Vous êtes sur la page 1sur 36

Economic Outlook

Spring 2010

By: Andrew Bell


Disclaimer

As with any economic report it is important to address the impossible task of providing a
comprehensive forward looking view of the economy. The world is a large place and there are many
participants in the political and economic landscape.

There are three areas which are felt to be poorly accounted for in the composition of this report.
The UK has seen developments moving extremely fast over the past six to eight months. As such the
situation in that country is considered to be difficult to gauge without a concerted effort to
understand the many different facets that affect both the political and the economic climate.

South Africa represents another country which is being treated by this report as an effective ‘wild
card’ country. The recent death of a white supremacist leader alludes to more extreme tensions
than would have been otherwise assumed. The risks tangled up in a resurgence of racisms in South
Africa have the clear economic effects that would result from the fallout of open conflict of any type,
but there are also risks that racist unrest, sure to be publicised globally, would inflame latent
tensions in other parts of the world. As with the situation in the UK, any evaluation of South Africa
requires detailed study and contact with local sources, all of these are things that have not been
carried out in the course of writing this report.

India represents a final area of the global economy which is felt to be poorly addressed in this report.
The reason for this is that India seems to be more closely related to the European Union block than
to any one country. The regional differences in India are extreme and even the consistency of a
common language being spoken is difficult to understand. In addition to this the long standing cast
structure combined with the tapestry of active political parties make evaluation all the more difficult.
Although broad comments can be made about steel consumption, the IT workforce, and a number
of other important things that connect India to the global economy, it would be unrealistic to
assume that one can claim ‘understanding’ of India without a very specific focus on the region,
including spending time as an active participant in the economy.

2
Summary
Regardless of the claims to the contrary the financial crisis, which looks a lot like a depression, lingers
on around the world. The economies of nations that used to be considered engines are performing
more like weights and those that are waiting to take up the slack aren’t quite positioned to do so yet.

The Euro area is looking sound but undervalued as it faces problems directly instead of putting them
off for later generations. This is how difficulties in economics should be addressed, pain for regions
that experience the tail end of economic cycles but pain that is addressed and supported by those
who can offer support.

The UK seems to be on line to do the same thing as the Euro area. Politicians in the new government
look like they are addressing problems head on even with ratings agencies axes looming. Again this
is a needed pain which will be shorter and less severe if it is done quickly and completely. To quote
the immortal Jerry Seinfeld as he advises George Costanza (Jason Alexander) about how to deal with
difficult pains:

You should just do it like a Band-Aid. One motion! Right off!

-“Seinfeld; The Ex-Girlfriend”, First Broadcast: January 23, 1991

Ironically the United States isn’t heeding the advice of its own cultural icons. Efforts at recovery in
the US are couched in spin and denial. It is for this reason that the US economy is looking set for
another fall. The administrations and leadership in the country have been trying to avoid any of the
realities which they got hit with in the crash of 2008. This is going to cause even more pain as
piecemeal solutions involving continued reliance on debt markets stymies growth potential for the
decades ahead. The financial position of the US public, administrations (federal, state, and local),
and companies are locked into debt obligations which are still increasing. This isn’t going to leave
the country in a position to be able to pay out the obligations set out under social security, medicare,
and medicade over the next decades. Major defaults on debt might not be certain but should be
expected in the next five years.

The BRIC countries (Brazil, Russia, India, and China) continue to be the leading economic nations in
growth potential terms. All of the countries have weathered their financial storms well, likely due to
experience with hard economic times, and they are all well positioned to take over in leadership
roles on the global stage. This isn’t new news. The world has been abuzz with talk of ‘emerging
markets’ for years, or at least since the Chinese expansion caused ocean shipping rates to gain
orders of magnitude above anything seen over 150 years of recorded freight rate information (in Fall
2003). As these four countries, and a number of others, continue to ‘emerge’ they will offer an
amount of stability, all be it slower growth stability, that the ‘developed’ nations lack. It is expected
that within the decade the BRICs will be able to claim justly that they have emerged.

Despite the expected economic churn there will never stop being opportunities for profit. What is
most likely is that investors will just have to be more careful about where capital is allocated and due
diligence in risk management and research is going to be essential. As a rule of thumb, looking for
global companies operating with little or no debt would be a good place to begin.

3
Authors Note
“A series of unfortunate events. Change is driven, or has been, not by slow
trends but by major events at the correct time.”

-Arch Duke Franz Ferdinand

I’ve written this report because I’m afraid that the next decade will be defined by battles, not by
Googles or Apples, and that few of the global leadership are addressing the mammoth in the corner.

The United States of America is coming apart at the seams and could burst with the slightest political
shock.

At this point none of this is certain, just far too probable for me to sit back and watch without trying
to do something.

For the most part the report is an overview of the major economic trends which have been deemed
important chapters of the full economic story. That is not completely the case for the three
appendices which cover US Unemployment, the Tea Party, and Civil Unrest. These three sections are
components of what is causing me to lose sleep. The number of unemployed people, their small
geographic concentration, and the trends toward reactionary and populous organizations all point to
extremely high risks of civil unrest boiling over into something completely chaotic.

Writing these sections has taken the majority of the writing time. This is primarily because of what
has turned out to be an incredibly intellectually taxing exercise. Thoughts of how the politics of the
US could go disastrously wrong are not pleasant, especially because of what seems to be a cascade
of escalations just waiting to be set in motion.

In the interest of maintaining some sense of hope and happiness it is important to remember that
opportunities for great things to appear remain even in the darkest of times.

In that spirit it is fitting to remember the closing line from Oliver Stone’s landmark movie about the
culture of finance in the 1980’s. This is not the oft miss applied mantra of Mr. Gekko [Michael
Douglas] which proclaims that “Greed, for lack of a better term, is good,” but is the wise closing line
of the fatherly Carl Fox [Martin Sheen] as he says:

Maybe that’s the price, Bud, maybe so. It’s gonna be rough on you but maybe in
some screwed up way, that’s the best thing that can happen to you ... stop
trading for the quick buck and go produce something with your life, create,
don’t live off the buying and selling of others ...

-“Wall Street”, 1987

It is through creation, not destruction or accumulation, that prosperity will be assured.

4
Table of Contents

Disclaimer 02
Summary 03
Author’s Note 04
Table of Contents 05
US Economy 06
Unemployment, Debt, and Civil Unrest
Capital Controls
Out of the Darkness
Global Finance 09
Greece and the PIGS
Bonds
Equity
Global Regions 12
Canada
China, South Korea, Japan, and Asia
Russia
Central Asia
Australia
The Middle East
Africa
Europe
Central America and the Caribbean
South America
What’s Missing? 20
Power is Under Priced
Water Supplies are Short
Climate Change Research Sidelined
Appendices 22
A - US Unemployment
B - Tea Party
C - Civil Unrest Scenarios
End Notes 36

5
US Economy
Despite what the flavour of the minute might be in the international news media reports, the story
of the spring is not about gushing oil, health care, or bombs made of fireworks. The story this spring
is the US economy.

This story began in January as early reports began questioning the strength of sovereign debt
markets. Attention was diverted for a number of weeks to the growing tensions around a health
care reform bill seen by Americans as a battle ground issue but seen by the rest of the world as a
playground issue. Obama’s eventual victory in getting legislation through that revised what was one
of the most expensive health care systems in the world on March 22nd, 2010 was covered in subtle
gloom by the politically motivated violence that occurred around the time of the vote. Although
minor, it is hard to deny that bricks through windows, cut gas lines, death threats to politicians, and
opposition leadership treading the line between rhetoric and inciting violence1 are signs of a deeply
depressed political economy.

From this inflammatory setting the media focus switched to increased tensions in Greece (late
March), the SEC charges against Goldman and Sachs (April 16), a volcano blocking air traffic (April 14
– April 21), and a massive oil spill. All of this seems to be rather misplaced attention. Looking at the
Greek case gives a good demonstration of why this is.

Until recently bankers’ tales of daring- do during the Asian, Latin American and
Russian debt crises were kept for after dinner drinks. Now, many of those old
emerging – markets hands are in high demand during the day, as banks and
investors ponder the potential effects of the Euro zone’s debt crisis.

-Economist, Feb. 13, 2010

Greek Government Debt outstanding ~ EU 290bn

- ibid

If the debt is denominated in a foreign currency or held largely by foreign creditors, than a debt
crisis can be compounded by a currency crisis.

-ibid

These comments on the Greek economy could just as easily be spun to talk about the US economy.
The allusion to the currency crises of the past is justified when talking of the US because of the fact
that, unlike Greece, it has its own currency and a vote of non-confidence, in currency trade terms, is
more apt to be applied when a full region is in decline, not when a single zone in the currency block
suffers problems. Not to mention that the Greek debt outstanding is a drop in the bucket compared
to what the US government, not to mention private debt of the US population, has due. 250 bn Euro
is about the size of the Bush bailout of 2008, and about ½ the size of the Obama 2009 bailout
package.

As the distractions subside it is certain that the US economy is going to be looking far worse than it
was at the opening of 2010. When this happens the risks of a run on the currency return in full force.

6
Unemployment, Debt, and Civil Unrest
Unemployment in the US continues to run high yet it is unlikely that the markets have come to terms
with exactly how high. The reason is that there is little consistency in what is being reported. Most
reports use the unemployment rate of the country as the basis for any opinions, positive or negative,
about the broader economy. Another common reported value is the number of jobs created or lost
in a month. The monthly reports are then analyzed by reporters in over simplified terms. It is rare
that more than a couple of calculations are made and it is even rarer that these will be correctly
described.

Common misleading reports include looking at strictly month by month, or even week by week, jobs
data. Another common mistake is to compare monthly data to the same data from the year before.
What should be done is a comprehensive study which looks at data sets instead of cherry picking one
or two numbers from government releases. Additionally, to understand unemployment a regional
component needs to be addressed, the rate (unemployed per working age person), and the stock of
unemployed people should be included while using the data archives to compare the current
situation to a number of years past, not just the worst ones.

