Lots More on the Coming 20-Year Storm with Viktor Shvets
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Blomberg audio studios, podcasts, radio news joe.

it's started. It's arted. It's what like two three weeks later yeah .

so he had yeah three weeks basically since the election and the trade war at least to some extent maybe a trade scrim sh which no it's onna happen. It's kind of begun started last .

night yeah so trump, uh, he didn't tweet. He said, on truth, social is.

by the way, I respect is a kind of slap .

in the face to you on mask. I.

I did a dead life, one, two, three .

german .

entire .

personality .

forward .

on campaigning for reserve.

And where is the best in poston?

The important question is robots taking over the world? No, I think .

that like in a couple of years, that A I will do a really good job of making the outlaws pocket. And people say, I don't really need to listen to you and Tracy anymore. We do have ching. Well, come a lot more. Will we catch up with friends about what's going on right now?

Because even when all lots is over, there's always lots more.

And we really do have a perfect guest.

But he said he's thinking about or he's going to impose ten percent tariff s on goods from china and twenty five percent tera s on goods from mexico and canada for some reason.

But we were recording this november twenty six, tuesday, and he specifically tied those tera threat to mexico in canada to which various conditions theoretically can be met related to immigration crackdowns and the flow of drugs across the border. yes.

So this is the thing that's being debated in markets right now. To what extent is this a negotiating tactic? You come in with a big threat and you start from there, and you sort of idle IT down. Or again, how serious is trump actually about this?

Well, I think it's both domestic and international in a sense that if you think what drives IT and why the likes of of bury senders and the likes of Donald trump read the mood of american people much more than institutionalize ed people like biden or Harris IT is really to do what I, I, I describe by actually danny roderick of hobby university, describe as a political trium of global economy.

You cannot have globalization and economic integration, nation states and democracy all at the same time. You can pick up two of the three, but you can have all three, and you can have all at the same time. So if you think of domestic and international pressures, I think trump is reflecting both of them.

If you go back in time, it's really pull Walker deregulating global financial system followed by bill clinton in one thousand nine hundred and ninety four nfa, followed by china entering W T O in two thousand. One have created environment where people feel justifiably or not, but they feel that their jobs, their livelihoods, somehow were stalled by other people. And so this is response to that, to say to people, I am looking after you, I am trying to protect IT.

But at the same time, there is also inflation reelection that I think trump fully understand, or he must fully understand, that the principal, the reason why biden lost was inflation. And so the question is, when you start imposing those terrorists, you have to remember that up to half of all us. Imports are intermediate goods. So if you actually impose their APP, you taxing your own manufacturers and own exporters. So there is an element of domestic and international.

We are here with Victor chavez. He is, of course, a global strategist and author of the new book, the twilight before the storm. How to avoid a world on fire. Words on fire sounds kind of omas. Well, since you mention the tensions in the new liberal order or what remains of IT, what do you see on the horizon? Like what political system are we actually on course for?

Well, that's a great question. Um one of the things my new book explores is at the last time we had the same degree of a disc um or a polarization was really in thousand nine hundred thirties and back then there were three system on a menu. You could choose communism, you could choose fashion or you could choose constraint.

Democracy IT wasn't a choice between freedom of liberty IT was just a question, how much freedom do we need to sacrifice in order to load the tensions and define the extremes? So today, in a very similar position, the world as a whole does not agree on what is the right social policies, political system, economic systems, business systems. And if we don't agree, what is the right thing to do? Alternatives proferred.

So today there are various alternatives competing against the other, whether china, russia, ru s trying to redefine what IT is, europe's trying to redefine what IT is. And we are in this period, which might lost up to a decade, where ultimately we will find a compromise. Ultimately, there will be consensus that will be established. And the only question the book ask, do we need to go through the world of five of thousand, nine hundred and forties OK? We just goes straight to the nine and fifties and forget the hundred .

and forty years.

