Beyond the Post-Cold War World

By George Friedman
Founder and Chairman

An era ended when the Soviet Union collapsed on Dec. 31, 1991. The confrontation between the United States and the Soviet Union defined the Cold War period. The collapse of Europe framed that confrontation. After World War II, the Soviet and American armies occupied Europe. Both towered over the remnants of Europe's forces. The collapse of the European imperial system, the emergence of new states and a struggle between the Soviets and Americans for domination and influence also defined the confrontation. There were, of course, many other aspects and phases of the confrontation, but in the end, the Cold War was a struggle built on Europe's decline.

Many shifts in the international system accompanied the end of the Cold War. In fact, 1991 was an extraordinary and defining year. The Japanese economic miracle ended. China after Tiananmen Square inherited Japan's place as a rapidly growing, export-based economy, one defined by the continued pre-eminence of the Chinese Communist Party. The Maastricht Treaty was formulated, creating the structure of the subsequent European Union. A vast coalition dominated by the United States reversed the Iraqi invasion of Kuwait.

Three things defined the post-Cold War world. The first was U.S. power. The second was the rise of China as the center of global industrial growth based on low wages. The third was the re-emergence of Europe as a massive, integrated economic power. Meanwhile, Russia, the main remnant of the Soviet Union, reeled while Japan shifted to a dramatically different economic mode.

The post-Cold War world had two phases. The first lasted from Dec. 31, 1991, until Sept. 11, 2001. The second lasted from 9/11 until now.

The initial phase of the post-Cold War world was built on two assumptions. The first assumption was that the United States was the dominant political and military power but that such power was less significant than before, since economics was the new focus. The second phase still revolved around the three Great Powers -- the United States, China and Europe -- but involved a major shift in the worldview of the United States, which then assumed that pre-eminence included the power to reshape the Islamic world through military action while China and Europe single-mindedly focused on economic matters. 

Read more: Beyond the Post-Cold War World | Stratfor 

Bill Gross "Man in the Mirror" - What if rates go up, prices go down?

Investors should be judged on their ability to adapt to different epochs, not cycles. An epoch may be 40-50 years in time, perhaps longer.

Bill Miller may in fact be a great investor, but he’ll need 5 or 6 more straight “heads” in a future epoch to confirm it. Peter Lynch is a “party pooper.” Warren is the Oracle, but if an epoch changes will he and others like him be around to adapt to it?

No matter how self-indulgent you think this IO is, I just looked in the mirror and saw at least a 7. You must be blind!

What if an epoch changes? What if perpetual credit expansion and its fertilization of asset prices and returns are substantially altered? What if zero-bound interest rates define the end of a total return epoch that began in the 1970s, accelerated in 1981 and has come to a mathematical dead-end for bonds in 2012/2013 and commonsensically for other conjoined asset classes as well?

http://www.pimco.com/EN/Insights/Pages/A-Man-In-The-Mirror.aspx 

BOJ to pump $1.4 trillion into economy in unprecedented stimulus

(Reuters) - The Bank of Japan unleashed the world's most intense burst of monetary stimulus on Thursday, promising to inject about $1.4 trillion into the economy in less than two years, a radical gamble that sent the yen reeling and bond yields to record lows.

New Governor Haruhiko Kuroda committed the BOJ to open-ended asset buying and said the monetary base would nearly double to 270 trillion yen ($2.9 trillion) by the end of 2014 in a shock therapy to end two decades of stagnation.

The U.S. Federal Reserve may buy more debt under its quantitative easing, but with the Japanese economy about one-third of the size of the United States, the scope of Kuroda's "Quantitative and Qualitative Monetary Easing" is unmatched.

 

"This is an unprecedented degree of monetary easing," a smiling Kuroda told a news conference after his first policy meeting at the helm of the central bank.

http://www.reuters.com/article/2013/04/04/us-japan-economy-boj-idUSBRE93216U20130404

The Four Traits Of Monetary Union Collapse

There are four traits that UBS identified as common trends around the breakup of a monetary union. So has Cyprus (as is tirelessly pointed out, only 0.2% of the Euro area measured by GDP) set a course for the Euro’s destruction? Indeed, with Cyprus having checked the first three items on that list, while it has not left the Euro (yet), UBS concludes, "it may well be occupying a seat very close to the exit."

Via UBS: Is Cyprus Still In The Euro?

The four traits are:

• Monetary union break up is preceded by capital flight from perceived weak from perceived strong parts of the union
• Monetary union break up has tended to be regarded by governments as an opportunity for seizing cash or other assets held by citizens
• Capital controls tend to be imposed early in the break up, and foreigners’ asset holdings are often discriminated against
• Break up of a monetary union is normally associated with civil unrest and authoritarian government in at least some part of the former monetary union.

http://www.zerohedge.com/print/472326

Cyprus Financial Crisis: Deposit Confiscation

http://demonocracy.info/infographics/eu/cyprus_crisis/cyprus_crisis.html

Monte Paschi says lost billions in deposits after February scandal

(Reuters) - Customers' deposits at Italian bank Monte dei Paschi fell by "a few billion euros" after a scandal erupted in February over loss-making derivatives trades at the lender, the bank said in a document posted on its web site on Saturday.

Monte dei Paschi last week reported a higher-than-expected net loss for the whole of 2012 on the back of a rise in provisions for bad loans and 730 million euros in losses on the derivatives trades, which are at the center of a fraud.

http://www.reuters.com/article/2013/03/30/us-monte-dei-paschi-deposits-idUSBRE92T08520130330

Bank of Cyprus big depositors could lose up to 60%

Bank of Cyprus depositors with more than 100,000 euros (£84,300; $128,200) could lose up to 60% of their savings as part of an EU-IMF bailout restructuring move, officials say.

The central bank says 37.5% of holdings over 100,000 euros will become shares.

Up to 22.5% will go into a fund attracting no interest and may be subject to further write-offs.

The other 40% will attract interest - but this will not be paid unless the bank performs well.

It was known that the wealthiest savers at the Bank of Cyprus would take a large hit from the bailout deal - but not to this extent, the BBC's Mark Lowen reports.

http://www.bbc.co.uk/news/business-21982652

Cyprus Bailout Infographic

Bitcoin prices surge post-Cyprus bailout

NEW YORK (CNNMoney)

Shares of the cyber-currency bitcoin have surged in the past week as investors seek safe havens following the unprecedented bailout of Cyprus' banks.

http://money.cnn.com/2013/03/28/investing/bitcoin-cyprus/index.html?iid=Lead

Capital controls in Cyprus remain unclear

http://www.bbc.co.uk/news/business-21936554

In other Cyprus-related developments:

• The Department for Work and Pensions has said British pensions will not be paid into Cypriot bank accounts for the foreseeable future and has advised expats to open UK accounts
• Piraeus, Greece's third-biggest lender, said it has signed an agreement to acquire all of the deposits, loans and branches owned by the Greek subsidiaries of three Cypriot banks - Bank of Cyprus, Laiki, and the Hellenic Bank - for 524m euros (£445m)
• The head of the eurozone group of finance ministers, Jeroen Dijsselbloem, said there were no apparent signs of increased withdrawals of savings from peripheral to core countries in the region as a result of the Cyprus crisis.
• Chancellor George Osborne has said the Treasury is working on a "British solution" for the 13,000 UK customers of Cyprus Popular Bank, part of Laiki Bank, who could lose a proportion of their savings above the 100,000 euros (£85,000) cut-off limit.