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Why Civil Unrest Is Sweeping the Globe

Politics / Global Debt Crisis Jul 03, 2011 - 10:16 AM GMT

By: Justice_Litle


Best Financial Markets Analysis ArticleAttempts to save the morally bankrupt financial system will fuel further instances of civil unrest -- until the system itself finally implodes.

Civil unrest -- or to use an even harsher term, rage -- is sweeping the globe.

We are seeing it on multiple continents now, and it is only a matter of time before it hits the United States.

The year kicked off with "the Arab Spring," an event (still ongoing) in which civil unrest spread like wildfire in the Middle East. From Tunisia to Egypt to Yemen and beyond, anger boiled over on a combination of long-held tensions and skyrocketing food prices.

China, too, has been dealing with growing unrest, from trucker strikes to food protests to migrant worker riots. As in the Middle East, building inflation pressures are making it hard for people to eat.

And now we have Greece back on center stage (as far as unrest is concerned), with riot police firing tear gas canisters at outraged protesters in Syntagma Square.

But why is this happening?

In Europe, some see it as the triumph of capital over labor. The bailout mechanisms and extended debt agreements are not meant to save citizens -- they are meant to save the banks, French and German banks in particular.

The Greek populace knows this, which is why opposition to "austerity" has grown by the day. To get the latest budget cuts through parliament, Greek officials had to threaten chaos, violence and disorder if the bailout measures failed.

Theodoros Pangalos, the deputy premier, even said there would be "tanks protecting banks" in the event of a return to the drachma, because terrified citizens would storm the doors trying to get their money out. In that instance, tear gas would not be enough.

One thread that weaves through all these instances is the elevation of finance above human needs.

Out-of-control food prices in the Middle East, for example, have been a result of stimulus-driven activity encouraged by the Federal Reserve. When "stuff" amounts to a superior store of value versus paper currency, stuff gets scarce.

In China, the same idea has long been applied through wage suppression, and a government focus on cheap labor dominance. Good for the competitive posture of the country, not so good for those who scrimp and save for meals.

And in Greece, the choices are seen as bankruptcy, i.e. instant fiscal death, or prolonged economic recession or even depression -- with crushing financial debt loads acting as a millstone for years or even decades to come.

The response of governments virtually everywhere has been to (1) protect the bankers, (2) shield creditors from any losses, and (3) pump up paper assets in the hope of getting things going again.

Why continue on this path if the results have been so ugly? Because the plan is working, at least for some. As the U.K. Guardian reports:

The U.K. economy is flat, the U.S. is weak and the Greek debt crisis, according to some commentators, is threatening another Lehman Brothers-style meltdown. But a new report shows the world's wealthiest people are getting more prosperous -- and more numerous -- by the day.

The globe's richest have now recouped the losses they suffered after the 2008 banking crisis. They are richer than ever, and there are more of them -- nearly 11 million -- than before the recession struck.

In the world of the well-heeled, the rich are referred to as "high net worth individuals" (HNWIs) and defined as people who have more than $1m (£620,000) of free cash.

According to the annual world wealth report by Merrill Lynch and Capgemini, the wealth of HNWIs around the world reached $42.7tn (£26.5tn) in 2010, rising nearly 10% in a year and surpassing the peak of $40.7tn reached in 2007, even as austerity budgets were implemented by many governments in the developed world.

But how can the connected rich be getting richer if the recovery is artificial? Where do the gains come from if the global economy is sputtering and threatening to slow?

The extra gain comes from two places: A hidden inflation tax, engineered through pumped-up paper assets, and an aggressive tax on future generations.

(Don't forget, you can sign up for Taipan Daily to receive all of my and fellow editor Joseph McBrennan's investment commentary.)

When the Federal Reserve or whoever seeks to pump up the stock market through stimulative means, the purchasing power of the currency is weakened. This in turn acts like a hidden but powerful taxing mechanism, taking money from the pockets of all those who have high fixed costs built into their budgets.

If you have to drive 25 miles each way to work, gasoline is not optional. If you have mouths to feed, you must buy milk and bread (and so on).

These costs are excluded from the "core" inflation that the Federal Reserve likes to focus on. In China, meanwhile, inflationary costs are passed on to the populace through artificial suppression of the currency. Keeping the yuan weak as dollars pour in causes the price of food and energy to go up -- again, a hidden tax instituted by government.

In Europe and the United States, future generations are being taxed to the hilt in order to pay for present-day bailouts. Adding to huge debt burdens feels like a free lunch in the here and now, to the extent that debt markets do not balk or react badly. But all of the bailouts and inefficient spending plans being whipped up today come at the cost of future savings.

The West is eating its seed corn, as one generation quietly robs the next. This dynamic is actually even worse in Europe than the United States, where many young people have simply given up their life and career dreams in despair. Bleak and barren landscapes, the ground salted with debt, stretch out as far as the eye can see.

The general population may be slow to waken, but it is neither deaf nor blind. The way the current financial system is set up, "saving the system" means saving the banks first and foremost. As a second order of business, it means maintaining the value of paper assets.

But this track is not sustainable, just as Europe's willful cramdown of democracy is not sustainable. As general conditions worsen, anger will only increase.

At some point the trick of robbing future generations will wear thin, as the present debt burden becomes too much to bear. Simultaneously, the game plan of pumping up paper assets will lead to "non-core" inflation of such extent and degree that riots could become commonplace -- even in the United States.

What we are doing now bears little resemblance to a true free market system. In a real free market, or a closer approximation of one, government would step back, allowing price levels to clear and uneconomic entities to go bust.

Unfortunately, this would mean a lot of banks going bust, so the authorities cannot let it happen. The relentless focus on "saving the system" (as shown so powerfully in Europe now) has put us in the position of facing an even larger crisis once the current system collapses in on itself.

There can be no genuine hope for economic revival until the toxic boil has been burst, allowing for repricings of a free market nature -- likely coupled with some major institutions, and maybe even government regimes, being allowed to fail. And growing instances of backlash, rage, and civil unrest will be one of the increasingly powerful feedback loops that bring this about.

Publisher's Note: Do you know the one thing you MUST have to survive the growing money crisis? U.S. households have already lost 20% of their total wealth. By knowing the ONE thing to do, you could prevent such losses. Discover how much you could make.

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Source :

By Justice Litle

Justice Litle is the Editorial Director of Taipan Publishing Group, Editor of Justice Litle’s Macro Trader and Managing Editor to the free investing and trading e-letter Taipan Daily. Justice began his career by pursuing a Ph.D. in literature and philosophy at Oxford University in England, and continued his education at Pulacki University in Olomouc, Czech Republic, and Macquarie University in Sydney, Australia.

Aside from his career in the financial industry, Justice enjoys playing chess and poker; he enjoys scuba diving, snowboarding, hiking and traveling. The Cliffs of Moher in Ireland and Fox Glacier in New Zealand are two of his favorite places in the world, especially for hiking. What he loves most about traveling is the scenery and the friendly locals.

Copyright © 2011, Taipan Publishing Group

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