I'd sign up for the yeah, and I choose the latter path when you presented your try. Lima, so just globalization, the nation state as we know, IT in democracy. And you mention that candidates like bernie Sanders and Donald trump, both to some extent for Better, worse, correctly or incorrectly, there is the economic vulnerability that perhaps people feel.

But IT also sounds, when you say nation states specifically, and when you contrasting that against globalization, IT sounds like there is, yes, there is an economic impulse, anxiety, security, but also this notion of legitimate sovereign of a nation. A nation has the right to control its borders to some degree, and to modulate and turn the dial on who can get in around. IT has the right. We see this in the war in ukraine, and the legitimate right to have a military, and a precondition to having a military, is some sort of domestic manufacturing capacity to build weapons. IT feels like there is a big element of what's being debated now in the us, specifically, is the reexamine SE of sovereign across a number of different dimensions.

Totally, totally. I mean, if you think of I usually describe IT as three eyes, inflation, inequalities, immigration. Yeah, if you think of those three elements, if you combine them, that pretty much explains almost everything you need to know.

So even inflation was much lower in a sense of absolute Prices have come down two level that people are regard as acceptable. If inequalities, whether it's well income, were much Better managed. If immigration was not a major issues either in europe or in the united states, most other issues with its cultural or anything else will just fade into believing in was a cultural issues. Color how you look at those three eyes. And so if you do not fix inflation, if you do not fix in inequalities, and if you do not fix immigration and control of your borders, then culture issues become even more dominant, driving into a certain conclusion.

Speaking of the culture wars, one thing I wanted to ask you from an investment perspective is we have also seen them kind of creep in to the corporate sector, where companies basically are forced into choosing aside, for instance, tractor supply rolled back its dei initiatives. There was the bud light boycott and then coors light.

I mart t this was a big news. Walmart becomes headline, mart becomes latest and biggest company, roback company.

I think that you asses how do investors handle like the politicization of companies that at one point said they were just out to maximize shareholder and returns and now seem to be doing something.

Yeah, that's exactly what my book discusses, that the idea near liberal philosophy that really become embedded in late thousand nine hundred and seventies, early in one thousand nine hundred and eighty, really died around the global financial crisis around to twenty ten, over the last decade of fifteen years, will all be trying to find, as I said, what is a new societal consensus, high important of corporate, private sector, public sector. What responsibility, ie.

S do they have? So the idea of milton, that the primary objective of a corporate is to generate returns to shareholders, actually died around two thousand. And when U.

S. Business council already redefine objectives, but right now, society still don't agree what is right, what is wrong. And so corporations are trying to be careful, because corporations are nothing more than an outgrows of societies there.

In, I think, one of the things I mentioned in the book, if society is decided that burning wishes is the right thing to do, we probably would have been burning wishes. And so corporations have to reflect society. And so what you find corporate, try to find the middle road some way between extremes.

However, as I said early on, five teen years from now, and I keep looking in this book into millennia and z generations and what those generations actually want to have as they become the dominant voting block. Because today they only run thirty percent of the votes. When they become a dominant voting block, they will identify exactly the frontier of the bottom half are you can go half, where should you go? And at that point in time, the corporate could actually solidify. But right now, they in the flocks, they're reflecting purely social flux.

IT feels to me like when trump p one in twenty sixteen corporations in the way they're like, you know what the election happened, but we're going to continue out. This doesn't change our commitments to the zero. This doesn't change our commitment to diversity.

This doesn't change our commitments to gender quality. And that IT feels like a they're following the mood of the election much more. This time I was really struck by a utility company, the death of the election.

Say you're prying onna burn more coal now in line with changing regulations. You see the walmart news three weeks afterwards. I want to get in something else about the three eyes.

