Middle East contagion growing

Tunisia, Egypt, and now Yemen...
http://www.latimes.com/news/nationworld/world/la-fg-yemen-protests-20110128,0,3090706.story

What do they all have in common?  They want their con men leaders to leave and it doesn't seem to matter whether that occurs under their own power or in body bags.  All of this unrest begs the question: why is all of this happening now?  What magical unseen force is driving these actions and what is underpinning the movement?

Bob Prechter is really a leader in helping to explain all of these things.  He teaches that Homo Sapiens is a herding species which tends to move in certain ways as a group or more to the point, as a herd.  The exact form and timing of the movements are in many ways chaotic even though Prechter attempts to model it with some success using the Elliott Wave Theory.  Still, the outcome is far from being deterministic so nobody can really say what will happen and exactly when, but back in 2002 Bob wrote an amazing book entitled "Conquer The Crash: You Can Survive And Prosper In A Deflationary Depression".  It was based on his theories about credit and herding behavior and the like.  Nobody and I mean nobody was pushing the twin combination of herding behavior and a coming bout of credit deflation like Bob was.   A very great deal of what he wrote in that book is playing out right now.  It is certainly a must read if you feel that you are as a deer in headlights today.

To net Prechter's views out in as simple terms as possible, the events of today are caused by the effects of credit deflation on the herd's collective mentality.  Bankers and consumers/businesses increased the money supply by offering credit and assuming debt respectively.  The act of creating new debt increases the money supply.  This has negative social effects which I discuss in significant detail in the "Insights" section of this blog (mainly the transfer of disproportionate wealth from the poor to the rich and powerful).  The herd puts up with this and even actively participates as long as it perceives that it is getting benefit from the deal.  In other words, nobody complains as long as the elitist con game of fractional reserve banking is running smoothly and while most people in society subconsciously believe that they are getting something for nothing. 

But at some point the con begins to collapse (like all cons eventually do).  When it does, the fake, credit-inflation driven prosperity morphs into deflation driven hardship.  Jobs are lost, homes are lost, families are broken and, in extreme cases, people don't even have food or clothing.  All of this happens while people are heavily indebted with no way to repay it and so they default if they can.  In many cases their laws do not provide for bankruptcy and any bad debts become smothering lifetime burdens under the law.  In general, the herd figures out that it has been conned.  The herd no longer believes that the system is more good then bad and the result is civil unrest, governmental overthrow, violence in the streets, and economic collapse.  People with nothing left to lose are not so very different from wild animals - violent and unpredictable.  Survival becomes all that matters and they are not very concerned who gets hurt in their quest for survival.

In any con game - including the global debt Ponzi which is currently in early stages of collapse - the marginal, weaker players are hit first and worst.  But the larger players got large by standing on the shoulders of those in the pyramid below them so at some point the pain becomes widespread up and down the pyramid.  Prechter believes that we are seeing the collapse of a credit bubble the likes of which has not existed since the early 1700s when the South Sea Trading Bubble collapsed. 

When I look around at the amount of fake, credit based "money" flying around in the world economy (AKA "hot money") I can't help but agree that circumstances are ripe for such a collapse.  Look around the world.  Iceland's government and economy kicked things off followed by Greece which is having riots and people are calling for government to step down.  Ireland kicked the can down the road for a couple months by accepting an EU bandaid loan but it will eventually collapse as will Spain, Portugal and Italy.  Japan is headed for a social disaster with their massive debt and declining means to pay even the service on it.   And now we see the Middle East countries toppling like dominos.   Nothing like this has been seen since the Great Depression and if Prechter is right the eventual outcome will be significantly worse.  The mood of the herd has changed from positive to negative and the stampede has begun.  Smart people will figure out how to avoid the stampede and then get out of the way until the herd runs the anger out of itself and is ready to become reasonable again.  That process could take years from this point given just how far we have all let the credit con run.