Financial markets around the world recoiled this week at the spectacle of Libya’s bloodbath, but it was not out of empathy or compassion.
We feel such human emotions as individuals, but they do not apply in a marketplace. A market is where buyers and sellers get together. If the savagery unleashed by Col. Moammar Gadhafi makes you want to sell something, does it simultaneously inspire someone else to buy? Is there anyone out there who wants to take a long position in one aging, embattled, crackpot dictator? I don’t think so.
For further proof that markets do not care particularly about civic turmoil for its own sake, consider last week’s performance. American stock markets reached post-crash highs and oil prices rose only modestly when Bahrain’s Sunni rulers wielded similar violence, though on a smaller scale, against their protesting majority-Shiite citizens. The obvious difference is that Bahrain is not an oil exporter, while Libya is.
Global stocks tumbled Monday, when American markets were closed for President’s Day, and continued falling yesterday as the U.S. indexes joined in the swoon. Meanwhile, oil prices climbed levels not seen since mid-2008, and investors piled into currencies perceived as safe havens, including the U.S. dollar and the Swiss franc.
If this was in response to Libyan unrest itself, it was a pretty dramatic overreaction. Libya accounts for less than 2 percent of global oil production. There is plenty of crude oil and refined product in storage all over the globe, and if Libya’s entire production of 1.5 million barrels per day went offline, Saudi Arabia has enough spare capacity to make up the entire shortfall — twice over.
By itself, therefore, Libya is not very important, especially in the short term. It is just a North African desert country of only 6 million people, most of whom are quite poor, despite the nation’s oil wealth. That wealth has been hoarded and largely dissipated by Gadhafi, a screwball Army officer who overthrew a constitutional monarch 41 years ago.
True, Libya has the largest known oil reserves in Africa, and its convenient position directly across the Mediterranean from Europe makes it an extremely attractive development target. It’s irresistible, in fact, to European oil producers like Britain’s BP and Italy’s Eni SpA, which leapt at the chance to do business with the erratic Gadhafi despite his longstanding and well-documented blood lust. Those companies were presumably too busy evacuating their personnel from Libya this week to reflect on their past business judgment.
I do not believe the financial markets are terribly worried about Libya itself. I think the markets, instead, are reacting to a dawning realization that what was presumed to be “stability,” in important locations from Africa to China is, in fact, something else — “stasis,” or equilibrium, in which equal and opposing forces keep anything from happening. The two are not the same thing.
In the case of repressive governments, a population’s demands for change can be held in check by threats, intimidation, arrests and violence. But as those demands increase, so must the repression. Survival of the regime — what we have mistakenly presumed was stability — endures as long, but only as long, as the repression can be increased to match the opposing demands. A repressive regime bets that its willingness to use force and coercion exceeds the opposition’s willingness to suffer the same.
We are now seeing what happens when the opposition’s fortitude exceeds that of the regime.
In Tunisia and Egypt, the autocrats called on a certain level of thuggery to defend their positions, but the real power resided with those countries’ militaries. In both cases, the military essentially refused to join the fight against the citizenry, which was quick to recognize that it could win a war of attrition. It became an “us-or-them” situation because, as the demonstrators in Cairo’s Tahrir Square quickly realized, going home meant giving the regime a chance to regroup and pick off its opponents one by one. Without citing Benjamin Franklin, the demonstrators heeded his warning that if they did not hang together, they would certainly hang separately.
Similar dramas seem to be building in Yemen and possibly in Algeria, where repressed populations are steadily increasing their demands for change. We could add Bahrain to the list, but there the royal family has done an about-face and tried to assure demonstrators that they can enter negotiations without fear of reprisals. The regime’s opponents, having been double-crossed just a week ago in a 3 a.m. assault, are trying to decide whether to trust the government again.
Then there is Libya, where Gadhafi and his sons promised a civil war to defend their positions, and have delivered on that promise. With key eastern cities already in rebel hands, this is a more extreme us-or-them battle than any we have seen recently. Gadhafi promises a scorched-earth policy against his own people. Everyone believes he would have no hesitation about carrying it out.
The lesson in all these events, which people around the world are observing, is that no regime can make its population live under tyranny, though it can make a lot of people die under it. Any regime will fall when the people it oppresses decide that they would rather die on their feet than live on their knees.
There is no stability in tyranny. There is only stasis, and stasis only persists as long as the opposing forces remain in balance.
Social stability, paradoxically, comes from democracy, which gives people a way to peacefully change a society without tearing it apart. Democracies can be conquered by brute force, but they are never overthrown from within, because there is no reason to overthrow them. They change of their own accord.
The stability of a repressive regime is like the ground above a major geologic fault. It may seem steady for a time, even a long time, but eventually the forces beneath become too great and something violently ruptures.
The markets may be waking up to the fact that repressive governments all have these social fault lines. Libya and its oil are not a major loss. But what of Kuwait, the emirates, and Saudi Arabia itself? What of Iran, whose rulers have launched their own reign of terror to crush opposition that emerged after 2009’s bogus elections? What of Russia, which only pretends to have a veneer of law? What of China, the world’s second largest economic power, whose leaders are trying to keep more than 1 billion people from following events in Africa and the Middle East?
These regimes have good reason to fear the wave of change now sweeping the African and Arabian deserts. And everyone who has made an investment or built a business on the assumption that such governments can be stable has reason to reconsider. Stasis is only stable until the moment that it isn’t.