There are tensions among them. And how much does the american way of life, the middle class or the upper middle class way of life in some way? You know, there's a lot attention about the cost of living. How much though is that somewhat predicated on inequality and the ongoing influx of cheap immigrant labor to sustain what people expect? Is the sort of like comfortable middle school to upper middle .

class life here totally entrust discuss current account deficits and not a folia realized that it's an accounting identity. The deficits of one country is equal to surplus of another country. Unless we start trading with mars uh or export terrorists, exports and inputs got surpluses and deficits have to line up.

And so one of the things the incoming treasury secretary is discussing is basically unwinding poor worker's revolution, which had to significant this continue in what some countries be accumulating significant surpluses and other countries were accumulating significant deficits. So one saying, american people probably don't realize that they can just maintain consumption at the current level and still not run the deficits at the same time. If americans run the deficits by definition and jan run services.

but on the immigration component as well, how much does the U. S. Standard of living, as we know, IT in our service sector, labor restaurants. I mean, i'm thinking back to the immediate post pandemic period. We had this fairly modest labor market tightening and people went ballistic about the quality of service they were getting in restaurants because workers are immediately .

go back to their jobs that they would be very ironic if trump one because of post pandemic inflation caused by labor tightness in part, and then part of his administration is basically imposing a new form of labor market tightness.

Well, that's that's right. But you also have to separate politics optical illusion, what you're trying to do in the reality, if you remember well, you don't remember, but anyway, isn't how in Operation, I think IT what's called web pack Operation, which is horrible name. But anyway, as in how I expelled one point one million mexicans.

In one hundred and fifties are only to see the them all trickling back into the country in a matter of month and years. So you have to separate politics. What you are trying to do, optical illusion, you are trying to create in the reality what is actually being achieved.

My view is that there is sufficient god rails in a system in the U. S. To prevent probably the worst outcomes that potentially could have happened.

Now the first, clearly god drill is electoral process. U. S. Is one of those countries that elections never end. I mean, you so if you think of inauguration in january, within twill months, everybody will be in the metem mode. Everybody will be discussing what's gonna happen to me up.

So if you are not careful and you are causing significant frictions in the labor market, significant tightening, some inflation coming back, you have to roll back your policies. But there are other areas. Capital markets is a classic example.

That's why you get your treasury secretary hash fund manager because at the end of the day, markets are bigger than individuals and they're bigger even than the underlying economies. So any distress that you're gona see in this premier in multiple rates and interest rates or anything like that, they will have to pedal back a lot. So what that basically implies, there is a friction here between political objectives, what you are trying to do, what you genuinely believe.

And I think trump probably does believe it's a good idea to excel those people out of the country, an economic reality, inflation or reality that you're going to face. Don't also forget commercial and corporate interest like he's talking about getting rid of chips act, I react over eighty percent of the money and those acts went into the red districts yeah which are represented in congress, which is a tiny majority. You're really are looking at only four or five seats they going to have in a majority in the congress.

So there is constant tension. Now that tension will create volatilities inevitable. They're going to create currency volatilities. They're going to create equity volatilities, interest rate volatilities. So that's inevitable.

But the hope is that the god rails between electoral cycles, tiny majority in the congress, between corporate interest, the capital markets, stickiness of institutions. To remember, you congestions scramble a lot of the commitments that the united states help, whether is a WTO, whether is native, whether is U. N, whether is SATA.

You can't really do that, that there is enough there that, as I said, tariff are not going to go up to twenty percent. That will increase from three, four to maybe six, seven, eight, but they're not going to twenty. You are going to not be spelling millions of people. Labor force increase will shrink, but probably no more than two thousand, five thirty percent rather than a much more of bus numbers that could have occurred. And that should moderate, uh, some of the inflationary outcomes and economic outcomes.

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You said earlier that the one thousand nine hundred and thirties were your preferred historical analogy to our current time period. And one thing that happened in the one thousand nine thirties was also turfs and the smooth holy act. And then we had .

retaliation extension legals. So was doing six times lotions in nineteen and were doing.

oh wow. So there is a big wave in the one thousand and thirties and .

the one .

thousand nine hundred and fifties. That's right.

