Tunisia has fallen, Egypt quickly followed. Bahrain, Yemen, Morocco, Libya and others burn while their oligarchs cling to power with an iron fist. Other countries could soon follow, and for some, these mass uprisings are the welcome seeds of democracy for people who have known only oppression. For others, the unrest represents chaos and turmoil that will result in a further consolidation of power for a select few; or, perhaps even more frightening, the transfer of power to groups who wish harm to countries such as the United States.
What is driving this political turmoil and why is it happening now? Without having looked at the recent GDP growth figures for the countries listed above, Maroc Telecom’s recent earnings, or Bahrain’s recent economic quarterly report, I believe “It’s the economy stupid”. More specifically, “it’s the micro-economy stupid”.
For those of us privileged enough to never want for food, to have heat and shelter, and to have freedom of movement (transportation) it is easy to forget that for most of the world and for most of human history those privileges exist at the margin. Most humans throughout history are concerned with where their next meal will come from and how to stay warm at night. For most of today’s societies there are economic systems — albeit some very tenuous and inefficient systems in much of the world — for allocating these resources. Not everyone, even the poor of the world, are hunting their next meal or building a cave in a fire. They are exchanging money in their pocket for food and fuel.
So who is Che Bernanke, or Ben the Baby Killer? I am, of course, referring to Ben Bernanke Chairman of the United States Federal Reserve and the primary architect of the recent policy of quantitative easing in the United States. Bernanke thought deflation was a serious threat to any potential economic recovery after the near economic collapse of 2007-2009. His policy of quantitative easing “creates” money — and, for Bernanke, hopefully some inflation — by using the Federal Reserve power to purchase government bonds and other financial assets thereby increasing banks reserves and further reducing interest rates. The ultimate goal is to stimulate the economy and create some modest degree of inflation by pushing more money into the economy.
I do not want to argue the merits of whether Bernanke’s quantitative easing and policy of continued policy of near zero interest rates is good for the United States. There are scores of commentators and economists who have been doing so for months. I am concerned that the impact of his monetary policy on the rest of the world has not been given enough attention. Consider the following:
- Much of the world’s commodities and financial transactions are priced in dollars. When the dollar falls in value relative to other currencies, the price of commodities tends to rise.
- When the Fed floods the world with dollars in order to stimulate the US economy, the value of the US dollar depreciates because potential buyers of the dollar are not willing to pay as much for something – the dollar – which has become readily available.
- Thus, when the Fed has a policy of “easy money”, or is supplying the world with plenty of dollars as it is now via quantitative easing, much of the world sees higher commodity prices and inflation.
The U.N. Food Price Index reached a record high
in January 2011 but I want to emphasize that monetary policy is not the only driver of food and commodity prices. Drought, floods, natural disasters, labor strikes, and other government incentives/disincentives are significant forces. However, monetary policy in the US can clearly have an impact especially when exercised to extremes.
This leads us to Che Bernanke, or Ben the Baby Killer, depending on your perspective. Easy money supply in the US has caused the prices of commodities used by the entire world to increase in cost. The increase of these basic necessities such as food and fuel, which account for the majority of personal budgets in much of the world, has pushed those at the margin over the edge. It’s not hard to imagine a scenario in which people, and even babies, go to bed hungry and cold at night, their parents unable to afford food.
Do I believe Ben Bernanke is responsible for this potential scenario? No, the autocratic governments which steal resources, stifle democracy and generally oppress their citizens are to blame. But some could rightfully argue Bernanke is the monetary butterfly who flapped his wings, causing revolution and famine halfway across the world…
Coupled with high unemployment as a result of either inefficient economic systems or as a trickle down of decreased global spending in recent years, frustrated citizens have taken their anger out on their oppressive governments. Revolution is in the streets, which would make the Marxist Revolutionary Che Guevara proud. I’m not calling Ben Bernanke a Marxist by any means, but his monetary policy has rippled across the Atlantic and Pacific oceans, converging in Africa and the Middle East to potentially create a new era of democratic rule in the region. As Che Guevara once said, “The revolution is not an apple that falls when it is ripe. You have to make it fall.”
Perhaps, dressed in a hip Che t-shirt deep in the recesses of the Federal Reserve, ‘Ol Ben knows exactly what he’s doing…or then again, this could all simply be what economists call “unintended consequences”.
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