An additional factor that is playing havoc in the US economy but isn’t being discussed any more is
that the US consumer base is broke. Huge swaths of people have no jobs and mountains of personal
debt, in the form of mortgages, car loans, credit card debt, student loans, and unpaid bills. As the
central banks begin raising rates and inflation sets in the US consumer, who is normally seen as the
engine of economic growth for the country, simply doesn’t have any disposable income left. A set of
interactive maps created by New York Federal Reserve show the distribution of debt held by the US
public exceptionally well. They can be found here:

http://data.newyorkfed.org/creditconditionsmap/

These factors, and a number of others, all begin to move economic analysis away from pure business
and into the field of political science, specifically into the area of study of causes and effects of civil
unrest. The population in the US is becoming more and more tense. The recent gains seen by the
‘Tea Party’ movement demonstrate this phenomenon in a way that no theorizing could have done.
The group is regional in its origins and without any concrete platform. It is a pure expression of
anger and desperation coming from those who have felt the pain of the depression and are seeking
an outlet. The populous nature of the leadership along with the violent tendencies of the rhetoric
make the movement seem to be revolutionary in nature, not to mention the fact that the name itself
draws on what is often seen as the opening event of the American Revolution, the Boston Tea Party.
This revolutionary group has a significant difference from its name sake, the Boston Tea Party had a
collection of intellectuals outlining the statutes of a new democratic republic, the present day Tea
Party has strong roots in the computer illiterate and globally unaware.

Capital Controls
All of these factors add up to a new way of thinking about economics. The recent report released by
the IMF, “Capital Inflows: The Role of Controls”, adds even more changes into the mix. The report
details the use of government imposed controls on capital inflows to avoid having a country which
gains from sentiment shifts by the holders of hot money end up inflating economically precarious
bubbles due to the availability of cheap money. What seems to be completely missed is how easily

7
the same notion could be inverted to become an analysis of the role of controls for capital out flows
in order to avoid runs on a currency.

Currency outflow controls are not new concepts. Joseph Stiglitz, one of the world’s leading
economists, argued convincingly for their effectiveness in the Asian financial crises of 1997 as he
found that countries that ignored the IMF policies of the time did much better than those that did
not. His analysis of the global capital markets is quite astute. A government imposed break in
trading of their currency allows for sentiment to be mitigated and for fear to subside as trading
organizations evaluate how rational the slide in a currency experiencing a run really is. What Stiglitz
omits from his analysis is that such controls, although beneficial to the greater segment of society,
create losers. Investors in a country experiencing a run, much like those caught with money in a
bank experiencing a run, will be left with little choice other than to lose large sums of money as the
value of the currency drains away. There is little doubt that as a currency begins trading after having
had capital out flow controls imposed it will be valued significantly lower than the last moments
before the controls are imposed. This leaves those trapped in a currency sitting on the sidelines
waiting for the controlling government to decide when to remove the controls as the value of
investments sinks.

Out of the Darkness


Despite what looks like a perfect storm developing history reminds that even in the most chaotic of
times opportunities remain for those who are hard working and who keep their wits about them.
For decision makers to be well served by any kind of forward looking forecast thoughts need to
avoid dwelling on evaluating the exact course of future events. The time and effort spent trying to
perfect a single forward looking economic prediction would be better spent trying to develop broad
strategies for a number of the more likely scenarios as well as a handful of options for those least
likely to develop. In this way a decision maker creates a tool box of options which are ready to put
into effect as events unfold.

For example, Canadian decision makers would be well served to consider the effects of civil unrest in
the US in advance of them materializing, as would many others. Case studies of past economic
shocks that develop into political shocks shows that such events unfold in a matter of days and
weeks after years of build up. Due to the concentration of economic problems an excellent option
for Canadian officials would be to consider preparing Immigrations Canada and increasing staff at
Canada Customs as any tensions that unwind in the US are sure to increase the volume of
immigration applications.

8
Global Finance
Since the early 1980s global finance has become one of the most significant economic sectors in the
world. Efforts to eliminate capital controls, a brain child of Regan, Thatcher, Friedman, and a number
of other open market enthusiasts, have opened up the world to the ebb and flow of financial
sentiment. Unfortunately these flows of capital are prone to the very human emotions of fear and
panic. Thus understanding exactly where fears sit in finance is an extremely valuable skill.

Greece and the PIGS


Despite the noise about the troubles in Europe the outlook for the EU is rather positive, meaning
that investments there are probably undervalued. In the same way that the English language press
suffers from the lingering vestiges of an editorial staff that grew up with a red scare, the last of the
free market drones are discolouring the perspectives of English investors and politicians.

The European Union is pulling together, if grudgingly. They are reacting with civility, compassion and
unity. The bankers and the politicians are working hard to help mitigate the suffering of the Greeks
and the Greeks have enrolled in the school of financial hard knocks to learn about debt. The efforts,
which seem to be lead by the Germans and the French, are commendable. This crisis seems to be,
completely in contradiction to major English publication pundits, bringing Europe together in a way
that would have been unthinkable before. It is possible that the EU will come out of this crisis more
united than when it entered, even if the Germans pick up a Greek island or two in the chaos. A lot of
this depends on the compassion of those Europeans who weathered the storm and the thanks
offered by those who did not.

When considering the troubles in Europe it is revealing to think of each of the member countries as
US states. They all share a common currency and a similar history. As much as language barriers
remain, a common set of values about how a civil society should operate have been forged out of
the fires of two world wars. Nothing seems to create peace like a devastating war that leaves all
sides crushed, exhausted, and dead. There seems to be little aggressive vigour left in the European
Union and this should be seen as a benefit. Going back to the analogy of Euro countries being like US
states, it is comforting to think that if a state were to be on the brink of defaulting on bonds the
other US states would come to its rescue.

United we stand non?

Bonds
The bond markets have been the most telling financial indicators over the past six to eight months.
What has taken ages to really set in, that sovereign bonds are not risk free, is beginning to actually
have tangible results. The bond yield curves of the past six months, especially in the US Treasuries
market, are displaying disturbing trends. Yields have risen significantly and continue to do so. For a
period in early 2010 US bond markets even saw an inversion of bond yields, where sovereign
discount rates were higher than corporate rates. This is counter intuitive because it means that
corporate bond issuers would be able to issue bonds backed by government paper at a profit,
something long seen as an economic dislocation. This isn’t quite the case, such an arrangement,
where the market prefers to hold corporate paper over sovereign debt, is quite rational. It shows a
market that wants to spread risk of sovereign default to other parties. Corporate interests,
especially large bond issuing companies, are multi-national and are thus less at risk to problems in a

9
single nation. Additionally the market could turn to corporate paper in order to gain from the
apparent teams of researchers who should be better versed at understanding the risk being
assumed by investing in sovereign debt. Unfortunately recent history has shown that the Greenspan
flaw runs deep in the current corporate and financial climate; those in positions to make decisions
about the allocation of funds have failed either to understand or act in their own best interest and
instead put aside due diligence for the easy returns of trend chasing speculation.

Another telling sign in the bond markets is that the successful issuance of bonds at auction has
begun to be questioned. Not so long ago there was hushed concern that the US might fail to fully
issue the treasury auctions they had planned. This isn’t as much of a problem as it was a few months
ago as the Treasury department has begun to lower the amount of debt being issued per auction,
something that hasn’t been done since about July 2007. This step is broadly seen as a positive
measure because it indicates that public finances are improving, which is in line with the official
reason for the draw down, that tax revenues are increasing which reduces the need for debt
issuance. What doesn’t seem to be questioned is how much of this decision was based on avoiding a
failed issuance if supply and demand factors lead to a spike in the yields needed to be offered by the
Treasury.

A closing point in the bond market analysis deals with Credit Default Swaps (CDS), effectively bond
insurance policies. These contracts, which are still primarily traded over the counter (OTC) in an
unregulated environment, were at the heart of the financial disaster of 2008 yet have somehow
managed to recede from the limelight once again. Understanding that the rates these contracts
trade at has some relation to market expectations of default means that they provide additional
insight into the expected performance of bond issuing entities, both corporate and sovereign. These
markets were alight before the failure of many of the biggest institutions which collapsed in the
warning shots of September 2008. They were active again as Iceland ramped up the eventual
collapse of its debt obligations.

In order to effectively use data and trends from the CDS markets to gauge future expectations of
debt default, data sets of CDS rates and trade volumes in the six to eight weeks before major
defaults need to be studied. The Icelandic case in particular represents an excellent chance to
understand how well CDS markets are evaluating risk as the rates for sovereign CDS protection
spiked for a number of specific countries in the run up to the Icelandic default. From memory these
countries were Iceland, Ukraine, Pakistan, Spain, and Portugal. If memory serves, Icelandic paper
was consistently the most expensive to insure.

This alludes to the effects of contagion in global bond markets. A very rough estimate based on this
possibly flawed analysis is that 20% of the market fears are well founded while the rest represent
only speculative reflected fears. It is as if the markets can identify something going wrong but aren’t
exactly sure what is off. Much like a person opening a fridge only to be hit by a terrible smell, it is
clear that something stinks in there but only detailed inspection will show which of the left over
foods has grown a beard of mould. Expanding any such study to watch for the accuracy of markets
to pick the looser, as they did successfully by pricing Icelandic debt insurance higher than that for
other nations, would provide an outstanding financial forecasting tool; as would study of cause and
effect financial behaviour models. Did perceptions doom Iceland and other bond issuing
organizations or were perceptions simply rational expressions of conditions which existed and were
already well entrenched?

