The Coming Year in Review

The headlines we'll be reading in 2013.

As that great geopolitical theorist Carly Simon once observed, "We can never know about the days to come but we think about them anyway, yay."  She then went on to say, as ketchup lovers everywhere remember, "Anticipation, anticipation, is making me late...is keepin' me waitin'."

Of course, the tortures of anticipation are well known to observers of the slow-motion train wreck that has been Washington's management of America's financial situation, or the recent, interminable U.S. presidential campaign, or the hideously slow path to oblivion followed by the Assad regime in Syria, or the painfully circular Eurofollies, not to mention the gradual but undeniable degradation of the planet's environment that goes on year in and year out despite our clear knowledge about how to avoid the damage.

The time has come to say "enough."  We live in an age in which the average consumer expects instant gratification. There is no reason those who are interested in the bigger issues taking place in the world shouldn't have it too. For that reason, we bring to you the top headlines that you will be looking back at when 2013 draws to a close 12 months from now.  Think of it as the year in review, before it happens. Yay: 

America Recovers

Forget the fiscal cliff or the debt ceiling.  Admittedly, that may seem difficult given the headlines of the moment. The clown show in Washington is diverting for inside the Beltway reporters and creates a kind of artificial drama that makes one periodically wonder if Kris Jenner were actually speaker of the House. But see the economy through the eyes of the market.  Washington dithers but hops to when it gets slapped around enough by traders. Meanwhile, there are winds at America's back: An energy boom.  Housing markets recovering. Signs of resurgent growth in key sectors. Other big markets a little soft and international investors looking to the United States as a secure place where the real protection of intellectual property can spur innovation. Growth in Canada and Mexico. Insourcing as a real trend bringing jobs back to the United States. That's why smart market observers like Laszlo Birinyi, who were early to call the current bull market, expect record stock market highs in 2013.  In his view, people are ready for the slump to be over and the prospect of a bull market will be irresistible.

This has its downsides, in particular the concern that too much growth will make Washington sloppy again, counting on a rebounding economy to make up for its spending sins.  But Washington has done us all a favor by becoming so feckless and irrelevant that no one is counting on the U.S. government to lead America out of the boom. Which will leave growth in the hands of people and companies who understand it.  Which for Barack Obama, John Boehner & Co. ought to have them remembering that old lyric from "Pippin": "it's smarter to be lucky than it's lucky to be smart."

China (and Some of the Rest of the World) Recovers

American growth will help even if it is modest. But the United States can no longer be the world's locomotive as it once was. It needs help. China hands I have spoken to think 8-9 percent (or even slightly higher) growth in 2013 is likely.  This would be a return to roughly 2011 growth levels after a 2012 slump that started to reverse during the second half of 2012. Europe experts think the worst of the crisis may be behind them. Some emerging markets (see below) may show signs of real life even as others (Brazil, Argentina, India) continue to struggle for a while. The net net: 2013 will be the year that the five-year slump associated with the Great Recession really comes to an end, even if many don't feel the benefits for some time to come.

Assad Collapses, Syria Festers, and the Mideast Trembles

Bashar al-Assad is toast. The Syrian leader's Iranian and Russian supporters are already desperately in Plan B mode. His local backers are shifting their last assets out of the country and heading for the hills. The problem is that with his downfall will come a period of transition to a new regime that may introduce a new term to the geopolitical lexicon: "the fog of peace." As many members of the very uncohesive opposition are bad guys, troublemakers, or potential Assads as there are any who seek a more democratic or at least vaguely civilized future for the revolution-torn country.  Instability in Syria means problems for its neighbors, including Jordan (where refugees add to growing threats to King Abdullah and his family's long reign in that country), Turkey, Israel, Iraq, and Lebanon. Perhaps most affected will be the latter two as Iran shifts its regional hegemony chips onto those spaces.  As for Iraq, the year should see more stirrings of trouble in the country the United States invaded a decade ago and about which George W. Bush once declared "mission accomplished." In fact, Obama and incoming Secretary of State John Kerry will find they spend much of the next four years trying to avoid having it look like both big American wars in the region actually resulted in on-the-ground realities that were the same or worse as the ones we found prior to going into those combat zones. Iran's doubling its bets on Hezbollah also, of course, will have implications for its other client in the neighborhood, Hamas, making Israel-Palestine peace talks harder. And, of course, the embarrassment of backing Assad won't look good for the regime in Tehran at home - especially at a time when economic sanctions are really taking a toll.  That'll make them more nervous and less predictable. (See below for the upside.)

