by Bill O’Grady

On April 29^th, Saudi King Salman announced a set of changes to his cabinet and to the order of royal succession.  We believe these changes are very significant, perhaps the most critical since the first royal succession in 1953.

In this report, we will detail the changes announced by King Salman.  To put these changes in context, we will provide a short history of the important succession plan that was established in 1964.  With this background, we will show how the king’s announcement represents the first change in the program and discuss how these changes could affect the future stability of the kingdom.  As always, we will conclude with potential market ramifications.

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by Bill O’Grady

Since the beginning of the year, rebels in Syria have been making steady gains against forces loyal to the Assad regime.  Over the past six weeks, these gains have accelerated.  The recent rebel victories are raising questions about the Assad regime’s ability to survive.

In this report, we will recap the problems the Syrian government faces, including internal dissention and military losses.  We will discuss the growing evidence of a Turkey-Saudi axis that may be aiding the rebels to weaken or eliminate Assad and pressure Iran.  From there, we will examine the potential Iranian and American responses to the rebel gains and support from Riyadh and Ankara.  As always, we will conclude with potential market ramifications.

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by Bill O’Grady

The March edition of Atlantic Magazine published an article about Islamic State (IS) that examined its theology and ideology.  This article along with a paper from the Brookings Institute on the ideology of IS form the basis of our report this week.

In this report, we will examine the intellectual foundations of IS, showing how it evolved from two different sources of thought.  We will follow this with an analysis of the concept of the Caliphate and the critical importance it has in Islamic theology.  A Caliphate is a form of Islamic government which, in some Islamic conceptions, is a universal government for all people.  An examination of the eschatology of IS will also be included.  The consequences of IS’s ideology will be discussed.  As always, we will conclude with potential market ramifications.

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by Bill O’Grady

China has founded an infrastructure bank, the Asian Infrastructure Investment Bank (AIIB), to compete with the World Bank (WB) and the Asian Development Bank (ADB).  The U.S. has opposed the creation of this bank but, despite administration opposition, 57 nations have joined it, including 14 members of the G-20.  A chorus of commentators has suggested that the founding of this bank may mark the end of U.S. hegemony.

In this report, we will describe the AIIB, including its members and capitalization.  Next, we will cover the conventional wisdom surrounding the bank, and follow up with our analysis of the real impact of the bank.  We will conclude with potential market ramifications of this framework.

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by Bill O’Grady

On April 2, the P5+1[1] negotiating team and Iran announced a framework to deal with Iran’s nuclear program.  The framework is a “roadmap” to establishing a final agreement in June.  Negotiations on this issue have been underway for years; this framework could be a major step toward delaying Iran’s entry into the “nuclear club,” the group of nations that have nuclear weapons.

In this report, we will begin with a short history of Iran’s nuclear program.  Next, we will review the details of the framework.  The third part will address the broader policy issues surrounding Iran’s nuclear program.  An analysis of the real issue, regional hegemony, will follow along with a review of the political factors of the deal.  We will conclude with the potential market effects from this framework.

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[1] P5+1 includes the U.S., U.K., France, Russia and China (the five permanent members of the U.N. Security Council), plus Germany.

by Bill O’Grady

In this final installment of our four-part series on The New World Order, we will examine how, in light of winning the Cold War, policymakers have been unable to settle on a set of key priorities and offer what we see as “glimpses” of a new policy emerging.  In a sense, the U.S. never really wanted to be a superpower; the nation’s founding story is one of wresting independence away from a colonial power.  Americans were willing to put up with the economic and political distortions that came from becoming a superpower in order to defeat communism.  Now that this existential threat has ended, the political class has struggled to create a foreign policy that can simultaneously provide the required hegemonic global public goods and create a working economic policy and political coalition that will build domestic harmony.