10
Equity
Equity markets around the world remain the most difficult segments of the global economy to either
analyse or predict. With few barriers to entry for either firms or market participants, and just as few
barriers to transactions, there is no wonder that these volatile beasts are running rampant through
corporate and personal balance sheets.

The spread of global media networks has given more people access to financial related information
than ever before. Unfortunately the prevalence of access to information has precluded any
prevalence of media literacy. The faster that the world adopts information distribution technologies
the harder it is to keep the users of these technologies up to date about things like critical evaluation
of source reliability. There are still vast numbers of people around the world who are only just
becoming internet literate and who seem to take the view that if something can be found, in writing,
in photos, or in video, on the internet it must be true.

Additionally the spread of internet technology and the development of secure trading platforms,
from groups such as E-Trade to the proprietary trading software developed by major banks, has
added legions of non-professional investors to equity markets around the world. A benefit of this is
that the group think of past equity market movements will be reduced as diversity of opinion
expands. Unfortunately a new kind of group think is developing. This new social herd is based less
on releases of unemployment numbers, durable goods sales, and bond yields but more on
reactionary casual reading of mass market ‘investing’ news (Mad Money or Glen Beck for example).
The negatives associated with this new trend lie mostly in the increased chances that a panic will
catch hold and that a run on equity will be magnified if it does happen.

As emerging markets become developed markets over the next decade this trend of mass access to
both information and near instantaneous trading is expected to increase the volatility of global
equity markets while decreasing their adherence to rational market responses to economic and
political shocks. Evidence of this trend can be seen in the changing nature of seasonality on global
markets. Over the past decade the lulls associated with the Western calendar, such as the run up to
start of the school year in September or the break over the course of Christmas and New Years Eve,
have begun to change. More and more the period of about December through to mid-February has
become a slow period as the world moves from the Western holidays in December to Chinese New
Years and Brazilian Carnival. Although still in the early stages it is expected that these changes will
continue.

For these reasons equity is expected to be extremely volatile and irrational for the next decades.

11
Global Regions
The following is a tour around the world of recent developments along with longer term trends and
some small amount of forecasting.

Canada
The author of this paper is Canadian. Canada is perfect. Watch out for bears and moose, they are
seen inside the city limits of our capital. :P

China, South Korea, Japan, and Asia


As much as the notion of grouping even two of these countries together, not to mention implying
that the rest of Asia is homogenous, is contentious at best, this grouping has been done for a very
deliberate reason. The Asian economies look sound compared to almost everywhere in the world.

The Chinese struggle with growing pains and the stresses of liberalizing an economy and political
system long held up as a model for totalitarian rulers around the world. The political censorship and
oppression continues to an extent but seems to be trending toward openness, even if it is a trend
that might take decades to work out. Fears that such trends might not continue, or that they could
even reverse, are unfounded and poorly thought out. Even the more conservative members of the
Chinese leadership seem to have come to terms with the fact that electronic communication and the
associated economic benefits for the whole society bring an amount of forced openness which is
nearly impossible to reign in. The economic gains and political risks associated with a society
becoming computer / media literate are almost exactly the same as those faced by Europeans as
Gutenberg opened up the world of text to the masses with his first movable type.

The South Korean situation looks decent all things considered. The country has done well to invest
in productive infrastructure and has even developed a number of globally competitive production
niches. Tensions with the North remain but Kim Jung Il is steadily getting older. It seems reasonable
to expect that his successor will be more versed in the benefits of trade over international co-erosion
and it seems unlikely that a successor will choose to increase hostile rhetoric beyond what KJI has
been flaunting over the past decade. Say what you will about the way KJI has treated his own
people or his constant use of brinkmanship to blackmail the world, he has not, given current
knowledge, moved beyond his borders. There is something to be said about a leader who chooses
not to send his troops out of the country.

***Last minute edit***

It is difficult to gauge exactly what the recent sinking of a South Korean military vessel is going to do
to the region. Global opinion seems to be that the North sunk the vessel deliberately yet that claim is
denied. It could have been a rouge incident or it could have been another test of the limit which KJI
can get away with. The situation remains questionable as of this writing.

Japan looks likely to struggle along as it has for decades now. The conservative culture of banking,
finance, and business appears to have had a dampening effect on the fallout from the financial crisis
even if it did leave Japan sitting on the outside of the party around the turn of the century. There is
something to be said about Japanese restraint, no matter how it materialized. Another cultural
feature of Japan that looks set to help the economy over the next decades is the very unique

12
Japanese fascination with all things robotic (a trend shared by the South Koreans, if sources are
correct). This has resulted in the specialization of the country in a rather unique branch of math,
control theory, which seems to be just starting to hit the world stage in terms of applications. Fields
from Climate Change research to financial regulation will eventually begin adopting this branch of
math which will make the experienced robot creators invaluable to the country’s economy.

With the exception of Thailand, the rest of Asia seems to be holding course relatively well. Case by
case differences are certain to exist; for example the size and religious zeal of the Indonesian
population remains an uncertain factor in forward looking economic analyses; but generally the past
year has seen relatively few major changes from business as usual. The political struggles of the Thai
people should be seen as a potential risk but the relatively small size of the Thai economy makes the
matter mostly internal and shouldn’t add to massive global risks of economic disruption. The
situation should be watched none the less as there is always a possibility of unforeseen escalations if
warning signs are ignored.

**EDIT** The situation in Thailand has become much worse. Police have opened fire on protestors
and three were killed. A Canadian Journalist was hit in addition to a number of others. The major
source of concern surrounding the increasing tensions in the country is that it is yet another stick
being thrown on the fire of revolution around the world. As Rosa Otunbayeva, interim leader of the
recently revolted Kyrgyzstan, pointed out when referencing the revolution:

Revolution is infectious.

Russia
Russia, like it has been doing for years, looks to be relatively self-sufficient. A large population with a
sizable number of highly educated economic participants ensures that labour supply issues won’t be
a problem and a massive resource base, including some of the world’s largest oil reserves, ensures
that materials won’t be in short supply either. Additionally a strong financial position and prudent
management of central bank assets over the past decade, and in particular through the financial
fallout that began in 2007, has left the country well positioned to emerge from the crisis in a
continued position of global political and economic clout.

Risks remain in many areas of the Russian economy including questions about corruption and crime
in the many decentralized domains of the massive country. With the replacement of Putin as
president there has been a slight shift in reported acts of authoritarian policies but there seems to be
little doubt about the fact that he remains a significant player in Russian politics and economics while
acting in his position as prime minister of the Duma.

Although coverage of developments in Russia has been muted over the past six to eight months
there is still considerable ground to cover in the Western media with respect to addressing Russia as
a rational self-interested country deserving of the same respect as any other country. Until these
issues are addressed and corrected the Russian economy is likely to continue to be undervalued due
to the perceptions forwarded by a Western media that still sees red when looking at a civilization
that pre-dates every drop in the bucket excuse for a country that’s come into being in the past
millennia (see Kievan Rus, circa 988 AD).

It is apt to remember the words of the CAPITALIST Arthur Jensen [played by Ned Beatty] as he
educated Howard Beale [Peter Finch] about how the world actually works, even in ‘communist’
Russia:

13
What do you think the Russians talk about in their councils of state? Carl Marx?
They get out their linear programming charts, statistical decision theories, min and
max solutions and compute the price cost probabilities of their transactions and
investments, just like we do.

-Network, 1975; http://www.youtube.com/watch?v=3BVqIjKyJh0

The speech and the movie might be over the top but there are elements of truth in both. There
aren’t many differences between states participating in the global economy anymore. A breed of
civil society has been developing since the end of the cold war which is slowly mending the
differences between countries that had been driven by ideology for so long. As this cultural
development progresses it seems extremely likely that the undervalued Russian economy will see
respectable gains.

Central Asia
Central Asia represents the most volatile region in the world. There is no question that the vast oil
wealth of the region, the collection of totalitarian regimes, and the recent toppling of the Kyrgyzstan
government have made the area a veritable powder keg. Add to the mix a US air base in the middle
of the floundering Kyrgyzstan, some Kremlin interest in the insurgency (but claims of non-
involvement beyond broadcasting ‘facts’), the failed state of Afghanistan in the south, the nuclear
tensions tied up in Pakistani fighting, a revolution ready Iran, and a Chinese administration wary of
outside interference and instability on its usually quiet Western front and all of a sudden Lutz
Kleveman’s ‘The New Great Game’ becomes more prophetic than it was at the time of printing.

From the Chinese point of view, they would like to be able to claim that all was quiet on their
Western front. A stable central Asia offers China a direct link to oil reserves that could be piped
directly to the dragon’s heart without any chance of major outside interference in the flow of crude.
This dream remains a difficulty as China’s West, a desert away from the major population centres
along the great rivers, has lingering cultural tensions between the predominantly Han Chinese ‘new
comers’ and the Islamic minorities with ties to the Slavic populations in Central Asia and the
ethnicities of South Central Asia. At this point tensions are simmering but escalations have become
more likely since the Kyrgyzstan revolutions. Revolutionary ideas spread.

The Russians, claims Sergi Karaganov, head of Russia’s Council on Foreign Defence Policy, have
largely stayed on the side lines. He offered the following about the Kyrgyzstan problems:

Have we benefitted from the Kyrgyzstan revolution? No, because now we have
one more problem. Kyrgyzstan is a failed state, a potential source of Islamic
fundamentalism, terrorism and chaos in the region.

The Russian case does seem rational. Instability in a region that is already chaotic could escalate
quickly, especially as the West has averted its eyes, choosing to focus on Greece, oil spills, and
anything else they can get ‘News’ on that doesn’t require more than passive consumption and the
expression of sad sentiments. The Russian administration has no such luxury. The American air base
in the middle of Kyrgyzstan has been kept open long past the original temporary time frame it was
slated to exist for. American intervention in Central Asia could turn nasty fast as the US is well
known to be struggling to secure oil resources and the schizophrenic US population is liable to elect
a ‘tough’ president to follow on Obama’s consolatory demeanour. Thus volatility in the region could
easily explode into a conflict that Russia has no interest in getting into.

