Government cannot greatly assist firms save in one field: easy, cheap credit for all lendees/projects

• Capital pooled into a the states hands, funneling it to achieve national goals; interest and payments negotiable

• Debt levels, profitability and return on capital irrelevant

The Japanese Model’s Outcomes• Disinterest in efficiency/profit leads to debt• Loan portfolios become non-performing• Banks invest in clients’ stock for profit• Interlocking directorates prevent change• Starves the ‘healthy’ economy for credit

despite ZIRP

• Forces government to prime pump:• Budget deficit of 8%, debt of 175% of GDP• Private financial system locked into JGBs• Deflation, distortion and Botswana

• Upside: has pumped at least $2 trillion in capital abroad

What does the total financial collapse of a first world country look like?

Japan is the Best Case Scenario

• China’s banks are far worse off than Japan’s (minimal international exposure)

• China is the most financially penetrated state in Asia (save Taiwan)

• China has (so far) burned over $600 billion in attempting bank bail outs

• China lacks Japan’s wealth and social cohesion but superior social control is so far holding a disaster off (Olympics help)

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Free ports Asia Europe US/Oz/Canada

China’s 2008 Fears and Plans• Financial collapse

– Inject FDI and expertise into the banks

– Launch IPOs– Dispose of NPLs via

AMCs

• Avoid inflation panic– Develop the interior– Seal agreements to

produce food abroad

• Salvage the Olympics– Massive internal

crackdown– Use overseas Chinese

to lobby for the homeland

• Avoid post-Olympic fallout– Find some way to then

turn off the overseas Chinese

OK for the Olympics, But There Is a Deadline

The European Pond and France’s

Rise

France’s Folly and the Cold

War’s End

Germany’sReemergence

• From France’s dreams to the Concert of Powers

• Germany’s energy plan

• Germany’s EU timebomb

• (aka - the euro)

Brazil’s Rise

Building Brazil’s Prison

Brazil’s Opportunity

• Petrobras already is a supermajor in terms of technology and output – new discoveries will only entrench that position

• Political advantage over Western supermajors will lead to a deep absorption of many Western economic energy positions throughout Latin America

• Petrobras: the new PDVSA -- and Citgo, and YPBF, and Repsol, and PetroEcuador, and...

Tomorrow’s Depression

Stray Thoughts: Tomorrow’s Depression

Window of Opportunity

• US power truncated

• Iran is being thoughtful

• Russia is going for the gold

• China just wants to be left alone

• Germany has some uncomfortable decisions to make

• Brazil is oblivious

• Recession will come anyway