Bibi Netanyahu Irritates the World

A key to good prognosticating is always to throw in a few sure things.  Predicting Bibi Netanyahu will irritate the world is like predicting that the U.S. Congress will fail to come to grips with America's deficit problem or that Lindsay Lohan will get in trouble with the law. We've seen this movie before.  We don't like it but when in doubt, the universe repeats itself.  The rich get richer, the poor get poorer, success breeds success, tomorrow's weather has an 85 percent likelihood of being the same as today's, and the Israeli prime minister is-no doubt with the best of intentions-a dependable pain in the world's tush.

No War with Iran

Iran has problems (see above). Sanctions will make them worse. They want time. Nobody wants a war. Iran will test the world's patience, push it to the brink, then "settle"...buying time until the next revelation it is not playing by the rules and the next cycle of brinksmanship. In the end, this approach is more than likely to ensure they will become "nuclear capable" and trigger a new arms race in the region and among emerging powers everywhere. But that won't happen in 2013. And that will pass as successful diplomacy -- until it turns out to have extraordinarily high hidden costs.

Meet the New Bosses, Same as the Old Bosses

In addition to Assad, 2013 will see the departure of Hugo Chavez and Mahmoud Ahmadinejad. In Syria, the fall of Assad will produce a power struggle and in the world's desire to produce stability, it is likely to bet on anyone tough enough to hold the place together. Which is likely to be a not very good guy. In Venezuela, the death of Chavez after his long battle with cancer will produce a successor regime that is increasingly weaker but attempts for the near term to ride sympathy for the departed Bolivarian bully.  In Iran, President Ahmadinejad was never in charge in the first place so while the guy who takes over the presidency may change, the power remains with the Ayatollah-in-Chief as it has since the revolution. In short, we won't miss these bad guys when they go, but we're likely to get new ones and new problems in their place, at least in the short term. In fact, with the Middle East a creeping mess and with developed countries focusing on bigger problems at home, we are in a period that may, like the 1960s, see the world's major powers inclined to buy into a new era of strongmen who will keep a lid on their countries even if a few basic human rights have to get violated along the way. (Don't worry, though, we'll have elections so that the 21st century bastards smell nicer than the ones we had back when colonialism was in its death throes.)

America Enacts Immigration and Gun Reforms

The U.S. Congress is dysfunctional-but it is not stupid. Ok, maybe it is stupid, too. But it is nothing if not self-interested. Some progress on some legislation will be made. Expect passage of bills on assault weapons and some ammo bans possibly even before we even get to the next round of fiscal brinksmanship. Expect movement on immigration reform, which has supporters in both parties and should be easier in an economy trending upward. On everything else, expect the usual collective exercise in goat husbandry.

Gold Bubble Bursts

It has to happen sooner or later. Strengthening economies will soon lead to strengthening currencies. Or at least less aggressive U.S., Chinese, and European efforts to devalue their currencies. And when that happens people will start to realize that even golden trees don't grow to the sky. In the United States, where buying gold has taken on a political tinge as some on the hard right and Paulistas buy gold as a way of expressing their hatred for the Fed, the central government, and modernity, the gold crash will hit one political side harder than the other. Couldn't happen to a nicer bunch of economic troglodytes.