14
The American interests have been rather clear for the past decade. They need an air base in the
region in order to wage war in Afghanistan and only one country was willing to let them in. That was
Kyrgyzstan, a country now reeling from a revolution that started in a copper mining town. Although
the new interim leadership has not called on the Americans to close the doors of the air strip, this
could easily happen if another group takes power. It is worth mentioning that the past president
who was run out of the country was an American ally, or as close to it as ever appears in the region.
It is difficult to know exactly what would happen if the Americans lost the base in Kyrgyzstan. The
war efforts in Afghanistan would change completely as the only resupply point for troops on the
ground would be the carrier groups stationed in the Indian Ocean, and each of these re-supply
missions would require crossing Pakistan’s air space.

There is also the seldom discussed question of oil which haunts talks of US military positioning in
Central Asia. As early as the initial invasion of Afghanistan in 2001 it was well known that a side
motivation of the assault was that then Vice-President Dick Chaney had an interest in claiming
Afghanistan as an American dominion so that pipelines could be run from the Central Asian oil fields
to the ocean (and world markets, read: USA) without constant difficulties in dealing with
autonomous nations such as China, Russia, or Iran. (Pakistan through Afghanistan is the only way to
run a pipe line without very direct interference from one of those three nations.) All of this suggests
that there will be some very well funded resistance to the closure of the US air base, even if the US
administration sees it as a foreign affairs nightmare from which it would like to wake.

Unfortunately, the best way to frame the Central Asian nations is as the Balkan States, circa 1914.
They represent tremulous countries with governments seeking strength through international
alliances to global super powers; the super powers are jockeying independently to secure power
relations with the small regional governments; the region is filled with a host of self interested geo-
strategic actors; and no nation wants to see the ‘balance of power’ shift away from them. It is early
to get a complete picture of the situation but this region merits more attention than it has received
in the press over the past year or more.

Australia
There is no question that Australia looks set to prosper in the near and midterm. Massive resource
reserves, a relatively small population, costal paradise locations for tourists, and easy access to
global markets for iron ore make the country a relatively sound economic actor. Racist tendencies
surface from time to time but seem to represent only very slight risks. So long as the country is able
to confront these difficulties before any tensions brew with the larger populations of Islamic
Indonesians or Chinese / Indian trade partners there will be little chance that such intolerance causes
any real economic or political harm.

The one troubling element in the long term outlook for Australia is that they have been having
massive problems with fresh water supply. Melbourne in particular has had to confront the problem
of running out of drinking water in an all to Mad Maxian way2. The continued droughts that the
country has experienced could also cause problems if they intensify; something that is probable
given how low on the list of concerns climate change has become since the onset of the global
economic disaster that began in August 2007.

15
The Middle East
The Middle East continues to struggle with a number of difficult issues. Israeli and Palestinian back
and forth has been subdued when compared to the high tensions of the past ten years but
continued violence has been plaguing both sides. A recent very public assassination debacle by
Israeli security force MOSAD has probably ratcheted up underlying stress in the region, but that has
yet to have any visible effects. In all likelihood the Arab states just see it as standard practice for
Israel, which might actually dampen the effects. Syria has been relatively quiet since getting their
army forced out of Lebanon and having a suspected nuclear site bombed by Israeli airplanes.

Iran has been one of the most politically volatile countries in the region over the past decade. The
mass uprising and the relatively violent state suppression of opposition protestors has fuelled
speculation of another revolution brewing in the Islamic state. This potential could cause tremors in
the whole region. Regardless of the countries international relations and the brinksmanship
practiced by Ahmadinejad over the course of his terms in office, Iran still represents one of the most
stable Gulf States. A failure of their government doesn’t seem to be desirable for even the worst of
Iran’s enemies. This is probably because of the very real possibility that an even more extreme
faction will take power in the country. A disturbing potential as the country’s nuclear research
continues in what could be the late stages of weaponizing; a claim repeated dodged by Ahmadinejad
and his administration but which has been under constant pressure since about 2003.

Saudi Arabia has been surprisingly active in international press coverage terms over the past year or
so. The normally reclusive kingdom has made a number of waves in good and bad ways. Most
significantly the Saudis have begun to become concerned about the situation facing Yemen as the
costal state shares a large boarder with Saudi.

Iraq has been unusually quiet in the news over the past six months or so. It is probable that the
English media is just plain worn out of reporting the violence but it also seems to have slowed over
the winter months like most years. Casual notes point to continued difficulties between the three
major ethnic groups in the country and the possibility that they are manoeuvring in preparation for a
US withdraw is all too real. It is hard to forget that it took relatively little time for the Kurds of
Northern Iraq to organize a 150,000 man strong armed force to patrol the region.

Turkey has been struggling with very typical Turkish problems. The secular military and the Islamic
political parties have been at odds recently and the Kurdish groups in the South continue to flare up
in separatist ways, fuelled by men, guns, and money from their brethren in Northern Iraq. No doubt
the Turkish authorities are wringing their hands over the prospect of a US withdrawal from Iraq and
what could quite easily become a Kurdish drive for autonomy from the three major countries in
which they are spread. “Kurdistan” seems to resonate with many people in Northern Iraq, Southern
Turkey, and Western Iran.

Africa
Africa remains largely unchanged in terms of the course it appears to be taking. Regional difficulties,
including significant problems in the Congo, Uganda, Sudan, and Somalia remain unresolved while
tensions in Rwanda, Zimbabwe, Guiana, Ethiopia, Nigeria, and a number of other nations continue
to run high. Unfortunately for African residents, this is, and has been for a number of decades,
business as usual.

16
One striking development involves the early stages of Chinese investment in African nations. These
have primarily been in East African countries, such as Zambia, but the Chinese administration has
made no secret that it views sound relations with African nations as important foreign relations
targets to be met in order to secure resource streams for the expected continuation of Chinese
economic expansion. A novel element of this policy of relationship building is that the Chinese are
taking risks and investing in resource processing facilities located in the countries that have the
resources. It is clear that the Chinese have learned from European colonialism and American
globalization efforts and have calculated that the risks that a foreign country will cut ties with
Chinese investors is minimal if enough good will exists from the shared benefits of economic growth
which come along with choosing to locate resource processing facilities abroad. Only time will tell if
this policy, along with the rather contentious policy of dealing with Sudan, will reap the rewards that
are expected.

Another development of note is that the growing race to secure oil reserves has brought added
focus on Africa. Although some of the North African countries have long been known to contain
valuable reserves, with access to the Red Sea and the Mediterranean Sea, the African oil story is
really unfolding on the West Coast. International attention has been diverted from this region for
the past decade or so with only slight attention drawn from the British organized, South African
staffed, Zimbabwe disrupted coup attempt on Equatorial Guinea years back along with the pesky
flare ups of the Nigerian oil work force. It isn’t well understood why this is the case. It’s possible
that the area has already been spoken for as a protectorate of types but that is far from certain.
What does seem evident is that it seems like an ideal region for the US to seek trade partners
because of the easy shipping route from West Africa to the Gulf of Mexico and because of the large
numbers of American citizens who could be sent to Africa on business who have ancestral ties to the
region. With smart political and business efforts this trade could be quite profitable for all countries
involved.

A closing African note involves the rising tensions around the mouth of the Red Sea. Somali pirates
have been acting up enough to draw increase global attention and now Yemenis factions are
beginning to flex their muscles on a global scale. If the two nationalities, linked by Islamic ties, were
to begin to seriously organize there is a strong chance they could effectively shut down Red Sea
shipping. This may be fanciful at present but the costs of having global trade routes compromised
makes the possibility of escalating tensions quite an economic risk.

Europe
Despite the noise about the troubles in Europe the outlook for the EU is rather positive, meaning
that investments there are probably undervalued. In the same way that the English language press
suffers from the linger vestiges of an editorial staff that grew up with a red scare, the last of the free
market drones are discolouring the perspectives of English investors and politicians.

The European Union is pulling together, if grudgingly. They are reacting with civility, compassion and
unity. The bankers and the politicians are working hard to help mitigate the suffering of the Greeks
and the Greeks seem to be enrolled in the school of financial hard knocks to learn about debt. The
efforts, which seem to be lead by the Germans and the French are commendable. Angela Merkel is
displaying stern motherly compassion for which she is no doubt under appreciated. This crisis seems
to be, completely in contradiction to major English publication pundits, bringing Europe together in a
way that would have been unthinkable before. It is possible that the EU will come out of this crisis
more united than when it entered, even if the Germans pick up a Greek island or two in the chaos. A

17
lot of this depends on the compassion of those Europeans who weathered the storm and the thanks
offered by those who did not.

A closing bright spot for the EU is a small rumour that Dominique Straus-Khan (DS-K), former French
Socialist politician and current lead at the IMF, could return to his home country to run for top office.
If this happens it would be a significant gain for the EU, even if he isn’t successful. DS-K has done an
excellent job reforming the IMF and it would be hoped that some of the better points of the IMF’s
rather right wing staff added to his (DS-Ks) understanding of economics. It’s probable that he has
developed an understanding of global finance that no one else has ever been able to achieve.
Bringing this understanding to the public over the course of an election might be intellectually
revolutionary.

Central America and the Caribbean


Central America and the Caribbean, regions far too often ignored by global economic analysis, offers
a very interesting set of case studies. The many different islands each have distinct strategies for
dealing with space concerns, idyllic tourist settings, and a selection of different natural economic
endowments. The collection of isthmus countries have similar concerns but also have to deal with
having neighbours and being caught in the nasty position of being staging areas for black market
importation into Mexico and the Southern US. And then Panama has North Americans most
significant waterway.