In this report, we will recap why the current policy mix is unsustainable and yet, why the U.S. remains indispensable for world peace and global growth.  And so, if the U.S. cannot be replaced anytime soon, American policymakers need to create a solution that will allow the U.S. to fulfill at least some of the hegemon’s responsibilities and also create a sustainable domestic economy and political coalition.  We will conclude with a broad examination of the potential long-term market effects from this evolving New World Order.

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by Bill O’Grady

In this third installment of our four-part series on The New World Order, we will examine how policymakers coped with the new superpower role.  First, we will examine how policymakers attempted to resolve the tensions created between the desires of its domestic constituencies and foreign superpower obligations.  There are going to be periods when the requirements of the hegemon role adversely affect segments of society within the superpower.  The political class must navigate these divergences in such a way so as to keep domestic tranquility and fulfill its foreign obligations.  We will offer a history of how the U.S. managed these differences, with an analysis of Roosevelt’s political configuration and how the Reagan Revolution adjusted to the failures of the first program.  Second, we will detail these periods with charts.  Third, we will explain the capability and willingness of the U.S. to continue providing the global public goods to the world.

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by Bill O’Grady

This report is the second installment of our four-part series on The New World Order.  This week we will focus on two themes.  First, we will examine the global public goods the superpower provides, and second, we will analyze how the U.S. has provided those goods.  The global hegemon will often face tensions between the desires of domestic constituencies and its foreign obligations.  Every superpower has to negotiate these pressures and each tends to have its own particular ways of meeting both objectives.  However, it should be noted that no superpower can subjugate the goals and aspirations of its citizens indefinitely.  In other words, if the cost of hegemony becomes too high, a nation may be unable to maintain the position.  History shows that no superpower dominates forever.  History also shows that there are sometimes “gap” periods between superpowers; unlike 1945, the changeover is not always simultaneous.  I believe the evolution we are currently seeing, which will be discussed in Parts III and IV, will keep the U.S. as the reigning hegemon but with a much different manner of exercising that role.

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by Bill O’Grady

As our regular readers know, we have been focusing for several years on the issue of the uncertainty surrounding America’s superpower role.  It has been our position that the U.S. has lacked a coherent foreign policy since the Cold War ended in the early 1990s.  Although we cannot definitely say that a new policy is in place, the trappings of one does appear to be emerging.

Historians tend to adopt one of two methods to analyze history.  One method is the “Great Man” theory, which looks at history as a progression of key personalities that change and shape the world.  The other is the “Great Wave” theory, which suggests that social, economic and political factors work their way through history and individuals simply play their role by supporting or opposing the wave.  I lean toward the latter.  Although exceptional people matter, history is littered with great people trying to make changes at the wrong time and failing miserably.  Changes that the “failure” had attempted may eventually get made because the timing was right.  Given this position on how history unfolds, the personalities matter less and thus, this is why I don’t focus on people as much as trends.

The focus of this paper is how policy seems to be evolving and why; if this assessment is correct, who wins the next election has only a marginal impact.  Instead, it makes more sense to concentrate on the trends that are emerging and project how they are likely to evolve.

Although this report details my own analysis of emerging trends, it is greatly supported by the research of others.  I want to especially mention George Friedman of Stratfor.  His book on the next decade and his firm’s recent decade update were instrumental in this analysis.

This will be a four-part report.  Part I will begin with the evolution of U.S. foreign policy, focusing on the 25-year cycle pattern that has exhibited itself between the adaptations to new circumstances.  Part II will recap the superpower role and the American adaptation of that role.  Part III will examine why the current policy configuration is no longer adequate for the task.  It will analyze the economic and military costs of the current policy and argue that the costs have become too high to maintain the current role.  At the same time, it will conclude that no other nation can replace the U.S. in the hegemon role.  Part IV will discuss the emerging policy configuration, including its key features that will allow the U.S. to maintain some degree of global influence and yet also make the costs more manageable.  This analysis will include the winners and losers in this new order.  And finally, as always, we will conclude Part IV with market ramifications, which are many and significant if our view is correct.

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