In the end, the real cause of the unrest is not autocracy but a mild-mannered, bearded Jewish professor operating in America’s capital—Ben Bernanke.
As Jim Rickards and Tyler Durden have noted, the Egyptian unrest has come at a time of spiking world commodity prices—which means high food prices, which means the poor people are getting hungry and angry.
And commodities aren’t going up due to increasing demand and decreasing supply so much as money printing. The adage that inflation comes about when too many dollars are chasing too few goods holds for world prices of grains, cereals, oil, metals, and the rest.
All central banks are, in some way, responsible for this week’s debacle, as over the past three years, they’ve all been lowering interest rates and seeking to expand their monetary bases. But the real blame should be laid at the feet of the leader of the pack, Bernanke. For unlike the other central bankers, Bernanke has the ability to export his inflation.
Many have wondered why amidst the Fed’s public announcements that it’s buying government debt and pursuing an indefinite zero-interest-rate policy, retail prices have remained rather stagnant, and in some areas, fallen.
One reason is that credit deflation has overwhelmed monetary expansion. Another is that the Fed’s monetary expansion has been expressed outside the U.S. borders. The massive U.S. trade deficit—in which America gets products and sends its dollars abroad—is one component. This is equaled, if not surpassed, by the so-called “dollar carry trade,” in which bankers borrow money from the Fed at zero percent, invest it in emerging markets, and collect the yield.
However it might be occurring, money is flowing abroad, thus increasing commodity prices, and thus leading to a revolutionary situation. Most Americans think in terms of the stock market crashes causing presidents to lose elections. But historically, revolutions have coincided not with falls in asset prices but higher prices. (And those rioting in the streets of Cairo don’t own 401ks.)
As David Hacket Fischer demonstrated in his monumental work The Great Wave (1996), commodity-price spikes—and related governmental interventions—regularly coincide with political violence and “regime change.” The 18th century, for instance, was an era of higher prices and political revolutions, most prominently in America (1776), France (1789), Switzerland (1792), Belgium (1794), the Netherlands (1794), Poland (1794), and Ireland (1798). In the French example, the Bastille Day riot (14 July, 1789) coincided almost exactly with a cyclical peak in grain prices. In turn, Robespierre fell from power when a public riot ensued after he had instituted wage controls. The whole era of instability in France was inaugurated by John Law’s infamous “Mississippi Bubble” inflation of 1719-20, which led to the destruction of the market for royal billets d’état and a near total economic collapse.
David Hacket Fischer, The Great Wave (1996)
Central bankers like to imagine themselves as proficient managers able to ensure that economies are not too hot, not too cold, just right. The reality is that they have no way of containing the forces they unleash. America isn’t wanting for an unruly underclass, and it’s only a matter of time before all those digital dollars Bernanke has fabricated over the past five years come home to roost.