With the exception of the crumbling social order in Haiti most of the countries in this region look set
to continue with the economic conditions they’ve been seeing for a decade or so now. Slight risks of
conflict are present in Panama as it represents a major trade route for a number of different trans-
national interests as well as representing THE choke point for the US navy. It is surely a long
standing nightmare of the Admiralty in America that conflict, natural disaster, or construction failure
ruins the canal and divides the fleet.

South America
Somehow South America seems to consistently be left off of the global radar. In some ways the
people of these countries have benefited from the lack of attention but investors would be well
advised to consider exactly how much of an effect this has had on depressing asset values in all of
the South American countries.

Brazil is clearly the leading economy on the continent. With wood, iron ore, people, proprietary
advanced nuclear technology, and now an off shore oil reserve of mammoth proportions the country
is looking set to move forward for many decades. Risks remain in the massive violent cities of Sao
Paulo and Rio, and to a lesser extent the capital Brasilia, but these are not the type of issues that
haven’t been confronted by nations in the past. It is well noted that London, Paris, New York, and a
number of other cities have had slums in the past and have seen them clear up through all manner of
different mechanisms. It’s also important for investors to remember that slums are sources of
creativity, innovation, determination, and entrepnurialisim. Even more important is that the living
conditions in Brazils fevelas, along with the size of each, means that there are many basic products
which are already being produced in the rest of the world that could easily be sold to those in need
to make their lives better. This is not charity, it is an investment opportunity which requires finding
basic products (toothbrushes?) which already have mass production infrastructure in place and can
be sold at near cost to millions of people.

18
Argentina, Chile, and Peru seem to be continuing on with solid, if not spectacular, economic
performance. The days of disappearances seem to finally be receding into distant memories and the
financial performance of each country has levelled enough to continue to improved credibility.

Columbia continues to be devastated by the war on drugs. No easy solution exists to the three party
war that has been going on since Regan decided that cocaine was morally wrong. After so many
years of enforced prohibition powerful interests have developed on both sides who are profiting
from the war and have little interest to see it fade. Additional tensions between Colombian
administrations, the FAC, and the Chavez administration in Venezuela continue to ratchet up the
conflict on the Eastern boarder of Columbia.

Venezuela remains firmly in the grip of president Hugo Chavez. His populist governance style seems
to still be pulling weight with the people but his forced retreat from anti-Bush showmanship to the
day to day grind of actually governing seems to have shown quite clearly where his skills really sit.
On a global scale the country continues to court allies in a loosely developed anti-American camp. It
seems probable that the election of Obama has been responsible for the loss of momentum for this
group. Regardless, Venezuela continues to be strongly tied to Iran, Russia, and Cuba which is a
positive thing in economic terms. This limited set of trade partners probably reap considerable gains
from their global network even if the trust that has been formed was done at a time when economic
benefits were trumped by political strategies.

19
What’s missing?
These last sections consider three issues which are likely to be central in the economic and political
landscape in the coming century but have been sidelined by the daily news. Consideration of these
factors isn’t essential or pressing but must be remembered in forward looking decision making.

Power is Under Priced


Chances are that power prices around the world are vastly underpriced. As we begin to gain a better
understanding of just how difficult it is to maintain power infrastructures in even moderately
environmentally sustainable ways, it is becoming clear that the distribution and creation of power
has been under priced.

The massive blackout of the Eastern Seaboard of North America gave an early warning about how
well the Western world can operate without power distribution. ‘Off grid’ thinking has only grown
since that disturbing demonstration. Chances are that regions that have been used to state
monopolies on power generation and transmission stand to be hit the hardest. Ontario in particular
has a long history of power pricing subsidies that the public doesn’t even know exist.

A rule of thumb when doing any kind of economic analysis would be to consider the effects of an
instant doubling or quadrupling of electrical power prices. This will reveal specific sensitivities to
unexpected up swings in power pricing.

Water Supplies are Short


The supply of fresh water around the world has been an issue of growing importance for years now.
Stories of shortages and disputes arise from time to time in the news media but are usually given
little attention. The public has little concern about problems that other people have getting drinking
water so long as their taps still pour out potable liquid. What is being missed is just how wide spread
the problems have become. Running down the list of complaints which have surfaced in the
international press shows the global nature of the problem.

Disputes have arisen between the Mexicans and US interests.

The flow of the Nile is heavily regulated by the 10 nations which have access to its waters, being lead
by Egypt which has the most to lose and the most force to bring to bear on countries that shriek
their agreements.

A number of Chinese waterways face pressure from growing populations. Most notably the Mekong
has been disputed by the nations downstream from China including Laos, Thailand, and Cambodia,
Vietnam.

Melbourne is having problems with depleted aqueducts.

A number of Persian Gulf States have been investing heavily in desalination technology to satisfy
growing demand from increasingly wealthy and assertive populations.

Bolivia had significant problems with fresh water supply when Bechtel attempted to gain a strangle
hold on all of the water flowing in the country.

20
Florida and California have almost no fresh water left. California has even reached the point of
burning every year. It might be worth beginning to consider how much water has been exported in
connection with years of trade in fruit and vegetables, both water rich products (the watermelon
trade is a dead give away from this angle).

Humans can’t go more than about 24 hours without water under normal circumstances. Notions of
rights to fresh water are utopian. Rights to anything only exist so long as supplies of that thing are
abundant, all bets are off when vast numbers of people are unable to find water.

Climate Change Research Sidelined


Regardless of the public humiliation that climate change science has suffered in the past year the
fact remains that the world appears to be continually warming. The hot winter of 2010 has been lost
in the public memory thanks to a chill that is clinging to North America. Yet it needs to be
remembered that Montreal only got three significant snowfalls over the winter of 2010 and one of
them was in late April.

What seems to be consistently misunderstood is exactly what ‘climate change’ really means. Climate
change science, despite the near obsessive focus on warming effects of green house gasses, is about
trying to understand how human activity changes the planets climate, aka: weather. Even the most
ardent green house gas researchers will (should) note that heating is not the only problem, nor the
only effect which human produced emissions are having on the climate. What is a problem is fast, in
geological terms, changes to climate stability. The environment can and will adjust to changes so
long as they aren’t fast enough to be considered shocks.

The real focus of climate change research should be, and seems to be, on the fact that from all
accounts temperatures have fluctuated in a certain range; even the ice ages didn’t cause deviations
from these ranges like what we have begun to discover in the past two hundred years. Despite error
considerations and what seems like some good old academic protectionism, the fact remains that
since the industrial revolution there has been a disturbance in the environmental status quo which
has been accelerating exponentially. Even errors and manipulation could only reduce this fact to
slightly lower rates of exponential change, which is akin to a doctor saying ‘There’s good news, the
patient isn’t as dead as I thought he was’.

A necessary and simple way of looking at the problem of climate change is as follows. Around the
turn of the 19th century, as the industrial revolution took hold of massive parts of the world,
humanity began burning ‘things’ faster than ever. This burning accelerated astronomically with the
advent and popularisation of travel based on the internal combustion engine. Now it just might be
possible that the heat from all this burning is catching up with us, literally.

21
Appendices
Appendix A - US Unemployment
Unemployment in the US is probably the biggest single risk to the global economy. It is well
documented that throughout the history of civilization negative economic shocks such as
unemployment, decreasing standards of living, excessive debt, and inflation (the loss of wealth
thought to be secure) all contribute to civil unrest. For this reason an initial analysis of the
unemployment in the US needs to be as factual as possible. That is the intention of this first
Appendix.

It must be noted that all reported unemployment numbers are misleading. It has been a long
standing tradition, based on sound economic principles, that the US reports only a portion of the
unemployment. Loosely, the reported number is a tally of people in the US, between the ages of 18
and 65, who are willing and able to work, are actively seeking work, and have been unemployed for
no more than six months. This represents a very clear problem when evaluating the severity of the
US labour market conditions because unemployment rates, as reported today, significantly
understate the size of the unemployed segment of society as compared to the numbers reported
and estimated from the Great Depression. As a rule of thumb adding 5 percentage points to the
current reported unemployment rates gives a rate which can be compared to the Great Depression
reports. This addition has not been done in this report.

The data set collected and analysed was taken from the publicly available information on US census
and Bureau of Labour Statistics websites (http://www.census.gov/popest/counties/ and
http://data.bls.gov/map/servlet/map.servlet.MapToolServlet?survey=la). This report makes no claims
at understanding the collection methodology nor being able to analyse the validity of the numbers.
This report only analyses the data which was collected. All data sets, in a more workable format, are
available to any interested party by request. This is done in order to ensure that the analysis is
correct by offering others the chance to reproduce the results.

The goal of this analysis was to gain insight into the geographic component of the stock of
unemployed people in the US. This is in contrast to the two methods of reporting on the labour
market that are most frequently used; the reporting of unemployment rates, the percentage of the
population in any region that is unemployed, and unemployment flow data, changes in the levels of
unemployment stock by region.

These reporting methods consistently leave much to be desired. Regions where high unemployment
rates prevail rarely have high numbers of unemployed people because they usually have such small
populations. That the unemployment rates can rise abnormally from standard economic business
cycle events, like the closing of a factory or the failure of a local business, shows how small
populations can see extremely elevated unemployment for short periods of time and how this is not
problematic. Flows are even more deceiving because of the fact that they are consistently
presented as valid indicators of the broad economic health when in reality they are simply indications
of, usually short term, trends. Recent examples of this abound as recent flow changes look positive
but only because they are compared to the devastation of the past years and the stock of
unemployed people who still need work are not considered.