Of amErica has a long history of expelling immigrants. Not the U. S.

Was spelling. And so was germany. So was many other country. So desire to, the desire to excel foreigners, the desire to establish terrorists, protect local interested, was all prevailed in in one and thirties.

But what I was going to ask is, how worried are you? Or what's the potential for retaliation by other countries? Because we've obviously been focused on the U.

S. Everyone is focused on what trump is doing. But he is not the only actor here.

No, is not. And that's one of the issues that and I think he probably understands that if he has been negotiating with anybody, he has to understand that the other side will try not to reciprocate aggressively, primarily because of the size and importance of the U. S.

Domestic market. But you can't push them too far. You have to find that middle road. And that's where discussion of negotiating tactics that I think you started from, I think, comes in that I I do think that the U. S.

Side understands that you have to find a compromise and that compromise object should look Better for the united states. It's like if you singing of renegotiation of nafta back in two thousand seventeen, two thousand eight, IT hasn't actually changed a lot. But optick lade was presented as a much Better case for the united states going forward.

So you need to find that sort of a middle road if you don't, if you actually do become aggressive, as IT happened in one nine hundred and thirties, guess you could have retail attractions very quickly. That's one of the things that keep highlighting that today, people are angry. People are polar ized, but they're not yet met enough to burn down the house.

Where is one thousand nine hundred and thirty? They were really met in other. What they were accessible primarily because degree of suffering that actually people encounter in one thousand nine hundred and thirties were significantly worse than anything we experience.

So people are not happy, but they don't want to burn down the house yet that maybe another war, another pandemic, and people will be really angry. But that is not today. So if people are not angry, they're pulling back their politicians within their countries, also big because people are not angry.

Geopolitical tensions are kept on the sum degree of control. It's only when people magnify extreams that bodes your political tensions and domestic tensions get out of control. And I don't think where that point yet. I said we might be at some point in time, but not today.

One of the things and I came up during the the first trump administration significantly, and it's almost certainly going to come up now, and I mentioned sovereignty. And an element of sovereignty is having a military and an element of having a military is having a domestic weapons manufacturing economy. Troop has put a lot of pressure on the european allies specifically to spend more on defense.

Very angry at their military budgets. Their lack of military budgets is set a in, you know, in the dream society of peace, no one has to spend too much on military. How inflationary is that? If ever, if you know there's this perception, the U.

S. Is going to pull back the security umbrella, so to speak. If there is this trade pressure, spend more.

If there is a major rearm ament, even setting aside war, which of course, that would be costly on multiple levels, if there is this sort of major impulse among governments around the world, or we do have to spend more, maybe we can rely on the us. Maybe the us. Is putting stress on us. Maybe we have to be more anxious about further russian expansion. What does this due economically if more countries feel this pressure?

IT depends on the extent. Because one of the things that discussed in a book in nineteen fifties and sixties, there was no inflation. In fact, inflation didn't pick up until sixty eight, sixty nine and then much more into one hundred and seven monies at the time.

Military spending globally, we're about five, six percent of GDP. Some countries will help to seven percent today. Global military spending already opted about two point two, two point three percent.

So in other what we're spending more on defense and R N D, for example, on the global basis, already in the U. S, we opted about three point five, three point six percent of GDP. If always going to do is go up to maybe five.

And europeans made go up to about three. There will be no inflation impact at all. But if you have a much hotter conflicts, that's where military spending goes up to fifteen, twenty, thirty, forty percent of GDP.

So for example, in the world, world one, U. S. Was spending fifteen percent of GDP in the world. Two at the pic in one nine hundred and forty four U S. Was spending forty percent of GDP on defense.

