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Most of the world’s focus is on Libya-related contagion spreading into other Middle Eastern countries and kingdoms.
But, suggests a report from Standard & Poor’s research arm on Tuesday, it may be time to start looking a little further afield.
As far afield as Asia in fact.
Here’s their thinking: Not only is there an expansive wealth gap in many Asian countries already and a number of politically complex regimes, but inflation is also exacerbating the problem.
What’s more, in some cases, official policy has responded haphazardly to the hot capital inflow problem — a fact which could brew resentment further down the line and be seen as specifically to blame for heightening the inflation issue.
On the matter, Standard & Poor’s credit analyst Elena Okorotchenko says:
“In our opinion, inflation has become–or continues to be–an important risk to macroeconomic and social stability in a number of countries in Asia-Pacific, including Vietnam, Sri Lanka, India, Indonesia, Mongolia, Cambodia, Cook Islands, Fiji, Pakistan, and Bangladesh,” Ms. Okorotchenko said.
In addition to inflation, a number of sovereigns, such as Indonesia, Thailand, and Korea, could be facing problems with capital flows, either as a result of large inflows/outflows complicating exchange rate management or because of potential policy mistakes in trying to control such flows.
Recent developments in several Middle Eastern countries have raised questions about contagion effects. Such popular uprisings are highly unpredictable, although the risks appear to be more pronounced where high unemployment among the young, inflation, poverty or wide income gaps are combined with growing political disillusionment in an autocratic and often corrupt regime.
It’s definitely an interesting argument, and from our point of view one that presents a solid foundation for a potentially “way out there” theory.
That all the quantitative easings, and all the QEs to come, can’t put the global economy together again.
Not without breaking some massive political eggs.
So the question is, did Bernanke know that QEasing would turn out to be much more than just a monetary tool? That QE was, arguably, a trigger towards shock therapy? In other words, a road to revolution for those living under more authoritative regimes in the world? And the path towards maybe unlocking sovereign-managed savings gluts — i.e. like those managed by the Libyan Investment Authority?
Who knows.
What we would say is that it is worth considering the economic definition of what “shock therapy”is, versus the growing number of political hot spots rearing their ugly heads — many of which can arguably be linked back to QE via the inflation factor.
After all, as Wikipedia defines shock therapy:
In economics, shock therapy refers to the sudden release of price and currency controls, withdrawal of state subsidies, and immediate trade liberalization within a country, usually also including large scale privatization of previously public owned assets.
That said, the argument does have holes. Egypt, for example, was already well on the road towards liberalisation under the now-deposed Mubarak.
QE-induced shock therapy, though, is perhaps a slightly mutated variation. Its aim isn’t so much about liberalising economies but unlocking state-guarded wealth. A means, we suppose, to inducing a global wealth distribution effect.
In that sense, Egypt’s scenario doesn’t rule out the general premise that a power vacuum could unleash exactly that sort of process.
Dr. Walter Armbrust, a Hourani Fellow and University Lecturer in Modern Middle East Studies at Oxford University, made exactly that point in a recent article on Al Jazeera.
As he noted:
One of the things that make the Egyptian and Tunisian revolutions potentially important on a global scale is that they took place in states that were already neoliberalised. The complete failure of neoliberalsm to deliver “human well-being” to a large majority of Egyptians was one of the prime causes of the revolution, at least in the sense of helping to prime millions of people who were not connected to social media to enter the streets on the side of the pro-democracy activists.
But the January 25th Revolution is still a “shock moment.” We hear calls to bring in the technocrats in order to revive a dazed economy; and we are told every day that the situation is fluid, and that there is a power vacuum in the wake of not just the disgraced NDP, but also the largely discredited legal opposition parties, which played no role whatsoever in the January 25th Revolution.
In this context the generals are probably happy with all the talk about reclaiming the money stolen by the regime, because the flip side of that coin is a related current of worry about the state of the economy. The notion that the economy is in ruins "” tourists staying away, investor confidence shattered, employment in the construction sector at a standstill, many industries and businesses operating at far less than full capacity "” could well be the single most dangerous rationale for imposing cosmetic reforms that leave the incestuous relation between governance and business intact.
Or worse, if the pro-democracy movement lets itself be stampeded by the “economic ruin” narrative, structures could be put in place by “technocrats” under the aegis of the military transitional government that would tie the eventual civilian government into actually quickening the pace of privatization. Ideologues, including those of the neoliberal stripe, are prone to a witchcraft mode of thinking: if the spell does not work, it is not the fault of the magic, but rather the fault of the shaman who performed the spell. In other words, the logic could be that it was not neoliberalism that ruined Mubarak's Egypt, but the faulty application of neoliberalism.
Which means it will be interesting to see how the political climate evolves in any country that finds itself in the midst of a power vacuum.
If such liberalisation was replicated across the Middle East, after all … the scope for capital release would be gigantic. On top of that, just think of the direct consequences of Saudi Arabia’s dollar peg being unwound? While the move would arguably make no difference to oil prices, it could encourage imports by making them so much cheaper for the average low-middle income worker.
Naturally, that policy effect in Saudi Arabia is small fry when compared to China — one possible veiled QE intention we’ve already discussed before here.
————-
While we wait to see how those all important country power vacuums are filled, though, it’s worth keeping an eye on which country might potentially be in for social unrest next.
Consequently, here’s a global heat map courtesy of RBC Capital Markets:
And here’s one from Independent Strategy:
Nice to see many of the world’s top oil producers topping both.
Related links: Here comes the quantitative tightening"¦ - FT Alphaville Democracy Born in Chains - Naomi Klein After the Sauds - Crooked Timber
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