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Jul 02, 2011 00:45 PDT
Why Civil Unrest Is Sweeping the Globe
by Justice Litle, Editor, Taipan Publishing Group
Civil unrest -- or to use an even harsher term, rage -- is sweeping the
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.
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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
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
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
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
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
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.
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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
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.