CitiGroup: The End of Pax Americana, With No Replacement in Sight

Tony Webster

(This post was originally published on

Just a few days ago, CitiGroup released a new report that reads like an alarm klaxton sounding the end of the current geopolitical world order, with nothing but chaos to follow. Indeed, the “banksters” are admitting that everything we thought we knew about how the world operates is either wrong, or coming to a jarring end. The report is centered around the idea that “Pax Americana” has either already ended, or is in its final death throes.

“Pax Americana” is the term often used to define the (previously) current geopolitical order. That the general peace and stability of the Post-WWII world is due to America’s dominant economic and political power, backed up by its ridiculously large military. In its analysis, Citi is certain that the Pax Americana era is over, but the main problem for the future is what they’re calling the “Great Power Sclerosis.” In other words, there’s nothing to replace Pax Americana, other than chaos, disorder, and a great many panicking investment bankers.

The full PDF of the report, “Global Political Risk: The New Convergence Between Geopolitical and Vox Populi Risks, and Why It Matters” is available here, and I encourage all to take the time to read its 70+ pages. Because, there are times when the pragmatic warnings, predictions, and fears of those advising investors are very important to we, the skeptical. This is most certainly one of those times.

Some key excerpts follow…

The report begins with:

2016 has begun, as 2015 ended, amid a significant worsening of the global political climate and along with that, considerable volatility in financial markets. Investors and businesses are increasingly aware of the need to understand the drivers and the implications of a greater level of event risk exacerbated by shifting social patterns.

Well, tell us something we didn’t know.

In the section titled, “Is This the Dawning of a New Era,” with regard to the death of Pax Americana:

What’s more, we see little sign of this trend of political risk cutting across advanced and emerging economies reversing. We think it’s unlikely that the moderate global growth that Citi’s economists forecast as their central scenario will dampen these risks. If anything, the data we have analyzed for this report, combined with our combined expertise in comparative political science and international relations and security and defense analysis, underscores how, by many measures, these risks are on the rise and indeed could endanger even the already modest prospects for global growth

In other words, translated from investor-speak; put on the air mask and assume crash-landing position.

And invocation of the dreaded, “Black Swan”

In our view, political and business leaders will need to be more attuned to the new shape of global political risk, a paradigm shift that means that previous policies will fail to keep pace and uncertainty will remain high, with the potential to interact in unexpected ways. Among the key implications of this more fragile and interconnected risk outlook is that so-called Black Swan events — in this case, geopolitical events producing instability spanning several orders of magnitude — may be both more likely and more difficult for leaders and global financial institutions to resolve.

The Black Swan theory was developed by Nassim Nicholas Taleb, as the disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology. The 9/11 attacks are a prime example of a Black Swan.

The report closes with this bit of doom-porn:

Over the long-term, failure to devise policies to address middle class anxiety and declining living standards increases the likelihood that Vox Populi risk — including mass protests and government collapses — could move from being episodically disruptive to systemic, undermining globalization in the process. And we are deeply concerned that the political capital necessary to stem the refugee crisis and terrorist threat, perhaps best-characterized as the collision between previous foreign policy failures and current governance capacity, exceeds that available to government leaders, who have relied upon central banks to manage the lion’s share of global crises over the past several years. 2016 could be a very political year for markets.

Overall, the report is an excellent analysis of the condition our condition is in, which isn’t good by any measure. It’s very enlightening read, and worth your time.


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