To speed the analysis and to gain a graphical perspective on the unemployment situation in the US
three categories were developed based on relatively arbitrary divisions. These divisions are: A. ‘Hot

22
Counties’ – counties with more than 150,000 unemployed people. B. ‘Simmering Counties’ –
counties with between 20,000 and 150,000 unemployed people. C. ‘No Classification’ – counties with
less than 20,000 unemployed people. The divisions were mapped, county by county, on state maps
downloaded from the Perry – Castaneda Library Map Collection at the University of Texas. The
colour code applied indicates a ‘hot county’ by colouring it red and indicates ‘simmering counties’ by
colouring them yellow.

From this the following observations were made:

1. The first observation is hardly unexpected. The largest concentrations of unemployed


people in the US are centred on the major urban centres. There is almost no large city in the
US which doesn’t have a concentration of unemployed people in the city or surrounding
county.
2. Counties which reported high unemployment rates almost invariably had low over all stocks
of unemployed people. This has striking implications because of the fact that policy makers
in the US seem to have been making decisions based primarily on assisting regions with high
rates of unemployment while ignoring those with high numbers of unemployed people but
lower rates of unemployment.
3. On a state by state level, a number of states have avoided building up large stocks of
unemployed people.
4. Some states have massive numbers of unemployed people.
5. A number of high unemployment geographic regions stick out which cross state lines in
many cases.

Analysis
NOTE: Data for DC was not found in time for submission to this report.

It is easiest to start by identifying states which have somehow avoided building up swaths of
unemployed people. The following tables contain lists of states which contain either few or no
counties which are ‘simmering’ (as of February 2010.)

States without Simmering Counties

Hawaii Montana North Dakota South Dakota


Vermont West Virginia Wyoming

States with 5 or less “Simmering Counties” AND no proximity to unemployment centres

Alabama Alaska Arkansas Idaho Iowa


Kansas Kentucky Louisiana Maine Minnesota
Mississippi Nebraska New Hampshire New Mexico Oklahoma
Tennessee Utah

From an economic perspective it is probable that these states have weathered the storm well for a
reason. Finding out why would likely give an indication about how well they will do in the future by
determining if they are able to continue as they had been.

23
The next set of states that are parsed out are the ones which are facing very serious unemployment
problems. These states are ones that have either ‘hot counties’ (+150,000 unemployed people in the
county) or states that have high levels of unemployment spread between counties. Smaller states
such as Rhode Island are included here because of their proximity to other massive pools of
unemployed people. This is done because it is assumed that the small regional distribution of
unemployed people will have significant effects on the stability of states in the coming decade.

States without “Hot Counties” not included in the lists above

Colorado Connecticut Delaware Georgia


Indiana Maryland Massachusetts Missouri
New Jersey North Carolina Ohio Oregon
Rhode Island South Carolina Virginia Wisconsin

States with “Hot Counties”

Arizona California
Florida Illinois
Michigan Nevada
New York Pennsylvania
Texas Washington

Regional Components of Unemployment Concentrations


An analysis of the above troubled states shows that a number of larger regional concentrations
seems to have materialized as the free flow of labour has largely ignored state boundaries. These
regions are loosely summarized below.

South West Coast


States: California, Arizona, Nevada

Population Unemployed people Unemployment Rate


Regional Total 46,200,527 5,736,065 12.42 %
Hot County Total 31,590,009 3,739,392 11.84 %
Simmering County Total 12,585,378 1,711,538 13.60 %
(Hot County Total is the number of people / unemployed people residing in hot counties. Simmering County Total is the number of people
/ unemployed people residing in simmering counties.)

North West Coast


States: Washington, Oregon

Population Unemployed people Unemployment Rate


Regional Total 10,489,852 1,142,754 10.89 %
Hot County Total 1,916,441 166,730 8.70 %
Simmering County Total 6,002,743 664,974 11.08 %

24
Central
States: Colorado

Population Unemployed people Unemployment Rate


Regional Total 5,024,748 417,040 8.30 %
Hot County Total - - -
Simmering County Total 3,311,304 281,822 8.50 %

Texas
States: Texas

Population Unemployed people Unemployment Rate


Regional Total 24,782,302 2,082,076 8.40 %
Hot County Total 8,312,619 714,590 8.60 %
Simmering County Total 9,354,854 790,671 8.45 %

South East
States: Georgia, Florida, North Carolina, South Carolina

Population Unemployed people Unemployment Rate


Regional Total 42,309,306 5,046,381 11.93 %
Hot County Total 6,742,368 783,869 11.63 %
Simmering County Total 21,154,174 2,517,451 11.90 %

The Mid-West
States: Michigan, Illinois, Wisconsin, Ohio, Indiana

Population Unemployed people Unemployment Rate


Regional Total 46,500,668 5,677,174 12.21 %
Hot County Total 8,418,393 1,076,733 12.79 %
Simmering County Total 20,514,256 2,451,529 11.95 %

The North East


States: Maryland, Delaware, Pennsylvania, New Jersey, New York, Rhode Island, Massachusetts,
Connecticut

Population Unemployed people Unemployment Rate


Regional Total 58,603,643 5,809,812 9.91 %

25
Hot County Total 7,818,394 863,068 11.04 %
Simmering County Total 40,131,457 3,880,234 9.67 %

Distilling this information once again identifies exactly where the real problem areas are in the US;
the North East, the South East, The Mid-West, and the South West. Each of these regions has more
than 5 million unemployed people (5.8 million, 5.0 million, 5.7 million, and 5.7 million respectively).
This is a massive stock of people who don’t have any income and don’t have anything to do all day.
Thus the question arises: ‘what exactly are these 22.2 million people doing all day?’

Appendix B - Tea Party


The ‘Tea Party’ is a difficult movement to pin down. It is not, as many of the self described members
might claim, a grass roots movement. The recent history of the Tea Party can be traced to an
appearance on CNBC by Rick Santelli3 where he suggested that in June 2009 Chicago should have a
new Tea Party on Lake Michigan. From there Fox NEWS and a company called FreedomWorks took
over the organizational elements of the movement to put together what turned into the ‘9/12 march
on Washington, DC’. The march was massive, a parks services count putting attendance at around
1.2 million people. Observation of the numbers makes that sound like a high side estimate. These
protests were specifically made to have the appearance of being grass roots and spontaneity but the
use of a major TV network and a company headed by some of the elite of the US to mobilize support
makes those claims specious at best.4

Reaching further back, only slightly at that, finds another figure at a central point in the development
of the movement that has become an organization. Texas Congressman Ron Paul carries a lot of
weight with the Tea Party movement. His straight talking, small government, no holds barred run for
the GOP presidential nomination in 2008 saw him taking the spotlight in a number of events (even if
the media tried not to give it to him), including a host of all candidates debates. The other GOP
candidates fell flat in response to his direct and challenging statements. Educated observers of the
debacles set in motion by Paul could clearly pick out the fact that other candidates were so off
balance that they resorted to ridicule instead of addressing Paul’s, quite on point, concerns.

As a politician and a leader, Paul could loosely be described as a Libertarian. He advocates local
governance with minimal centralized powers. A number of his positions could well be termed
‘Regionalisim’ in their nature and draw on converging thoughts about local governance.
Unfortunately advocating increases in local powers and diminutions of federal authorities has left a
vacuum in Paul’s understanding of global finance, governance, and international relations. His
hostility to the Federal Reserve is particularly disturbing because as he bemoans the system of fiat
currencies currently being practiced it becomes glaringly obvious that he is doing so with gaping
holes in his knowledge. The general nature of his complaints and his failure to address point by point
criticisms exposes these holes. The problem with his complaints is not that he is questioning what is
or has been happening, it is that he is doing so without performing the due diligence of reading a
selection of the publicly available material from the organizations he attacks. His understanding of
monetary policy is basic at best yet he advocates sweeping reforms that would make the New Deal
look like a pork laden rider that no one noticed.

The broader Tea Party organization that has developed from Paul and Fox News bears much in
common with Paul’s politicking. There are a number of good ideas, sound fiscal positions based on
avoiding deficit spending and cutting out a number of redundant entitlements. Unfortunately

26
whereas Paul is strikingly in need of study on topics he doesn’t understand well, the broader Tea
Party is just plain ignorant to a number of issues that require a sound basis in study, critical thought,
and global understanding.

But the Tea Baggers are not well known for their intellectual prowess, their name itself, an urban
slang term for a sexual act, betrays their lack of computer literacy; early searches for ‘Tea Baggers’
would have resulted in very different results than they would today. It is this ignorance which makes
the Tea Party an extremely wild card in any evaluation of the US and, by extension, the global
economy.

They [the tea baggers] have no agreed platform and no unified national orginisation.

-Economist; Feb. 13, 2010

they [tea baggers] see themselves as revolutionaries ... They want to ‘take back’ an
America which they say has been going wrong for generations.

-ibid

[Colorado Rep. Representative Tom] Tancredo denounced the ‘cult of


multiculturalism’ and accused immigrants of swamping America’s Judeo-Christian
values. ‘This is our country,’ he declared to wild cheers, ‘Take it back!’

-ibid

A revolutionary group, with not so subtle racist tendencies, no actual platform, and an ignorance
that seems to think that ‘immigrants’ in the US are not Christian is a particularly bad mix. The level of
ignorance is astounding; they don’t seem to realize that Mexico has more Catholics per capita than
almost any region of the US.

But this casual observation begs to question exactly how much the Tea Party is really gaining from
the use of radical racial rhetoric? Or how much of the rhetoric could be broadly categorized as
“scapegoating”, be it toward immigrants, bankers, or liberals. History has shown that a people who
are economically imperilled and ill educated will be easily swayed to action against easy targets by
leadership who are willing to provide targets for the angry, impoverished, and heavily armed.

... which leads nicely to Sara Palin.

