Wednesday, August 10, 2011

Rioting in London

What's up with that? Conservative, secure England shouldn't have youths rampaging about, burning, looting, and beating in cities and shires. It mostly doesn't seem to be about race, although that was initially the spark that set things off. A lot of it's about plain old hooliganism - bored youngsters see a little anarchy going down and they want to get in on the fun, score a little loot!

But if you listen to these youths, such as the pair of girls interviewed by the media the last few days, it's more about class warfare. Even though merry old England is a might better place to come of age than, say Somalia or Afghanistan, the reality is that a lot of people are hurting there financially. Wages aren't going up, but costs of living are. Young people especially are having a hard time finding work. And just like many other countries these days (e.g. the US, Greece, Spain, Italy) governments are cutting back on their spending whilst contemplating higher taxes. Except, it is believed, on the wealthy.

And so the government of Britain, these youths and probably many other Brits believe, is all about looking after the rich and once again slamming the poor and middle class. These youths hate the government for this, and they smash and burn businesses in their own neighborhoods. Because anybody who can afford to have a little business is, in their minds, "rich". Well, hating the rich has always been a popular pastime everywhere just as it is today, even though there are about a half dozen better reasons for our economic ills these days other than the rich. But I'll never win that argument because hating on the rich is so universal, so let's just move on to the main point here.

It occurs to me that this sort of anarchy and violence, which happened a short while ago in Greece, is likely to become more and more common throughout the world in the coming months and years. The U.S. is more than likely going to be one of the many places this happens, and I'm concerned that the protesting and rioting and class warfare may end up being a lot worse than people can imagine. Call me an alarmist (once again), but here's my thinking.

It all goes back to issues and themes discussed in these blogs over the months. There was "The Party's Over, and People Don't Get It" back in February, which talked about how our excessive spending and our fixation with gross materialism were about to come to a screeching halt, even as power (and wealth) was shifting to other parts of the globe. Another problem, implied there but discussed in more detail in my earlier "Income Inequality in America" blog, was the sense of entitlement so many Americans (especially youngsters) felt. So they're just not going to accept that the party's over; can't conceive of it, won't "allow" it to be over. There arises a potentially very dangerous juxtaposition: unpleasant reality confronting unrealistic oblivion.

In April's "Train Wreck Ahead" I wrote about the near hopelessness of dealing successfully with the nation's debt, and even suggested that defaulting on that debt was no longer unthinkable. That actually almost happened on August 2nd, you surely remember. People would be fleeing the US dollar, getting into gold, silver, and the Swiss franc, sooner or later pulling out of the stock market and sending it lower, I suggested. Sadly, those assessments were mostly correct, with gold and the Swiss franc absolutely skyrocketing since (silver - not so much), and the stock market recently dropping with a vengeance. These are signs of a the wheels falling off of a dysfunctional world monetary system, an unraveling of key parts of the world's financial fabric.

Then in last month's "Debt and Money", the main point was that our government's attempts to deal with the debt issue were bound to be "a big negative for the economy". The big risk was that cutting back on government spending, while raising taxes, could very well push a wobbly economy back into recession - one that could easily be as bad as the 2008-2009 recession. The second point there was that the Fed would do everything possible to fight such a recession, which would tend to (again) push the value of the US dollar down. Translation: higher prices, inflation, even in a weak economy. Yuck!

The latest addition to all this angst is the implosion that is taking place in Europe right now. First, it was just the imprudent, silly Greeks and Irish; OK, maybe Spain and Portugal too. Now, Italy is on the ropes, having just accepted harsh conditions for a bailout by the European Central Bank (a la Greece a few weeks ago). And then today, news that France, formerly one of the stronger European economies, is experiencing financial "difficulties". And Britain itself isn't that much stronger than France these days. The bottom line is that Europe as a whole, about as powerful economically as the US, seems to be in even worse financial shape than we are!

With an unsolvable US debt situation given current political realities, an unraveling of seven decades of confidence in the US dollar, the lynchpin of the world's financial system, and equally daunting economic problems in Europe, more than a few respected economists and market analysts are talking about the possibility of a harsh new recession hitting worldwide. For the most part, this is without even considering the increased rumblings that China's economy, which is suffering from a whole different set of problems than western economies, is poised for a major crisis. Mark Zandi, chief market analyst for Moody's, hardly known in the business as a pessimist, opined yesterday that a recession is more than just an outside possibility at this point. If it were to occur, he added, it could be expected to be even more severe and longer lasting than the horrible recession we just recently stumbled out of, since it likely would involve serious economic issues (of varying types) in all the world's major economies.

Yet, there's hope. Former Senator Alan Simpson described our brightest spot this way in TIME Magazine recently: "We're the healthiest horse in the glue factory". A less politically-correct way to say the same thing is that the U.S. is winning the least ugly girl contest. So our dollar and our creditworthiness ain't what they used to be, but then whose is? Well, there's the Swiss, but their economy is so minuscule that they're not going to be able to accommodate the trillions of dollars of wealth looking for a safe haven. So maybe the US dollar will actually strengthen in coming months, as and if things worsen worldwide, then we'd be somewhat insulated from the economic chaos. And maybe we won't slip back into a nastier recession. Let us pray....

But back to where we started. The dollar's "least ugly girl" status and blind faith notwithstanding, the odds continue to favor harder economic times ahead, and lower standards of living for most Americans, if not the whole world. And to reiterate an earlier blog's judgment, life in this (possible) upcoming Depression will be much harder on Americans than it was in the 1930s. Back then - excuse me for saying so - people were a lot tougher; they had much less to start off with, and many were still only a few years removed from being pioneers or emigrants to this country. They were used to getting by on much less than we are today, so they sucked it up, toughed it out, got through it.

This isn't the 1930s, and Americans aren't the hardy pioneer/emigrant stock they used to be. They are, not to beat that dead horse too much, spoiled by decades of having it all and of being "entitled" to the American way of life as they came to understand it. That way of life had nothing to do with getting by on less, being unable to get a decent job, fending for themselves. Instead, they will look for - demand, actually - that somebody fix things, and take care of them. But there will be no quick fix and nobody to ride in and rescue them.

So many Americans won't suck it up, tough it out, and get through it. They will, I fear, strike out blindly against the injustice of a life without; strike out against the government, against the rich, against people of a different color or religion than theirs. There will be riots, looting, attacks on fellow Americans; leaders who share their anger will come to prominence, and many of them will not be good people with love in their hearts. This is what history tells us is likely to happen.

Once again, you should hope that my pessimistic self is wrong. I do. But at the same time, think about what you can do should these things come to pass. I do.
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