Page 31 - IRMSA Risk Report 2020

Clem Sunter’s scenarios urge leaders to consider the following six flags as indicators:

THE RELIGIOUS FL A G
This flag started going up in the late 1980s due to intensifying competition between the major religions of the world
leading to the events of 11 September 2001. However, it has changed fundamentally with deep divisions within the
Islamic world itself between Sunni (Saudi Arabia) and Shia (Iran). With no agreement between America and Iran on
the nuclear topic (at present, America is applying tough sanctions against Iran, while Iran is threatening to revert to
enriching uranium), a war appears very much on the cards. If that happens, Israel will join America and Saudi Arabia
while Russia could side with Iran. The consequences will be devastating for the Middle East: Yemen and most of Syria
are already wastelands while Iraq and Afghanistan are, at best, dodgy. Iran will be reduced to ashes in the event of a
full-scale military conflict with America.

THE RED FL A G
Western sanctions against Russia are still in full force after its annexation of Crimea and can escalate with the occurrence
of any military encounter that involves loss of life on either side. China and America are ramping up tariffs against each
other while Chinese companies are being targeted by the White House. It is almost certain that US companies will
feel the heat as China retaliates. “While the two elephants (i.e. the two biggest economies in the world) fight, it is the
grass that suffers.” Despite a public display of friendship between the two presidents, North Korea has not yet satisfied
America’s demand for the elimination of its nuclear arms stockpile. A regional conflict that embroils South Korea, Russia
and China is, therefore, rising in probability.

THE GREY FL A G
The ageing of the world’s population is ticking on inexorably. This has reduced Europe and Japan to virtually zero-growth
economies and is also slowing the Chinese economy down quicker than expected, due to its former one-child policy.
This will become more important as the century progresses and the necessity to restrain world population growth (in
order to save the environment) becomes more evident. It is amazing how no environmental movement anywhere is
prepared to articulate the demographic challenges we face: the number of feet matter as much as the carbon footprint
made by them.

THE ANTI-ESTABLISHMENT FL A G
The rise in anti-establishment and populist movements worldwide has produced Brexit; the revival of right-wing parties
in Europe; the massacre in New Zealand; the reprisal in Sri Lanka; and Trump with his open hatred between Republicans
and Democrats in the US. Social media is spreading fake news accompanied by rhetoric reminiscent of Adolf Hitler. These
trends have paralysed the US Government: Trump refuses to meet with Democrats until they drop their investigation
of him, and the White House no longer conducts regular press briefings. In India the results of the world’s biggest
democratic election have confirmed the swing towards nationalism and being tough with perceived enemies. A side
effect of this is an explosion of prejudice towards immigrants, which goes against the globalisation policies of the second
half of the last century and disrupts world trade. “Who cares?” more people say. “My culture and religion come first. We do
not want to be replaced by aliens on any terms.”

THE GREEN FL A G
Many statistics now show that climate change will pose an existential threat to the planet later this century. We are
also experiencing the sixth extinction of species as human beings invade the space of wild animals and forests by
introducing livestock and crops. In addition, plastic has penetrated the biosphere – including the oceans and the fish
which live in it. The seabird population is declining as they cannot compete with the fishing industry for food. Ironically,
our dominance as a species could cause our extinction as the diversity of our planet disappears. Damages from the
current wave of tornadoes in the US should show Americans that military might is useless against the revenge of Mother
Nature, yet Trump denies any link between climate change and humankind. So far, global response to this threat has not
only been pathetic but also weakened further by America’s withdrawal from the Paris Accord. Short-sightedly, the goal of
greater material prosperity for all is eclipsing the preservation of the environment. This suggests that humanity will only
react in retrospect: after the downward spiral of the environment has become unstoppable.

THE NATIONAL DEB T FL A G
Since the implementation of monetary policies to aid world recovery after the 2008 financial crisis, many gov ernments
have allowed national debt (as a percentage of gross national product) to reach unprecedented levels – including
America and China. This can only be accommodated while interest rates remain at historic lows and the global economy
does not go into recession. However, if the global economy reacts unexpectedly, governments will default on their bonds
with the same frequency at which private individuals defaulted on mortgages in 2008. This will cause greater mayhem in
financial markets than was experienced in 2008.

Source: Clem Sunter, Scenario Planner
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