Nouriel's White Swans

Economist Nouriel Roubini shot to fame for his predictions of the 2007/2008 Great Recession. While he used to speak of black swans, Roubini is now turning his attention to white swans as the major threat of the day.

Beyond the usual economic and policy risks that most financial analysts worry about, a number of potentially seismic white swans are visible on the horizon this year. Any of them could trigger severe economic, financial, political and geopolitical disturbances unlike anything since the 2008 crisis.

For starters, the US is locked in an escalating strategic rivalry with at least four implicitly aligned revisionist powers: China, Russia, Iran and North Korea. These countries all have an interest in challenging the US-led global order and 2020 could be a critical year for them, owing to the US presidential election and the potential change in US global policies that could follow. 

Under Donald Trump, the US is trying to contain or even trigger regime change in these four countries through economic sanctions and other means. Similarly, the four revisionists want to undercut American hard and soft power abroad by destabilising the US from within through asymmetric warfare. If the US election descends into partisan rancour, chaos, disputed vote tallies and accusations of “rigged” elections, so much the better for rivals of the US. A breakdown of the US political system would weaken American power abroad. 

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 Although the Sino-American cold war is by definition a low-intensity conflict, a sharp escalation is likely this year. To some Chinese leaders, it cannot be a coincidence that their country is simultaneously experiencing a massive swine flu outbreak, severe bird flu, a coronavirus outbreak, political unrest in Hong Kong, the re-election of Taiwan’s pro-independence president, and stepped-up US naval operations in the East and South China Seas. Regardless of whether China has only itself to blame for some of these crises, the view in Beijing is veering toward the conspiratorial.

But open aggression is not really an option at this point, given the asymmetry of conventional power. China’s immediate response to US containment efforts will likely take the form of cyberwarfare. There are several obvious targets. Chinese hackers (and their Russian, North Korean, and Iranian counterparts) could interfere in the US election by flooding Americans with misinformation and deep fakes. With the US electorate already so polarised, it is not difficult to imagine armed partisans taking to the streets to challenge the results, leading to serious violence and chaos.

...By next year, the US-China conflict could have escalated from a cold war to a near hot one. A Chinese regime and economy severely damaged by the Covid-19 crisis and facing restless masses will need an external scapegoat, and will likely set its sights on Taiwan, Hong Kong, Vietnam and US naval positions in the East and South China Seas; confrontation could creep into escalating military accidents. It could also pursue the financial “nuclear option” of dumping its holdings of US Treasury bonds if escalation does take place.

...The US, of course, will not sit idly by while coming under asymmetric attack. It has already been increasing the pressure on these countries with sanctions and other forms of trade and financial warfare, not to mention its own world-beating cyberwarfare capabilities. US cyber-attacks against the four rivals will continue to intensify this year, raising the risk of the first-ever cyber world war and massive economic, financial and political disorder.
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Looking beyond the risk of severe geopolitical escalations in 2020, there are additional medium-term risks associated with climate change, which could trigger costly environmental disasters. Climate change is not just a lumbering giant that will cause economic and financial havoc decades from now. It is a threat in the here and now, as demonstrated by the growing frequency and severity of extreme weather events.

Roubini's point is that there are so many potentially seismic forces coming into play that stability, certainly across the West, is not to be taken for granted.