The Known Unknowns and the Unknown Unknowns

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Donald Rumsfeld, Defense Secretary during President Bush's disastrous "war of choice" in Iraq, famously observed: "There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know."

Unfortunately for the U.S. and Iraq, Bush and his team ignored the known knowns and blundered into the very quagmire they hubristically claimed they would avoid. ("We don't do quagmires.")

In other words, it's not just the unknown unknowns that can sink us, ignoring the known knowns and breezily dismissing the known unknowns are equally effective.

Which brings us to predictions about the next decade, roughly 2025 to 2034.

On the one hand we have giddy predictions of a new "Roaring 20s" fueled by trillions of dollars being invested in reshoring critical industries, the transformation of our economy from hydrocarbons to electricity and of course, AI making everything and everyone fabulously more productive, enriching us all.

Less giddy but still optimistic is the expectation of a "muddle through" decade where progress is uneven and the forces that delivered decades of rapid, low-inflation growth continue to weaken.

As I've repeatedly observed, the past 25 years of rapid, low-inflation global growth was the result of globalization (specifically, the emergence of China) which "exported deflation" to developed economies by reducing the costs of goods and services (call centers in the Philippines, etc.). This allowed central banks to create vast sums of new currency, inflating assets but leaving the real-world inflation of goods and services bubbling along at 2% to 3%.

All that has changed: globalization as a deflationary savior is spent (China has inflation now, too) and financialization--the endless expansion of credit and leverage--is no longer being offset by globalization, and so the inevitable result of ballooning credit and money supply--inflation--is now manifesting globally. 

Costs of food, for example, have risen 20%+ in the past three years. This isn't an issue for the wealthy, of course, but it's consequential for the bottom 80% and dire for the bottom 50%.

I've hazarded a third forecast: a decisive conflict between expanding credit / leverage--which has inflated asset bubbles that have widened inequality to the point that it's destabilizing the social order globally, as well as fueling inflation--and the need to preserve currencies from the ruin of accelerating inflation by limiting currency/credit creation. 

Once credit dries up and becomes dear, the assets inflated by easy credit and the issuance of new currency crash, wiping out what I call "phantom wealth"--ephemeral wealth that arose not from increasing productivity but from monetary expansion / manipulation.

Inflation is more properly understood as the devaluation of "money:" as inflation accelerates, the value of "money" (currency issued by Treasuries and central banks) decays to near-zero. Since currency is the foundation of the economic / political / social order, its destruction leads to economic / political / social disorder and upheaval.

Once trust in currency is lost, trust in the economic / political / social order is also lost. As herd animals, humans don't respond rationally to loss of trust, disorder and upheaval. We tend to identify those responsible for our suffering, and being hierarchically organized primates, the obvious target for wrath / revenge is those at the top of the wealth-power pyramid: the leadership and the wealthy.

I also see wealth-power inequality as the iceberg we've already struck, but since the ship is not yet visibly sinking, the fatal gash below the waterline is being ignored.

Lastly, I foresee consequences from our disruption of systems we don't understand, from pollinators and coral  reefs to social  and economic forces we mistakenly believe we understand completely.

Viewing these predictions through Rumsfeld's filters--known knowns, known unknowns and unknown unknowns--what do we come up with?