Although she has yet to officially become a leader of a segment of the Tea Party she has an avid
following in the group. She has delivered a number of speeches to adoring supporters in the party
and continues to comment on their recent victories in the GOP primaries. This is disturbing because
she is absolutely ignorant to history and the global interactions of government, business, and NGOs.
Her ignorance has left her the subject of an FBI investigation after a number of her comments, and
those of other public figures of prominence on the Republican side of publicity, were seen to be
inciting political violence that materialized around the signing of Obama’s health care reforms.

“Democrats decried heated Republican rhetoric, including 2008 vice presidential


nominee Sarah Palin's Twitter comment urging supporters, "Don't Retreat,
Instead -- RELOAD."

27
A Palin Facebook post continued the firearms theme, featuring a U.S. map
targeting 20 members of Congress who backed the healthcare legislation, using
the crosshairs of a gunsight to note each of their home states.”

-Reuters Canada, March 24, 2010

These difficulties are a real shame because there are many elements of Sara Palin’s Wassila
sensibilities which are needed to bring reality to roost in a set of North American (Western?)
leadership; a leadership which has never worried about having enough money in their bank accounts
to cover the groceries they are trying to buy; many of whom might even be at a complete loss
navigating the aisles of the same. The act of governance, and even leadership in business, requires
an understanding of the broader population which has long been ignored by those setting policy.
This isn’t about giving lip service to ‘the working people’ of a nation, it is about joining them, about
bending down to do a bit of physical labour before telling people the best way to do physical labour
or commenting on how much money labour should be getting.

From across the ocean a recent article in the BBC does a good job of examining these diverse
tensions that are playing out in the formation of the budding Tea Party rule book.

Workshops included "US Govt Bankruptcy - Facts for Citizens Who Don't Have
Finance Degrees" and seminars such as "Comparisons between the current
administration and the Marxist dictators of Latin America".

-BBC, http://news.bbc.co.uk/2/hi/americas/8503348.stm

As can be seen above, the group is well aware of the fact that the US government is bankrupt but
they are joining the discussion through red tinted glasses and with the memory of gnats. Yes, the
federal government is broke, no it doesn’t really have anything to do with the Obama administration,
Marxists, or apologizing. The source of the bankruptcy can easily be traced back to about 1975 or
earlier, when the consolidated debt outstanding (sum of debt held by all segments of US society) in
the US reached 150% of GDP (as per Z1 reports on debt outstanding published by the Federal
Reserve).

The financial obfuscation, a result of debt decentralization, is not the ‘fault’ of anyone but is simply a
consequence of advanced financial markets. The ability of individuals, organizations, and
municipalities to participate in debt markets in North America is unrivaled in the developing world.
This means that traditional methods of evaluating the financial health of a country fall flat because
they only look at the position of the Federal government of a region. This has resulted in the
inflation of consolidated debt, the sum of debt held by all segments of a country, to levels that
would have set off warning bells decades ago if they had been reported as debt obligations of
federal governments.

“We have a president that goes around apologising for us. For what? If it wasn't for
us most of the countries out there would be destroyed," she [Gail Dorody, an
Illinois Truck driver] says.

-ibid

The ignorance displayed by members of the Tea Party who feel that apologizing for Americans is a
bad idea shows exactly how closed a portion of the membership is to anything outside of their

28
region. These feelings, that there is no need to apologize, shows that they have yet to come to
terms with the fact that the war in Iraq, the death of millions of people, and the outright LOSS of
that conflict has left the country broke and without allies in the international community. Accepting
that there is a very valid case for international prosecution of members of the Bush administration
would be a first step to realizing exactly how much of the global chaos that is unfolding right now is
due to the policies enacted in the name of the Tea Party members, policies they very clearly
supported by voting G.W. Bush into office a second term.

Yet it must be accepted that these feelings, that the US has somehow saved most of the countries in
the world, are broadly prevalent in some of the sizable backwards pockets of the US; and these are
the people who are moving on Washington to ‘take it back’.

"The goal is to take over the carcass of the Republican party and reform it
according to its original principles. They were good principles, ones we all believed
in," says Dr [Dan] Eichenbaum [running in North Carolina’s Republican
congressional primary].

-ibid

This is probably one of the most telling lines of the whole article. The Tea Party is devoutly
Republican, and much of the ire being vented by the members is directed at some unseen ‘other
Republican’ who have corrupted the party. The Tea Party represents not American infighting, but
Republican infighting. What is still to be seen is exactly what this amorphous group will do if they
gain sizeable representation in the Republican Party. Another telling part of this quote is that a
doctor, a supposedly upstanding and educated member of society, is unaware that his support for
some unidentified ‘principles’ is pandering populism. Until these principles are clearly laid out the
movement will remain little more than that, even if they win the presidency.

Current Advances

The GOP primaries for the 2010 midterm elections are currently underway and the Tea Party, or
representatives strongly backed by the organization, is gaining significant ground.

To date only three GOP primary victories have gone to Tea Party members or RNC party members
backed heavily by the Tea Party. These victories are as follows: Rand Paul has won GOP nomination
as a Senatorial candidate in Kentucky; Sharron Angle has won the GOP nomination as a Senatorial
candidate in Nevada; and Raul Labrador has won the GOP nomination as a House Representative
candidate in Idaho. Additionally, in Utah an incumbent Rep. Senator was ousted in party primaries
by Tea Party backed Mike Lee and another candidate.

Rand Paul, Texas congressman Ron Paul’s son, has made waves outside of the GOP even before his
victory. In January the Economist was aware of his presence and even quoted him on a number of
issues.

Mr. Paul junior spent his student years in North Carolina agitating against taxes,
and his campaign is heavily staffed by founders of a local ‘tea party’

-“Strange Meetings”, The Economist, January 30, 2010

Rand, much like his father, blends populism and insight. As will be addressed later, Rand’s comments
about the state of the US dollar and the possibilities of extreme governments are on point.

29
“What happens to our country when you destroy a currency? Out of the
Weimar Republic, they elected Hitler.”

-Rand Paul, ibid

As alarmist as this may sound it is far from off base, the situation in the US is dire and the success of
the Tea Party stands as an ironic confirmation of Rand Paul’s fears.

Similarities

“But the current wave bears similarities to the 1890s and 1930s. Back then,
populists drew strength from anger with bankers and their government
enablers for impoverishing workers, farmers and businessmen.”

-ibid

As with any analysis the past offers an insight into the present and suggests the future. The Tea
Party and many of the leadership personalities, much like the economic circumstances of today, bear
similarities to many events, groups, and people of the past. But these similarities are just similarities,
shared traits that are suggestive at best. In all cases it must be clearly stated that similarities don’t
mean that history will repeat itself; it would be naive and dangerous to imply this. Instead similarities
offer tools, starting points even, from which a set of future scenarios can be derived. This is
important to keep in mind as many of the similarities of the current period hearken back to some of
the worst times in recent history. To imply that these things WILL happen again is alarmist but to
ignore the fact that something similar COULD happen is to be dismissive.

The most disturbing features of the Tea Party movement are those that it shares with the early years
of Fascism. For example, the following quotes are all easily applicable to the situation in the US
today with some slight modification to the groups, regions, and people being described.

A violent nationalism soon engulfed much of Germany, a nationalism bitterly


hostile to other nations and races, and to any creed of pacifism or
internationalism.

-“The Rise of Fascism”, FL Carsten, 1982, University of California Press

The economic crisis had set in, the number of unemployed mounted quickly, and
the future was to lie with those who stood for extremist solutions.

-ibid

None of them [Fascists] made a serious attempt to develop a Fascist philosophy


or spent much time on theoretical pursuit.

-ibid

Each individual experienced an exaltation of his ego, he was no longer the


isolated person of former times, he had been incorporated into the mass, he
was part of the people, and his person, his hitherto unnoticed person, had been
given meaning.

-Steven Zweig, Austrian writer, ibid.

30
Additionally, the regional nature of the Tea Party is strikingly similar to how the Fascist began after
the First World War. Both Hitler and Mussolini began their groups of political thugs in tight knit
groups associated with cities; Munich was the seat of National Socialist power and Mussolini out of
Northern Italy.

Outstanding Questions

The advances of the Tea Party leave many questions unanswered. No one seems to know exactly
how well they will do. No one seems to even speculate about what any significant gains by the party
would mean.

It is possible that the 2010 mid-terms will simply be the beginning of a more assertive Tea Party in the
run up to the 2012 election where they would demand higher posts in the Republican Party. It is also
possible that the elected representatives will continue their populous bent and will cause havoc for
the old guard republicans (termed Rino’s, Republicans In Name Only, by some Tea Party members).

In more broad terms, the accent of the Tea Party can be seen as a bit of a measure for the depth and
breadth of anger in the voting public. As noted in the previously referenced January 30th, 2010
Economist article,

“One of the few things populists of both the left and the right agree on is that
bankers have been rescued at the expense of ordinary Americans, with the Fed’s
help.”

“Strange Meeting”, The Economist, January 30th, 2010

The Tea Party is acting as a bit of a catch all group for those who are disaffected, that’s why its
progress could work so well to judge public sentiment. What Ron Paul’s record setting single day of
fundraising, $4.2 million over 24 hours, seems to show is that there are many people who are mad as
hell and have funds to back their emotions.5

There are even more difficult questions that are raised when looking at the Tea Party and how it has
gained traction. It is worth asking of a group based on an event of years past which claimed ‘No
taxation without representation’, will the Tea Party members simply stop paying taxes? What would
happen if they did? The IRS and other federal branches of government simply do not have the
resources to chase after any sizable organized ‘protest’ against taxes.

Appendix C - Civil Unrest Scenarios


The most difficult and speculative part of this economic analysis is to evaluate the chances that civil
unrest swells to become a global economic concern. This analysis is something which should be
included in every forward looking economic analysis, those without are simply avoiding reality. This
can be said because putting together the many tensions, political and economic, in so many different
parts of the world can only lead one to begin to consider exactly what the results of the depression
that started in August 2007 really are.

