Tuesday, March 24, 2009

What Are the Odds?

The Economist Intelligence Unit has just released a white paper titled Manning the Barricades: Who's at risk as deepening economic unrest foments social unrest.

The first part of the paper discusses the economic situation at hand; the second part analyzes the likelihood for social and political unrest around the world. This report figures the odds of SHTF in America as follows:
  • 60% chance of successful recovery by 2010 due to stimulus efforts
  • 30% chance of protracted depression
  • 10% chance of dollar collapse, leading to total SHTF.
The authors warn that the threat of serious social uprising is not taken seriously enough:

Indeed, in two important respects the prevalent warnings tend, often unwittingly, to underplay the threat. First, few observers take into account the sheer number of countries that are now at a significant risk of political instability and, second, they underplay the extent to which the risk extends to rich, established democracies. Many still think that the threats are largely confined to the world’s poor and "failed states". The suggestion that disturbances in the developed West could shake the foundations of these societies is broadly dismissed.

Thankfully, the USA is only ranked as "moderately" at risk compared to regions like sub-Saharan Africa. The authors also note that political upheaval may take other forms than merely social unrest, but could also lead to rollbacks in democracy.

Probably the most practical point to take from the paper is that, as the dollar is devalued by the massive stimulus packages and significant inflationary pressures continue to build, those who will suffer most will be those who are heavily in debt. Under such circumstances many will lose their jobs and those who don't will see their real wages shrink, making any debt a proportionally much heavier burden than before.

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