If you think of countries like britain or with japan, they were spending up to eighty percent of GDP on defense. So when you get to that level, Normal economy just collapse. So just war economy, that's all you are dealing with. So long as we are staying around the area of the cold war of one nine hundred and fifteen thousand nine hundred six, that is where spending maybe five percent of GDP on defense, I do not believe there will be any significant inflationary impact.

Despite all the scary things that we're talking about and the back that you mention the world on fire as part of your book title, you kind of end the book on an optimistic no. And you talk about things maybe getting Better, specifically in the one thousand nine four days. Maybe we will get a big productivity boost and our social values will change. And you know, we could have a three day work week or something like that. Of course, the irony is that i'll be retired by the one thousand nine hundred forty years.

right when .

that retired, the thousand nine hundred and forty.

Like why the twenty four ties specifically? And then like what causes you to be optimistic given everything that's going on make me feel Better?

Well, the way, the way look at IT, a human history is very convoluted and very complex, quite often contradictory. I like Kevin drum phrase that I keep using constantly the book. He's a blog from california when he said, humans suggest over clock primates that, beneath very thin lay of civilization, allies five million years of primate evolution. And therefore we are .

still bond by suppose .

to try ject to dominance displays and all the rest of IT. And so human history is is very complex. But one thing we've learned that over time, we overcome those chAllenges.

Over time, productivity rises. Over time, output increases, health care improves, you know, loggia ity improves. And there is no reason we at all to believe that this period will not be followed by this neuron a at some point in time.

Why twenty years from now, to me, that the process of the time you need in order to achieve two things. Number one is sustainable increase in productivity. So in other way, this is not just one country growth productivity, because they eating demand from other countries in other countries are stagnating, but you actually have a global increase in productivity.

To me, we're still residing on the bottom of the u. Which means we have not yet figured that out how to use technology sufficiently to maintain a grate demand, to avoid unemployment and to drive productivity all at the same time. But over a period of the next decade to we will find a way to do IT.

Now debt probably will imply a lot of people will not have a jobs. Probably many of us will not be ein working. But the productivity probably will be four or five percent, six percent per reno instead of something close up to one percent we have right now.

That's the first area. The second area is generation change because there is a reason why baby boom is an next generation. Behave as they do, you know, give me freedom, give me the rope, and I can also hang myself or succeed.

Give me opportunity without determining outcomes. And the reason why that is so, because they no longer have a fear. They've never seen chaos.

Yeah theyve never seen bad stop. And therefore, this year, the institutions of state or the environment will always be there. It's like the air you breathe. You don't think about IT, but the Younger generation, those who up today, thirty years old, thirty five years old, twenty five years old, twenty years old, they actually seen quite a lot of bad stuff occurring from global financial crisis yeah never ending wars to pandemics.

They've seen a lot of bad stuff, not at the level that people who are growing up in this, the thirties and forty saw, but nevertheless quite a lot of Better stop. And so the question is, when this Younger people become a electoral majority across more develop countries, what the world would they like to have? And to me, all the service are pointing to much more state driven world, are much more community driven world.

Even if you think of a republican party today, our democratic party, republican ty today, is not real reagans. republicans. They are not, isn't how republicans. They accept that new liberal framework is incorrect. The only difference between democrats and republicans is whether the role of the state will be indirectly through tariffs, through something else, or whether directly through investments, the way the democrats are wanted to do.

But both of them essentially agree that the state role will increase, not decrease, the level at which state will penetrate your life in various forms, whether is a judici discussions, whether anything else will change. So to me, this twenty period, number one, allowed time to raise productivity in number two, allow time for societies to call us around the consensus. And as I said, twenty years is above the right time when things will get much, much Better, in my view.

All right, we're going to have to wait for twenty years.

I know. So we're things we're going to get Better because we're really all primates in the next generation does not really believe in freedom as much. I feel great. I feel great. I feel great.

You know what? You know what i'm actually still really upset about is the politics of cheap beer because I like. Both cores, light and but light and you know I don't want to make a political .

statement when I go to a bar Miller high .

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