Chinese Rooster Year Outlook, Part
M.A. Nystrom, M.B.A.
Man on the street in (the Republic of) China
February 16, 2005
Last week, in Part 1 of this Rooster
Year Outlook, I asked readers to share their thoughts about
patterns and possibilities for the upcoming year. A
number of those very interesting comments can be found here.
I have been thinking about these myself, and this week present a
scenario (rather than a prediction) for thought and future discussion.
The Chinese New year began officially on February 9, 2005.
1. New Year Predictions
At the beginning of each year, financial analysts,
brokerage houses and stock players release detailed forecasts for
the upcoming year. They make predictions and try to guess the exact
level of the Dow, the direction of the dollar, the price of gold,
GDP growth, etc. Such forecasts usually share several common elements:
1. The predictors usually speak with the utmost authority, as though
they have a magic ball that foresees The Future. 2. In order to
be taken seriously, they rarely say anything outlandish (“We
expect that growth will continue at a moderate pace this year…”)
3. Because of #1 and #2, they are usually both extremely boring
and extremely wrong. This is because the future is, by definition,
being the case, I cannot in good conscience offer up another staid
analysis of continued moderate growth, nor go to the opposite extreme
with a prediction of economic collapse (this year) as a certainty.
But one thing is clear to mindful observers of the current US dollar-centric
global financial system: it is unsustainable. Like all fiat currency
schemes dating back to the dawn of time, this one too will come
to an end. If history is any guide, the US dollar will be inflated
out of existence by irresponsible government policies that make
it more politically expedient to print money than to cut back on
spending. We are already witness to this today, as the US government
racks up massive
financial debts that don't stand a chance of ever being repaid,
while increasing military aggression shifts attention away from
real issues such as these onto villains (real or imagined) on distant
the precise moment of the collapse of the global economic system
is, however, a fool’s game. My bookshelf is lined with titles
from year’s past, predicting imminent doom for the US-dollar
based financial system. Reading these predictions years later, it
is impossible to argue with the logic of these authors. Their analysis
is as flawless today as it was a quarter century ago, yet the collapse
has yet to materialize.
Does this mean that the unsustainable trends in the
US economy will continue forever? No. A trend that cannot remain
in existence forever won’t. The system is now so unbalanced
that any number of unforeseen events could trigger a financial collapse.
Most people today have very little understanding of how close we
are to such a collapse because either A) They have never heard such
outlandish talk or B) They've heard such outlandish talk for so
long they no longer believe it.
2. Forecasting the Future via Scenario Analysis
forecasting techniques often fail to predict significant changes,
especially when change is rapid or discontinuous. Scenario analysis
is a tool that was specifically designed to deal with major, uncertain
shifts in the future by "thinking the unthinkable." It
involves constructing stories about different plausible futures,
then planning strategies and reactions in response. It is not an
attempt to predict the future but rather to describe future possibilities
and plan contingencies based upon them. Scenario analysis can be
a useful tool in helping people to think laterally and to question
assumptions and beliefs about the future. Royal Dutch/Shell first
used it commercially in the late 60's, and as a result was well
prepared to deal with the oil shocks of the 1970s.
rest of this article will be devoted to a Rooster Year 2005 scenario,
based on the pattern of terrible events, endings and new beginnings
we explored in Part
1. It is not a forecast for the future; it is a story. It is
a possible future, and as such it gives you things to think about
that you likely would not otherwise consider.
3. 2005 Scenario – A Story of Terrible
Events, Endings and New Beginnings
Events in the year 2005 showed surprising symmetry
with events of previous Rooster years, but most of these became
mere footnotes when viewed from the long eye of history. Prince
Charles, who first wed Lady Diana in the Rooster year of 1981, tied
the knot again 24 years later in 2005. The last US penny was minted
in 2005, as inflation took its toll, as it did on the British half-penny
in 1969. AIDS, which first made its appearance in the Rooster Year
of 1981, was back with a vengeance in 2005 with a new, extremely
deadly strain. Osama bin Laden, born in the Rooster year of
1957, was captured and killed by US forces in Afghanistan after
his spectacular reign of terror. And an attempted coup against President
Bush by ultra leftists (mirroring the coup
attempt against FDR by ultra rightists in 1933) was thwarted,
and Bush’s power and popularity grew stronger as a result.
