Monday, January 26, 2015

Geopolitical Risk in 2015

All is well in Colorado. The economy is booming, unemployment is down and tax revenues are substantial. But, as Governor Hickenlooper recounted in his inaugural address, all sorts of unanticipated events could darken our bright outlook.

The following seven concerns are geopolitical risks that loom over Colorado’s tranquility in 2015.

Weather – Colorado has been especially subject to extreme weather, ranging from the 500-year drought in 2002 accompanied by devastating and reoccurring fires, to the 100-year flood in 2013.

Economy – The U.S. and Colorado economies in 2015 appear to be in sustained recoveries, but a host of worldwide factors could produce volatility and make a new downturn possible. In the short run, the 50 percent drop in oil price is disruptive. While a substantial longer-term benefit is expected, a worldwide recession could mask it.

Oil’s freefall is partially caused by the decline in demand. The drop in demand can be traced to a number of economic strains internationally, including: Parts of Europe are in or near recession and price deflation; oil producing countries face deficits and defaults; China and emerging markets are slowing; and Japan’s takeoff continues to stall. The EU’s economic troubles are helping fuel a major political challenge to the concept of a union.

Neither the U.S. nor Colorado can maintain prosperity if the world economies decline.

Political Turmoil – The first weeks in the new year have highlighted the political turmoil and national crisis that three determined people with Kalashnikov rifles can cause. France came to a stop and now will spend hundreds of millions of dollars in new security procedures and hardware. Also, Putin is not be through with causing political turmoil in the Ukraine and Central Europe.

Political Gridlock – The October 2013 partial shutdown of Washington D.C. demonstrated how fragile the federal behemoth is to polarized politics in this era. In Colorado, the TABOR tax-limitation amendment is a form of constitutionally mandated gridlock, which has both advocates and opponents.

Social Turbulence – Ferguson is an example of the power of a local incident rapidly gaining national and international attention to the detriment of local establishments and solutions.

Populism – Anti-establishment and anti-immigration parties are on the rise in Europe and are threatening the survival of the EU experiment. In the U.S., the rapid emergence of the Tea Party and Occupy movements show how quickly new social groupings can disrupt normal political and economic activity. In Colorado, an anti-fracking movement continues to threaten one of the state’s leading industries and the Democratic Party establishment.

Tech Disruption – Much of the geopolitical risk described in this post was aided and abetted, and in some cases, launched by social media and new mobile communication devices. The world has borne witness to the power of widespread access to communication--both its magnificence and its malfeasance. Meanwhile, if hackers have their way, they can seriously harm national security and the way many of us now conduct business.

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