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February 18, 2016 | by Steve Lawrence

The World on a Precipice

ISIS, global instability, new $ for U.S. defense, and our looming election.

The only person to ever run both the National Security Agency and the Central Intelligence Agency is hardly reassuring. Unless, that is, your business grows with the American defense budget.

General Michael Hayden was leadoff speaker at the MSCI Aluminum Products Conference in Scottsdale, Ariz., just four days before the bloody ISIS attacks in Paris. His comments could not have been more timely. “Evil has now been pushed down in this complicated and uncertain world,” he said. “Nation states and hard power are playing less of a role with the rise of sub states, gangs, and even individuals. What sense of predictability do we really have these days?”

For a variety of reasons, he declared, the United States is not yet prepared to fight this new kind of war. “We are facing a number of states that are brittle, ambitious and nuclear,” for one thing, he said. “Syria, Lebanon, Iraq, these are countries whose boundaries were drawn by Europeans in the 19th and 20th centuries without regard for cultural, commercial, linguistic or religious realities.” The main question for the people of the Middle East, is whether Islam will be able to create new governing institutions that “take religion off the table” so the Sunni and Shia and Kurds can co-exist peacefully.

So far there is no indication that will be possible. “ISIS is clear that it does not believe in borders or nation states,” Hayden said. This volatile mess will “likely be with us for a generation and a half, at least,” he said. By 2020, Hayden reminded us, Pakistan, now the 13th least stable country in the world, will also be the third largest nuclear power in the world.

The United States is trying to fight and develop policy in this increasingly ominous environment, Hayden explained, with a national defense model that was established in 1947 with the National Security Act. “It was designed to deal with another World War II, fighting large nation states with masses of men and metal.” That, he pointed out, is not an effective model for crushing terrorism and jihadists.

Curiously though, it may not be too far off in dealing with our other two major defense concerns: Russia and China. In Hayden’s view we will need to aggressively show Vladimir Putin that we are prepared for a land war in Europe to “call his bluff” as he tries to move further into Eastern Europe. “That means more men and more metal,” Hayden said, “and now that Congress has passed a defense budget that looks solid for at least a couple of years, we can again begin building that kind of military capability. Our Navy is much too small and our air force is as old and as small as it has been since 1947. We will need more ships, aircraft and brigades.”

“China,” Hayden emphasized, “is not an enemy of the U.S. We worry as much about China’s weaknesses as about its strengths. “But they have a lot of domestic problems, labor, and income inequality, environmental, and economic transformation that could push the Chinese government further toward “raw nationalism and territorial expansion,” he said. “We will need more hard military power to balance the increasing Chinese military muscle.”

“This election,” Hayden said, “will be watched closely by other countries that will want to see what America’s role in the world will be. At this point I can’t predict the outcome, except to say that any of the candidates now running will be more engaged than we are now.”      

Hear the latest on global political issues affecting metals at the MSCI Annual Meeting.