Years from now, when historians reflect upon these times, 2011 may be known as the year of living dangerously. Every year is fraught with unpredictable hazards, including natural disasters, contagions, and unforeseen conflict, but 2011 -- more than any year in recent memory -- features a large number of recognizable threats, any one of which, if realized, could precipitate a larger global crisis.
This past summer, a prominent Australian scientist who led the fight for the eradication of smallpox created a minor stir when he conjectured that modern humans would be extinct within a century. Few among us, even the most pessimistic, believe that to be true, but we are, without question, living in dangerous times. While the threats that we presently face may not lead to our extinction, they could severely alter the course of human existence for years, if not decades, to come.
John Beddington, England's chief science advisor, warned in 2009 that a confluence of trends, including population growth, climate change, and the world's escalating demand for food, energy, and water could precipitate a "perfect storm" by the year 2030. While Beddington stopped short of predicting a civilization-ending disaster, he suggested that we could be headed for highly disruptive change.
Such change could arrive much sooner than even Beddington envisioned. Indeed, a confluence of threats, both short term and long term, are gathering on the horizon. The more immediate threats are economic and geopolitical in nature, while the not-so-immediate threats relate to the growing and unsustainable demands being placed on the planet by human activity. Taken together, they form a volatile mixture, one that should generate legitimate concern. While odds are favorable that we will muddle through the next twelve months without a global crisis, the chances of some kind of global disruption are uncomfortably high.
2011: The Year of Living Dangerously
The global economy is not yet out of the woods. Despite some encouraging signs in the U.S. job market, there are plenty of remaining pitfalls. Just two years removed from the worst recession since the Great Depression, the U.S. and Europe are reducing government spending in hopes that improved balance sheets will restore economic vigor. At the same time, fears of an economic bubble have led China to raise interest rates. As a consequence, the global economy is now walking a tightrope. There is a way forward, but there is little margin for error and the potential fall is a long way.
The natural forces of recovery, assisted in the U.S. by the year-end tax deal, may continue to gather strength, but they will have to do so without another fiscal policy assist from the U.S. and Europe. With debt levels still rising, austerity is the new order of the day, and a government shutdown in the U.S. could occur if Congress fails to act in time to raise the debt ceiling.
If the economy does falter, the U.S. could institute a third round of quantitative easing. While another monetary injection might make U.S. manufacturers more competitive and give a temporary boost to financial markets, its impact on aggregate demand is a matter of legitimate dispute. Rather than boosting real demand for goods and services, it may do little more than fuel speculative bubbles in real estate, stocks, and commodities. Even worse, another round of monetary stimulus might precipitate a run on the dollar and a global financial panic.
If the European debt crisis erupts anew, particularly if the situation in Spain or Italy takes a turn for the worse, the Euro itself could start to unravel, sending a financial shockwave around the world. Similarly, if China's economy should suddenly falter as a result of an inflationary surge or the bursting of a speculative real estate bubble, the entire global economy could be at risk.
Commodity prices also pose a risk. They came roaring back in 2010, and if they continue to rise in 2011 they could easily abort the global recovery. The U.N.'s Food and Agricultural Organization just reported today that its food commodity price index reached a record high in December 2010. Another spike in grain prices could spell trouble for China's efforts to contain inflation, and it could be massively disruptive for countries, like Egypt, that are heavily dependent upon food imports.