He would need that for what was to come in the latter half of the
The terrible path to war became increasingly murky;
political tensions were rising along with temperatures across the
globe. Conflict simmered just below the surface between the US/Japan/Taiwan
coalition in Asia, and the increasingly powerful China. North Korea
and Iran were menacing the world with nuclear threats, and Iraq
remained mired in a quagmire in spite of democratic elections, demonstrating
clearly that democracy cannot be forced at gunpoint.
But 2005 will be remembered in history as the year
of the Great Quake, the year that the entire earth shook. Generations
to come will recall the terrible events of 2005, and how the world
was reorganized in an instant. The Christmas quake of 2004 that
spawned the massive tsunamis in Asia that killed over 200,000 was
just a precursor of what was to come in 2005.
The Great Quake of 2005 was actually more than just
a single event; it was a weeklong swarm of powerful quakes ripping
across the Pacific Rim of Fire, causing the entire earth to vibrate.
In retrospect, it was the filling of the Three
Gorges Dam in China that was found to be the culprit. As the
dam filled, the weight of untold hundreds of trillions of gallons
of water exerted a tremendous amount of pressure on such a small
(geologically speaking) point on the Eurasian plate, deep below
the earth's surface. Like a thumb pressing down with tremendous
force on a brittle plane, the plate first bucked, then snapped.
The large, previously stable Eurasian plate shattered, leading to
a chain reaction readjustment of all adjoining plates, most notably
the Pacific plate, parts of which shifted several miles.
It began in late September, when huge quakes began
to rock China and the Pacific. From Indonesia to Taiwan, Japan,
Alaska, Seattle, California, and Mexico, quake swarms in excess
of 7.0 struck like thunderbolts from nowhere. So many quakes rocked
the world that the world lost count as they increased in frequency,
duration and intensity. When the Eurasian plate finally shattered,
a global quake beyond measurement rocked the world, reducing cities
to rubble and washing away coastlines. The greatest tragedy was
the near complete loss of California, most of which collapsed violently
into the Pacific Ocean. Between the quakes, the tsunamis
and the disease and pestilence that followed, over 500 million lives
The Great Quake was a global economic disaster. Every
nation suffered, but no nation fared worse than the United States.
California was no more. The state's 35 million inhabitants were
responsible for 14% of US GDP, and at nearly $1.4 trillion, its
economy was larger than that of every other country in the world
save Japan, China, Germany, France, Italy, and the United Kingdom.
But beyond just the numbers, California was the heart of so many
of America’s advantages in aerospace, computing, entertainment,
creative finance and agriculture. When California crumbled into
the sea, the innovation of Silicon Valley and the imagination of
Hollywood disappeared along with most of the latest developments
and competitive advantages in biotechnology, whose industry
was centered in the Valley. The font of America’s advantages,
which sprang from a dual dominance in technology and entertainment
simply disappeared. With the disappearance of Silicon Valley, the
remaining technology centers in Taiwan, India, China and Japan suddenly
increased in importance.
The US stock market’s reaction was to be expected.
It had been in a slump all year on increasing military tensions,
violence in the Middle East, collapsing corporate earnings and the
continuing disappearance of jobs. The Dow was already down close
to 30% for the year, and the uneasiness caused by the quakes drove
it to an 8 year low, below 6,900 on the Monday of the Great Quake.
World markets were closed for the remainder of the week, and when
trading finally resumed, the opening gap down on the Dow was the
largest ever seen. The Dow fell 50% at the open to 3,400, a 12 year
low. But it was no wonder – innovative California companies
such as Adobe, Apple, Applied Materials, Cisco, Google, Hewlett
Packard, Intel, Oracle, Sun Microsystems and Yahoo! simply vanished,
taking their market caps with them.