Mexico and Indonesia are the "Next BRICs" Everyone Is Talking About

Mexico will be the Brazil of 2013. (I know this because it was already the Brazil of 2012.) New regime. Finally likely to get to some Pemex reforms. Fourth-largest shale gas reserves in the world.  Benefits as manufacturing facilities move from difficult-to-work-in China and back closer to the United States. As for Indonesia, this is the big country that emerging markets investors are starting think is showing renewed signs of life after a prolonged (15-year) struggle. Lots of people. Lots of energy. Low priced manufacturing. Close to big markets. And now, gradually, the government is starting to get its act together, somewhat. (Indonesia is still a state with strong anti-central government tendencies, which can work for many investors. Corruption does remain a problem, however.)

China Strains Against the Limitations of Its System

Look at China's recent hamfisted effort punish the New York Times for publishing the truth about corruption among its elites. Some see in China's recent moves efforts to echo U.S. "hard power" with expansion of its Navy and investments in next-generation forms of warfare from space to cyber to unmanned drones, and U.S. "soft power" through the use of their checkbook and the influence it buys. But most telling is what might be called their use of "brittle power": Denying visas, cracking down on Internet freedoms, squabbling with the Japanese over deserted rocks all fall into this category.  At first glance the power may seem hard enough but it is actually a sign of weakness, not strength, and it can crack and crumble away quickly, revealing the real structural problems the new leadership is going to have to find better ways of tackling.


The year 2013 will also see big stories that are easy to predict but hard to fill in the details-more climate-driven disasters, more scandals in financial markets and among emerging markets elites. And it will see stories more important than all those above that don't get enough ink. Climate change is one of these of course.

And Then, There Is the Greatest Social Failure of Our Era...

The larger looming story that troubles me even more is our continuing failure to protect women or their rights. The U.S. in particular is going to face some very difficult choices in the year(s) ahead on this point. Are we so eager for closure in Afghanistan or stability elsewhere that we are complicit with putting in power regimes that will continue to suppress the majority population, deny them education, deny them protection under the law, allow them to be abused under the protection of barbarous and indefensible "cultural traditions?"  Will countries like India continue their tradition of failing to enforce the law against rapists who prey on their women, as in the case of December's horrifying Delhi gang rape?  Will the gunmen who targeted Malala in Pakistan continue to seek to intimidate those who emulate the courageous schoolgirl? Will women continue to be under-represented economically and politically in almost every country in the world?  My fear is that the answer will be "yes" and that in the year ahead we will see even the world's most progressive and enlightened powers continue to feed the greatest global social failure of our age, by looking away and accepting the unacceptable.


David Rothkopf

Cursed With Plenty

America is on the verge of an energy boom. But will abundant shale gas create more problems than it fixes? 

Elsewhere in this issue, you will find advice Barack Obama can act on to ensure that history views him as the transformational figure he hoped to be when he took office, from saving Europe from itself to taking nuclear weapons off alert. But transformation cuts both ways. So in the interest of further assisting the president, consider a pitfall he and the country must avoid if this period in U.S. history is not to be someday seen as when it all went wrong for the onetime greatest country on Earth.

Of course, given the clown-show antics that predominate in Washington and the complexity, volatility, and risks that confront the United States in the world, the president faces potential peril almost wherever he looks. Rather than focusing on the country's more obvious problems, however, I'd like to look at one that is perhaps more worrisome precisely because it comes cloaked in opportunity: America's energy boom.

That's right: the boom. The technological breakthroughs enabling America to tap vast reserves of previously inaccessible oil and natural gas have been heralded as a bonanza for the United States, not least by Obama, who told everyone tuning in to his speech at the Democratic National Convention that "we can cut our oil imports in half by 2020 and support more than 600,000 new jobs in natural gas alone." Analysts at Citibank are predicting that the United States will be the world's fastest-growing oil and gas producer well into the next decade. Great, huh? Not so fast.