Posted by Larry M. Elkin, CPA, CFP®
Financial markets around the world recoiled this week at the spectacle of Libya’s bloodbath, but it was not out of empathy or compassion.
We feel such human emotions as individuals, but they do not apply in a marketplace. A market is where buyers and sellers get together. If the savagery unleashed by Col. Moammar Gadhafi makes you want to sell something, does it simultaneously inspire someone else to buy? Is there anyone out there who wants to take a long position in one aging, embattled, crackpot dictator? I don’t think so.
For further proof that markets do not care particularly about civic turmoil for its own sake, consider last week’s performance. American stock markets reached post-crash highs and oil prices rose only modestly when Bahrain’s Sunni rulers wielded similar violence, though on a smaller scale, against their protesting majority-Shiite citizens. The obvious difference is that Bahrain is not an oil exporter, while Libya is.
Global stocks tumbled Monday, when American markets were closed for President’s Day, and continued falling yesterday as the U.S. indexes joined in the swoon. Meanwhile, oil prices climbed levels not seen since mid-2008, and investors piled into currencies perceived as safe havens, including the U.S. dollar and the Swiss franc.
If this was in response to Libyan unrest itself, it was a pretty dramatic overreaction. Libya accounts for less than 2 percent of global oil production. There is plenty of crude oil and refined product in storage all over the globe, and if Libya’s entire production of 1.5 million barrels per day went offline, Saudi Arabia has enough spare capacity to make up the entire shortfall — twice over.
By itself, therefore, Libya is not very important, especially in the short term. It is just a North African desert country of only 6 million people, most of whom are quite poor, despite the nation’s oil wealth. That wealth has been hoarded and largely dissipated by Gadhafi, a screwball Army officer who overthrew a constitutional monarch 41 years ago.
True, Libya has the largest known oil reserves in Africa, and its convenient position directly across the Mediterranean from Europe makes it an extremely attractive development target. It’s irresistible, in fact, to European oil producers like Britain’s BP and Italy’s Eni SpA, which leapt at the chance to do business with the erratic Gadhafi despite his longstanding and well-documented blood lust. Those companies were presumably too busy evacuating their personnel from Libya this week to reflect on their past business judgment.
I do not believe the financial markets are terribly worried about Libya itself. I think the markets, instead, are reacting to a dawning realization that what was presumed to be “stability,” in important locations from Africa to China is, in fact, something else — “stasis,” or equilibrium, in which equal and opposing forces keep anything from happening. The two are not the same thing.
In the case of repressive governments, a population’s demands for change can be held in check by threats, intimidation, arrests and violence. But as those demands increase, so must the repression. Survival of the regime — what we have mistakenly presumed was stability — endures as long, but only as long, as the repression can be increased to match the opposing demands. A repressive regime bets that its willingness to use force and coercion exceeds the opposition’s willingness to suffer the same.
We are now seeing what happens when the opposition’s fortitude exceeds that of the regime.
In Tunisia and Egypt, the autocrats called on a certain level of thuggery to defend their positions, but the real power resided with those countries’ militaries. In both cases, the military essentially refused to join the fight against the citizenry, which was quick to recognize that it could win a war of attrition. It became an “us-or-them” situation because, as the demonstrators in Cairo’s Tahrir Square quickly realized, going home meant giving the regime a chance to regroup and pick off its opponents one by one. Without citing Benjamin Franklin, the demonstrators heeded his warning that if they did not hang together, they would certainly hang separately.
Similar dramas seem to be building in Yemen and possibly in Algeria, where repressed populations are steadily increasing their demands for change. We could add Bahrain to the list, but there the royal family has done an about-face and tried to assure demonstrators that they can enter negotiations without fear of reprisals. The regime’s opponents, having been double-crossed just a week ago in a 3 a.m. assault, are trying to decide whether to trust the government again.
Then there is Libya, where Gadhafi and his sons promised a civil war to defend their positions, and have delivered on that promise. With key eastern cities already in rebel hands, this is a more extreme us-or-them battle than any we have seen recently. Gadhafi promises a scorched-earth policy against his own people. Everyone believes he would have no hesitation about carrying it out.
The lesson in all these events, which people around the world are observing, is that no regime can make its population live under tyranny, though it can make a lot of people die under it. Any regime will fall when the people it oppresses decide that they would rather die on their feet than live on their knees.
There is no stability in tyranny. There is only stasis, and stasis only persists as long as the opposing forces remain in balance.
Social stability, paradoxically, comes from democracy, which gives people a way to peacefully change a society without tearing it apart. Democracies can be conquered by brute force, but they are never overthrown from within, because there is no reason to overthrow them. They change of their own accord.
The stability of a repressive regime is like the ground above a major geologic fault. It may seem steady for a time, even a long time, but eventually the forces beneath become too great and something violently ruptures.
The markets may be waking up to the fact that repressive governments all have these social fault lines. Libya and its oil are not a major loss. But what of Kuwait, the emirates, and Saudi Arabia itself? What of Iran, whose rulers have launched their own reign of terror to crush opposition that emerged after 2009’s bogus elections? What of Russia, which only pretends to have a veneer of law? What of China, the world’s second largest economic power, whose leaders are trying to keep more than 1 billion people from following events in Africa and the Middle East?
These regimes have good reason to fear the wave of change now sweeping the African and Arabian deserts. And everyone who has made an investment or built a business on the assumption that such governments can be stable has reason to reconsider. Stasis is only stable until the moment that it isn’t.
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