Wednesday, September 26, 2012
The Middle East
The financial position of the United States is that of a large debtor. This position is even more advanced for Europe. This cannot go on forever. Sooner or later something will upset these fragile situations. Say, for example, interest rates go up. Both the U.S. and Europe may easily reach a situation where the economies will not be large enough to service the debts. This will be bad enough for both the U.S. and Europe, but other parts of the world will be in far more serious shape. The Middle East is not just one of the least productive areas in the world. The Middle East is also dependent upon the rest of the world’s productivity to help sustain what little it does have. Oil is about the only major source of external revenue. The export of oil is dependent upon the major economies of the world for demand. This makes the Middle East much more vulnerable to economic shocks than much of the rest of the world. What we are seeing today is only the beginning. Fighting over scarce resources is as old as man. And if this financial trend continues, it cannot be much longer before economic stress reaches some type of breaking point. I believe the possibility of a depression is far less likely than some type of currency crisis, like hyperinflation. Maybe not as severe as what was seen in German in the 1920’s, but something worse than the inflation the U.S. had back in the late 1970’s. The Middle East suffered severe shocks and underwent significant change as a result. The government of Iran became a new source of hostility and violence. The Iraq-Iran war used up a lot of the resources and manpower that became expendable as a result. And the world was less connected in the late 1970’s and 1980’s than it is today. We are seeing the initial signs of this pattern again today, and as can be expected, it is much more widespread. I am a firm believer in capitalism. History has demonstrated that capitalism through free markets is the most productive system ever devised by man, not even close. The United States became the largest economy in the world by the use of this economic system. This is CHANGING. The pattern over the past 70 or 80 years has been a steady increase in percentage of the U.S. economy being allocated and run by the government. This pattern has been significantly increased just in the past 4 years. Between bailouts of the banks, bailout of General Motors and when health care kicks in, something like 45% of the private sector of the U.S. economy would have been taken over by the government. Even if the figure is less, the overall effect can only be a far less productive economy. The U.S. is the driving economy of the world. If our economy is less productive, the rest of the world will feel the impact, and this impact will be magnified. The Middle East will be one of the first areas of the world to feel this. And we are beginning to see the results. It can only be a matter of time before something breaks. Unless significant, real CHANGE is implemented that reverses this pattern, something has to break. People and nations will wage war over scarce resources. Sooner or later, enough excess manpower with little to do will become expendable. A major drop in productivity can easily be the tipping point. The Middle East is a good place to watch for indicators because that area of the world is one of the most vulnerable and most likely to show signs of stress and unrest. *I am calling attention to the Middle East, but this analysis can be applied to the Islamic world as well. Islam is the basis of the culture in the Middle East. Islamic culture includes other parts of the world with similar economic problems and dependency. I would expect similar results and reactions in these parts of the world as well.