It looks like the United States is showing the early symptoms of a particularly nasty case of the Resource Curse. The dreaded syndrome, also known as Hugo Chávezitis, tends to strike countries when they tap into large finds of oil, gas, or other valuable natural resources. Although such bonanzas clearly have their advantages, the influx of new wealth often leads countries to neglect real underlying problems or the requirements of long-term growth simply because they can spend their newfound riches to paper over their troubles. Political leaders don't have to do the hard work of building human capital and promoting sustainable economic growth -- they can just coast along, riding the benefits of the resource boom.

You can understand the appeal, especially to America's dysfunctional governing class. That is precisely what is so worrisome about all the talk of how these new energy finds will literally fuel the country's next period of economic expansion. You heard it during the recent presidential campaign from both candidates. You heard it in a slew of reports from Wall Street and international organizations. America is on the verge of energy independence. It will soon overtake Saudi Arabia as an energy producer. It will no longer have to worry about the messy realities of the Middle East. New boomtowns like those springing up in Canada and North Dakota will spread across the United States. Cheap energy will attract foreign investment! Revitalize U.S. manufacturing! Help America beat China and India!

Here's the biggest problem with all those assertions: They are plausible. America's energy boost is possibly the biggest geopolitical change to hit the world since China's rise. It almost certainly will stimulate U.S. growth, reduce U.S. dependency on foreign oil, and provide Americans with large amounts of comparatively clean natural gas. And since growth leads to higher revenues, it may help cut the federal deficit. Because America won't be as dependent on the Middle East, it may even be able to reconsider its involvement in the region. Already, U.S. monthly oil imports have nearly halved from their high in November 2005, and annual natural gas production has increased almost 30 percent from 2005 to 2011. What's not to like?

In truth, however, we don't yet know the real nature of this impending energy revolution. Natural gas prices are still too low to warrant profitable drilling in some areas. The environmental impact of widespread fracking -- the controversial water-intensive process of using pressurized fluid to release natural gas -- in different geological settings remains a mystery. Many regulatory decisions that will affect the growth of U.S. shale gas and oil will be made at the state level or by municipalities whose only "regulatory" option is an outright ban, and the resulting patchwork of rules may produce roadblocks to expansion and achieving necessary economies of scale. We are not sure of the economics of some of these new wells, when they might be depleted, and how that uncertainty might constrain the infrastructure investment needed to bring these resources to market. The whole boom could happen more slowly, or falter more widely, than expected. It's probably going to do a lot of good for a lot of people and for the U.S. economy as a whole, but it is unlikely to unfold without twists, setbacks, and disappointments.

Nor should the shale boom in America, even if it produces growth, be seen as a get-out-of-jail-free card for politicians. Tax revenues might go up, but nowhere nearly enough to address the $16 trillion federal debt plus the perhaps $87 trillion in unfunded retiree health-care liabilities the country faces. We may see growth associated with energy, but the United States will not be competitive without also fixing what's broken in the other drivers of long-term prosperity, such as education and infrastructure. America may be able to pivot away from the Middle East -- Lord knows it should -- but energy markets are global, and upsets in that region will still have big consequences. Not to mention that instability in the region will still produce security risks and threats to U.S. citizens, no matter where the country gets its energy from.

Shale gas will also seemingly give our beloved politicos a pass on one of their greatest failures: stopping climate change. By making available large supplies of a fuel that is comparatively cleaner than oil or coal, shale-gas drilling should lead to lower emissions as the United States converts -- hopefully with some speed, focus, and purposefulness -- its power plants from coal to gas. It could produce benefits as the country moves to bigger fleets of natural gas vehicles. But these resources should not be seen as manna from the heavens. For one thing, shale oil creates serious carbon emissions. For another, using more gas won't slow emissions sufficiently in the United States or worldwide.

Each new gas field discovered in America is as rich in promise as it is in hydrocarbons. But if the country allows the potential benefits to dazzle or delude -- if it lets them lull the country into complacency about the other major challenges it faces -- we could find them providing not so much a shot of energy to U.S. growth as a shot of morphine to America's body politic, hiding the pain and clouding its vision as to what is truly necessary to take advantage of this potentially great moment in American history.