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The More Things Change…

The More Things Change…

The future emerges from the interplay of countless factors. Any reasonable scenario will have a chance of happening, but some scenarios merit more advancement with regards to their likelihood of coming to pass. 2017 will be not only an extraordinary year but the beginning of an extraordinary period as compared to the last three decades. The key issues brought forth by the new political developments all over the world will be a return to the rhetoric of national interest. It will be a revival of bilateralism and realism, defined as power (or threat of power) politics. 

Politics 

I expect a rise of the dollar as the pro-business measures of the Trump administrations, the rise of Fed interest rates, as well as uncertainties in Europe will make the American currency stronger as compared to the Euro, at least in the short term.

Regarding elections in Europe, I expect that Germany will continue its liberal agenda with Merkel in power, while France will veer towards nationalism even under moderate Francois Fillon. A Grey Swan event in 2017 in France (victory for Marine Le Pen) coupled with a Black Tulip one in the Netherlands (Geert Wilders) may lead to another potential “exit”. However, the European Union will have its own chance to reform towards a more German European Union. In Eastern Europe, I expect major military operations in Ukraine as Russia will become more assertive. Moreover, Ukraine seems to be more isolated as a result of the pro-Hillary stance and interferences of the government in the American elections. This is further proof that having no backup and betting a country on an election outcome is a bad idea.

I expect a demise of Daesh in the Middle East and the remnants refocusing on terrorism, possibly consolidated by a merger with Al Qaeda. The steady rise of Kurdistan is one of the key developments in the region. Saudi Arabia will become increasingly isolated in the international and regional arena as its bets in Syria, Iraq and Yemen are proving uninspired. Iran is the big winner in Syria and Iraq and will become increasingly involved in Yemen but its dependence on Russian diplomacy will increase. The first executive order for a special operation under President Trump was issued for a strike on Al Qaeda in Yemen. Afghanistan will come back with a vengeance in the news room.

Tensions in the South China Sea will dissipate as Xi Jinping will attempt to consolidate power and his political battles inside the Communist Party will prove more important for him than the one for the South China Sea. Mandarin politics do not have a strong track record of using foreign wars to consolidate power and the dependence on American markets is still critical for development. China will likely accommodate many of Trump’s demands and will not answer in kind. Another region will become increasingly visible in the news and that is Latin America. American rhetoric will fuel local nationalism, especially in Mexico. Some form of drug legalization is highly expected and such a policy will determine new developments south of Rio Grande all the way to Tiera del Fuego. 

Economics

I expect a rise of the dollar as the pro-business measures of the Trump administrations, the rise of Fed interest rates, as well as uncertainties in Europe will make the American currency stronger as compared to the Euro, at least in the short term.

The price of oil could go under 50$ per barrel as we face strong oversupply as well as uncertainties regarding the quality of economic governance in China, as well as India.

Increased uncertainty in what regards American free trade and foreign direct investment (quantitative limitations, even boycotts similar to the Reagan administration

 
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OEconomica No. 1, 2016