In an interview at the Sage Advisory Perspectives on the Future 2015 conference in Austin, geopolitical strategist Peter Zeihan drew a pretty bleak picture of the future for investors — except American investors.
“There are three big things going on in the international system right now, all of which are pushing us toward a complete divorce from what we’re used to,” he told ThinkAdvisor on Monday.
One is that free trade is less important to the United States, he said.
“The United States created the free trade order back at the end of World War II, not in order to advance the economy but in order to buy an alliance with the Soviets, and it worked great. [However], for the United States, it was never an economic program, it was a security program,” he said.
“The Cold War ended 25 years ago. Now the system that we were willing to subsidize for 70 years is really no longer of use for the Americans, so it’s only a matter of time before the Americans have something happen either internationally or at home and they walk away from [the free trade agreement].”
The second influence is demographics. The baby boom following World War II happened around the world, and in fact was bigger in other countries than in the United States, according to Zeihan. But the second baby boom in the ‘80s and ‘90s (the more than 83 million millennials in the U.S outnumber the 75.4 million boomers, according to the Census Bureau) doesn’t have a corresponding cohort in other countries.
“Gen Y right now is producing consumption-led growth, and that’s one of the reasons why the U.S. economy is doing relatively well right now,” Zeihan said. “In 15 years, Gen Y will be investing, but that doesn’t happen anywhere else. So we’re in the process of segueing into a world where the United States is the world’s largest financial power [and the] largest consuming power, to one 15 years from now where we’re the only consuming power and the only financial power.”
Finally, a series of technological breakthroughs over the last year have given U.S. shale a break-even cost of about $45 a barrel, according to Zeihan, who said that cost will probably approach $30 a barrel by the end of next year, making it “cost competitive with everyone outside of the Persian Gulf.”
The demographic and shale situations make it possible for the United States to settle in for a retrenchment, according to Zeihan.
“You’ve got the economy that runs the global system but doesn’t use it; that has global consumption, global finance and can keep that all at home; and now is energy independent, all happening at the same time,” he said. “All it takes is a bad hair day and that’s the end of the world that we know – North America goes one way and the rest of the world goes the other, and that’s really bad for the rest of the world.”
The United States has a lot of choices, he said, noting that he would like to see the country remain engaged in the global economy.