The Road to Riots, Civil Unrest and Collapse

-- MUST READ -- The end of the rope has arrived everywhere all at once. The Irish are fuming about property taxes and India is raging about fuel shortages and corruption. Energy riots are occurring in Pakistan and India. In Taiwan, citizens are fuming about a sudden ten per cent rise in subsidized fuel costs. It's obvious on a global scale. Massive and unprecedented change is imminent.

The end of "business as usual" is upon us all. We have details on the World News Desk. -- MCR

A Surefire Way For Governments To Provoke Riots, Chaos And Revolution

Business Insider,

1 April, 2012

Economist Paul McCulley, formerly of PIMCO, has a great new paper out called Does Central Bank Independence Frustrate the Optimal Fiscal-Monetary Policy Mix in a Liquidity Trap? (.pdf), which is a cry for "irresponsible" monetary policy.

Basically, he says, in typical times, it would be the job of the central bank to act independently to counter governments that are borrowing and spending so much that they're causing inflation.

But in a liquidity trap, the job of the central bank is to row in the same direction, and do everything it can to facilitate inflation and spending, even if on paper that seems irresponsible.

It's a big paper, and we're still going through it, but one thing he cites in there is another paper by economists Jacopo Ponticelli and Hans-Joachim Voth called Austerity and Anarchy: Budget Cuts and Social Unrest in Europe,. 1919-2009 (.pdf), which explores the link between, as the title states, austerity and social unrest.

What Ponticelli and Voth found, looking back over budget cutting over that 90 year period, is that the relationship between austerity and social unrest (riots, attempted revolutions, and even assassinations) is pretty clear.

Not only that, but the size of the cuts bear a close relationship to the volume of social unrest.

They write:

We use a long panel dataset covering almost a century, focusing on Europe, 1919 to 2009. The continent went from high levels of instability in the first half of the 20th century to relatively low ones in the second, and from frequently troubled economic conditions to prosperity. It thus provides a rich laboratory of changing economic, social and political conditions. In terms of outcome variables, we focus on riots, demonstrations, political assassinations, government crises, and attempted revolutions. These span the full range of forms of unrest, from relatively minor disturbances to armed attempts to overthrow the established political order. We compile a new index that summarizes these variables, and then ask -- for every percentage cut in government spending, how much more instability should we expect?

The data shows a clear link between the magnitude of expenditure cut- backs and increases in social unrest. With every additional percentage point of GDP in spending cuts, the risk of unrest increases. As a first pass at the data, Figure 1 (below) examines the relationship between fiscal adjustment episodes and the number of incidents indicating instability (CHAOS). CHAOS is the sum of demonstrations, riots, strikes, assassinations, and attempted revolutions in a single year in each country. The first set of five bars show the frequencies conditional on the size of budget cuts. When expenditure is increasing, the

average country-year unit of observation in our data registers less than 1.5 events. When expenditure cuts reach 1% or more of GDP, this grows to nearly 2 events, a relative increase by almost a third compared to the periods of budget expansion. As cuts intensify, the frequency of disturbances rises. Once austerity measures involve expenditure reductions by 5% or more, there are more than 3 events per year and country -- twice as many as in times of expenditure increases.

Exactly the same relationship can be observed in each of the four main subcategories of CHAOS. The frequency of demonstrations, assassinations, and general strikes rises monotonically with the scale of cuts. Only in the case of riots is there a small decline for the biggest cut-backs. In the case of demonstrations, the frequency of incidents appears to rise particularly fast as expenditure cuts pass the 3% threshold.

The strength of the link between austerity measures and unrest is our first important finding. Is the link causal? Other factors, such as generally depressed economic conditions, could drive up unrest and the need for cut- backs simultaneously. Controlling for economic growth does not change our results. This suggests that we capture more than the general association between economic downturns and unrest. To demonstrate that causality runs from cut-backs to unrest, we refine the data in two ways: First, we analyse a more detailed dataset that gives information about the causes of each

incident. Second, we use recently-compiled data on changes in the government budget that follow directly from policy changes (Devries et al. 2011). For both types of additional evidence, we find clear indications that the link runs from budget cuts to unrest. We also conduct placebo tests with other types of unrest – inspired by ecological issues and world peace, for example – and find no effect of budget measures.

Comments by Mike Ruppert;

I am completely convinced that a massive crash, unlike anything before, is imminent. However, I would take this one quote and rewrite it:

"What I want to illustrate is that great fortunes are made at super-bear market lows. But you must have the money at the lows. Which is why gold is so singular and valuable. If you have gold at the bottom of the next bear market, you can exchange it for a collection of great common stocks or funds, and then sit back and relax."

This way:

"What I want to illustrate is that great fortunes are made at super-bear market lows. But you must have the money at the lows. Which is why gold is so singular and valuable. If you have gold at the bottom of the next bear market, you can exchange it for a collection of hard physical assets, land and tools, and get to work building sustainable agriculture and community."

-- That's why I have advocated owning gold so strongly. Because those who have it will be able to do what other people cannot, make a fresh start and help others around them. The wealth of aware, earth-centered, Post Petroleum Humans will have been preserved so that it can be put to good use on the way to building a resource-based economic paradigm and keeping our fellows fed and healthy for the great challenges yet to come. Because everybody except for Russell seems to be getting that growth is over. -- MCR

RICHARD RUSSELL: A Massive Stock Market Collapse Will Wipe Out 60 Years Of Inflation And Leveraging

Business Insider,

30 March, 2012

Richard Russell, writer of the Dow Theory Letters, is just looking for the right time to buy stocks.

But that time isn't now. And until that time comes, Russell will be keeping his wealth in gold.

He writes in King World News:

What I want to illustrate is that great fortunes are made at super-bear market lows. But you must have the money at the lows. Which is why gold is so singular and valuable. If you have gold at the bottom of the next bear market, you can exchange it for a collection of great common stocks or funds, and then sit back and relax.

You are then betting on the lasting power of the US. If the US comes back, you will be rich beyond your wildest dreams. But you have to have the guts to hang on to your gold. And you need patience -- the patience of ten men.

And when the time comes, things will get messy before they get good.

And I wonder -- is there a super bear market waiting for us somewhere in the future? The great ride from the end of WWII to today has never been fully corrected. Some day it will be. And impossible bargains in stocks will be lying around -- with very few willing or solvent buyers.

...My thinking is that sooner or later we will be subject to a major correction (bear market) that will wipe out or correct 60 years of inflation and leveraging. When that happens, I want to own the only kind of money that the Fed can't destroy.