Britain’s Queen Elizabeth II declared 1992 an annus horribilis. Three of her children’s weddings collapsed. Royal scandals rocked the crown. And part of Windsor Castle was destroyed by fire.
2020 and 2021 easily qualify as annus horribilis. COVID-19, environmental and humanitarian disasters and fundamental questions over the ability of democracies to govern were among many reasons for this grim assessment. Will 2022 follow suit? Or will events produce a better outcome this year?
Several questions can provide answers to where 2022 may be headed.
Given the potential crises to be confronted in 2022, optimism does not seem warranted. Omicron is raging. One million Americans could be infected each day. Interestingly, no one has asked why the U.S. infection rate is one of the highest in the world. Meanwhile, future environmental and humanitarian catastrophes are inevitable.
Whether Russia will invade Ukraine and China Taiwan, both states remain major threats for the United States. However likely any military aggression may be (highly unlikely), China is the “pacing threat” for American strategic planning and Russia for most Europeans. Negotiations between Russia and the United States, NATO and the Organization for Security and Cooperation in Europe over Ukraine may determine the fate of these relations. Yet, no one has asked what opportunities might exist regarding China and Russia to overcome these tensions and adverse relationships.
Can economic growth be sustained in 2022? This is not 1929, when buying stocks on credit with little money down in part caused the implosion. In 2008, the financial crisis arose from credit default and mortgaged-back swaps predicated on perpetually rising home values. When housing prices plummeted, these markets crashed.
Today is different. A combination in America of rising debt, inflation, record low unemployment and a supercharged stock market has little historical precedence. Interest rates cannot go lower. The Federal Reserve has announced at least three interest rate increases in the coming 12 months setting monetary policy. And fiscal policy forecasts trillion-dollar budget deficits indefinitely.
How long will bull stock markets persist? Historically, price-to-earnings ratios have been one basis for evaluating value. The average P/E for the 30 Dow Jones-listed companies has ranged around 14/1. Today is 22.61/1 down from 30.11/1 a year ago. NASDAQ remained steady around 39.5/1; the S&P 29.33/1 down from 40.40/1 at the end of 2021. These P/E’s are well above normal. Can these be sustained?
Part of the answers rest in how long huge national debts can be sustained. In the United States, GDP for 2021 was about $23 trillion; national debt about $30 trillion and increasing; and total U.S. debt grew from 782% of GDP at the end of 2020 to 895% today.
Perhaps most troubling is the dire state of American politics. Given these dysfunctional politics and political divisions, is America capable of governing itself any better in 2022 than in 2021? Is the Constitution is still fit for purpose today? Unless one party controls both ends of Pennsylvania Avenue with filibuster- and veto-proof majorities and five Supreme Court votes, checks and balances only work if consensus, compromise or crisis to unify a divided nation are present. None is.
The November elections likely will widen these divides. Barring the highly unlikely result of Democrats winning 60 or more Senate seats and retaining the House, permanent gridlock will persist until the 2024 elections. What can change this condition of failed and failing government? No one has any idea.
Can the animosities between the United States and China and Russia be reversed in 2022, however distant a thought? Richard Nixon recognized Red China and established a detente with the Soviet Union through major arms control agreements. Can a modus vivendi with Russia in Europe be achieved? Might NATO accept a de facto moratorium on membership, providing Russia de-escalates its aggressive actions and with Ukraine accepts the Minsk II agreements?
Likewise, with China, can ending this expensive tariff war be a positive first step in normalizing relations? Both transformations of relations mean Joe Biden would have to become another Nixon to absorb the incoming political fire from both sides of the aisle. Is that likely?
For America, the defining question to determine if 2022 will be an annus horribilis is whether these seemingly intractable political and partisan divides can be contained. Mutual bitterness and resentment against those who do not share similar political views are the enemy. But will recognition help repair what ills us most? Or will it not?
Harlan Ullman is senior adviser at Washington’s Atlantic Council, the prime author of “shock and awe” and author of The Fifth Horseman and the New MAD: How Massive Attacks of Disruption Became the Looming Existential Danger to a Divided Nation and the World at Large.
The views and opinions expressed in this commentary are solely those of the author.