At the next US Treasury Auction, no bidders showed
up. The largest traditional buyers of US debt – China, Japan
and Taiwan, needed to deploy their resources at home, to begin the
rebuilding process that the quakes had caused in their home lands.
The US government went into default, unable to pay its bills. It
simply had no choice. The IMF and World Bank tried to step in with
a restructuring plan for America’s $8 trillion in national
debt, but the President flatly refused. The government disowned
the dollar and cancelled all foreign debts. The president closed
all borders, declaring a national state of emergency, and suspended
the Constitution until further notice.
With US dollars no longer accepted internationally
as payment for goods and services, the global economic system ground
to a halt. The era of cheap electronics flooding American shores
was over, as Americans focused on more immediate needs. Unemployment
in the US shot back to Great Depression highs over 25%. In spite
of the fact that there was plenty of work to be done, and rebuilding
to undertake, people sat idle and the work went undone because there
was no money to pay them. The safety nets that were carefully woven
into place during FDR’s New Deal Administration were shredded
to tatters. Unemployment insurance, Social Security and FDIC insurance
on bank accounts went unpaid. People lost their life’s savings
in the stock market as well as in banks that they believed to be
Federally insured. Insurance companies were bankrupted by massive
claims, and the world was thrown back into uncertainty ruled by
The Dow continued on a downward spiral, finally bottoming
at a 24 year low, below 1,000. The President was emboldened with
a fiery new religious fervor. He declared that it was the beginning
of Armageddon. God was angry with the United States for overreaching
its bounds, for separating the state from religion, for pushing
the boundaries of science. He made fiery, incoherent speeches with
his face growing red with anger, and demonized dissent. He claimed
that he received personal instructions from God, and led a revival
in religious fundamentalism. The President withdrew the nation from
international relations of all kinds, martial law remained in effect,
and daily prayer became a Federally mandated activity.
In time, California came to be remembered as a mythic
place, the stuff of legend where life was free and people were able
to pursue their dreams, unencumbered by mandated religion or restrictions
on international travel. It was idealized as a lost world, and in
time people came to wonder whether such a magical place ever existed
at all, or if it was only a fantasy, like the long lost fairy tale
of the mythical land of Atlantis.
4. Moral of the Story
The moral of this story is not to prepare for an earthquake
that demolishes California. Instead, the story is intended to emphasize
a few key points:
1) The global economy is a subset
of the environment and Mother Nature, not the other way around.
I do not know whether the weight of the water of the Three Gorges
Dam could cause tectonic plates to shatter or shift, but I do know
that many of the technologies of modern man have effects on our
environment and on ourselves that we are unaware of. Like the move
Day After Tomorrow”, this example is just a metaphor.
Reckless disregard for the environment for the sake of economic
growth does not come without costs.
2) The biggest disasters are those
that no one sees coming. We know that the global financial system
is extremely unstable and that it is teetering in an uncomfortable
balance that could break at any time. It is overdue for a collapse,
and it is simply waiting for a trigger. Preparation should therefore
be made either 1) to prevent the impending collapse with responsible
policies and/or 2) to plan and prepare contingencies to mitigate
damage in the aftermath of a collapse.
3) If we accept the premise that the demise of the
USD-based global financial system is inevitable, we should begin
to think now about devising a better system to replace it. Are there
other ways to organize global society rather than on the basis of
competition, which is the centerpiece of modern capitalism? Capitalism
won the Cold War, but apparently it didn't know where to stop. If
we have no enemies, wouldn't it be better to cooperate with one
another rather than to compete? Can we devise and implement a fairer
and more equitable system in which everyone is a winner, rather
that one in which the winners gain at the expense of the losers?
4) Finally, if the world were destroyed, there would
be no greater loss to you than the loss of your loved ones. The
best things in life are still free, and in fact, they are priceless,
beyond the reach of capitalism's gnarled claw. We live in a world
of amazing technology and physical abundance, yet we tend to focus
more on what we lack, instead of what we have. It is only after
it is gone that we realize how good we had it.
Send me your comments
and ideas on this story. As with previous
stories, I will publish the best, most thought-provoking ones.
Read Part 1 of the Rooster
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