What is particularly troubling is that the references to the Great Depression began early in the crisis,
in about November 2008, yet it has taken nearly a year and a half for people to address the difficulty
with the association. If the crisis bears striking similarity to the Great Depression shouldn’t we be
preparing for global economic conditions which occurred after the Great Depression?

31
Clearly denial is a great instrument to protect people from hard questions like this but it is also a
good way to ensure that history repeats itself. The only way to avoid a repeat of the mistakes of the
past is to address them as soon as possible in a rational and calm way. This is to say decision makers
around the globe need to begin considering not only what the chances of a large scale global conflict
erupting are but also what types of contingency plans need to be in place given a number of
different possible scenarios. Those decision makers that do this early will be the ones who are in the
best position to respond to any outcomes that do materialize, no matter how shocking they might
be.

Trends that lead to Unrest

The following is a summary of observed events which have commonly lead to civil unrest in the
recorded past.

-Massive gaps between the highest and -Decreases in living standards


lowest standard of living in a nation -Multi-polar struggles for power
-Extreme debt obligations -The adoption of pre-emptive aggression as a
-Militaristic population tactic
-Extreme unemployment -Concentrations of political power, wealth, or
-Economic down turns media influence
-The application of Realpolitik as stratagem by -The exploitation of divisive moral issues to
decision makers enflame adherents
-Narrow minded politicians -Hunger
-Greedy and power hungry decision makers -Returning military divisions
-Other successful revolutions -Battles for control of the Senate
-Exploited Ignorance

All of these factors are currently present in the US, some more so than others, a number of them
many times over.

Possible Scenarios

The following are a selection of scenarios which could unfold if civil unrest materializes in the US.
These were chosen because of the focus of this report on the economic conditions of the US,
specifically the analysis of the unemployment data. It should be understood that these scenarios
represent only a fraction of possible future events and that civil unrest should not be viewed as a
strictly US concern.

Growth ‘Black hole’

There is a possibility that the US experiences prolonged stagnation regardless of the amount
of capital injected into the economy. One way that this could happen is that the stubborn US
population refuses to accept help, advice, and/or leadership from those in the position to
give it and as a result nothing changes, nothing grows, and nothing really comes out of the
country for a number of years.

This could be seen as somewhat similar to the ‘Lost Decade’ in Japan and would be
extremely aggravating for international holders of capital as they watch their investments
stagnate and disappear.

32
In this case civil unrest materializes as continuous political demonstration against any
number of hot button issues. The specifics of the issues will likely matter little, they could
appear trivial to most but all that is needed is enough resonance with a regional segment of
the US population to cause a small group to organize into a bigger group that then takes
action through marching and rallies. This will cause economic problems by increasing the
amount of days of missed work, increasing the costs of policing, and generally reducing
efficiencies of segments of the economy that are caught in the proximity of protests (costs
such as lost time due to traffic congestion, cleaning up after large masses of people, and
minor property damage).

It is expected that numerous acts of civil unrest will result in a number of mild violent out
breaks. Such outbreaks would be characterized by fisticuffs with the authorities, more sever
property damage, and small numbers of arrests. If these acts of violence either spiral out of
control or resonate further with more assertive political factions they could easily cause a
‘growth black hole’ to develop into massive disorganized civil unrest explosions.

Massive disorganized explosions

In this scenario tensions simply boil over in a completely uncontrolled way. Small groups
around the country rise up and assert themselves. Some would be directly confronting
established authorities, as would be expected in the gang dominated regions of Los Angeles,
others would stake claims based on small regional associations, such as a county in Michigan
declaring independence or something similar. Still others would seek out symbolic
institutions, such as banks, to bear the brunt of violence and property damage.

In this case the outcome would be expected to be very regional. Each city / county would
have different groups in conflict. Investments could be lost in a matter of days. Under this
scenario investors without an excellent regional knowledge of the conditions on the ground
where they are investing stand to lose significant portions of what they have invested.

One very disturbing possibility should these small scale events begin breaking out is that any
response of the Local, State, or Federal authorities is nearly doomed to further escalate the
situation. If the administration in power at the time of the insurrection chooses to intervene
with Federal troops then populist fears of living in a police state would be expected to
balloon regardless of which political party is in power. There are paranoid and violent
extremists on both sides of the political spectrum, thus any perceived threat to liberties is
liable to aggravate sensitivities.

This could lead those groups who follow a populist bent to begin organizing even more while
arming in case they become the subject of a similar Federal response.

For the authorities to do nothing almost ensures enough political attacks to remove the
administration from office based on their ‘weak’ response to upstarts, not to mention the
fact that the riots would continue longer than would otherwise be the case.

Coordinated Small Scale Insurrection

In late March 2010, only days after President Obama’s health care reforms passed, the FBI
raided and arrested a group of 8 militia members who were plotting to kill a police man. This
wasn’t a planned act of terrorism it was a planned act of insurrection. The group was not

33
trying to strike out at the authorities by killing a single policeman, they were more interested
in the second attack they planned to carry out on the funeral of the same officer. They
hoped that this would signal to similar armed and frustrated groups around the country to
rise up and take arms against the government. They have recently been denied conditional
release.

We don't think the conditions are satisfactory. We think the


defendants pose a danger to the public and to law enforcement in
particular. It's my duty to protect the safety of the public.

-U.S. Atty. Barbara McQuade, Los Angeles Times, May 7, 2010

The culture of militias in the US has ties to the right to bear arms. Both were intended to be
safeties against the possible ascendance of an authoritarian Federal Government. Militias
even have some amount of validity, in theoretical terms, as organizations aimed at reducing
the need for and, by extension, cost of maintaining a standing army. In historical financial
terms this is exceptionally well thought out. Many countries have fallen to the debts accrued
from maintaining a perpetual standing army. In fact, over the course of recorded history,
large standing armies are an exception to trend.

What seems to be happening is that individuals around the US have begun to see the Federal
Government as more and more authoritarian, with or without merit. This is aggravating
tensions already running high because of the economic woes spread across the country.
Such an aggravation spurs individuals to join and organize regional groups of people to resist
Federal authority.

To really understand this scenario and how it might play out it would be best to pay close
attention to the Federal initiative to investigate the recently signed police powers law in
Arizona. There is no question that groups who fear an authoritarian Federal government will
be watching how the Feds go about commenting on, or possibly acting on, the bill. This is
because it appears to be a police powers bill directly in opposition to the 4th Amendment of
the US constitution which protects citizens from unreasonable search and seizure.

The amendment specifically also requires search and arrest warrants


be judicially sanctioned and supported by probable cause.

- http://en.wikipedia.org/wiki/Fourth_Amendment_to_the_United_States_Constitution

Unfortunately this situation is a catch 22 for the Obama administration. If the administration
takes a soft line on the issue detractors will be up in arms about how the authoritarian
Democrats support a police state where individuals have lost their rights. If the
administration takes a hard line detractors will be up in arms about how the authoritarian
Democrats support a police state where regional determinism is no longer a value being up
held by the Federal Government.

Open Conflict Between Multiple Armed and Organized Groups

Open conflict is probably the worst case scenario imaginable. In this scenario two non-
governmental groups decide to attack each other in co-ordinated ways. This type of tension

34
is exactly what was seen in Iraq as Suni and Shia tensions exploded into violent organized
gangs.

For this scenario to unfold there needs to be two or more groups of economically depressed
people who have one or more differences of opinion which are held strongly enough for
them to fight to protect. A timely example recently unfolded in Phoenix, AZ as a group of
protestors voiced concern over the police powers bill mentioned above. The protest was
heated and eventually boiled over into a disturbance which was almost a riot. A single
person voiced their support for the bill, likely in a less than politically correct way, and the
crowd began to seethe. The police monitoring the rally smartly escorted the individual away
from the crowd but the crowd followed. It wasn’t long before aggressors in the crowd
began to throw bottles at the person being escorted away. From there the police and a few
members of the crowd were able to contain the outrage but only barely.

This is but one example of how the polarized population in the US is set to take sides. The
above example might loosely be described as racists v. Mexicans but it should be
remembered that there are many other groups which could be on the verge of staging
attacks on each other.

One of the major problems with two groups choosing to openly attack each other is that if
they are both willing participants then the authorities have an extremely difficult job of
defusing tensions. Not everyone can be arrested and even incarceration is but a temporary
solution to the underlying problems. Many a social aggravator has used time in prison to
harden their resolve and to write documents for use on their release. Not to mention the
fact that mass incarceration acts more like an extended networking event than a
punishment.

35
End Notes
1 - FBI probes threats over Democrats' healthcare vote

“Democrats decried heated Republican rhetoric, including 2008 vice presidential nominee Sarah
Palin's Twitter comment urging supporters, "Don't Retreat, Instead -- RELOAD."

A Palin Facebook post continued the firearms theme, featuring a U.S. map targeting 20 members of
Congress who backed the healthcare legislation, using the crosshairs of a gunsight to note each of
their home states.”

http://ca.reuters.com/article/topNews/idCATRE62O06O20100325

2 – Melbourne Water Report

A web resource detailing the rather exact capacity and current level of the water reservoirs serving
the Melbourne region.

http://www.melbournewater.com.au/content/water_storages/water_report/water_report.asp?bhcp
=1

3 – Rick Santelli Calls for a Chicago Tea Party

http://www.cnbc.com/id/15840232?video=1039849853

4 – 9/12, the Tea Party goes to Washington

1.5 million people estimated from Parks service.

http://www.youtube.com/watch?v=-VMXz6xGeqc

http://www.youtube.com/watch?v=emKmPRkrYoo&feature=fvsr

Freedomworks

http://www.freedomworks.org/about/about-freedomworks

5 - Ron Paul Fundraising Record

http://www.msnbc.msn.com/id/21646939/

36