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The Daily Reckoning | Tuesday, February 1, 2011 Tunisia to Egypt and beyond - strife continues in the Middle East The demographic time bomb and what it means for the price of oil, Plus, Bill Bonner on the price of things and a tale of two Juans... ------------------------------------------------------- Why China Is About To Bring America To Its Knees... The world is 97% dependent on supply of these little-known resources from the red dragon. At stake is America's ability to create cell phones, hybrid car batteries, even our high-tech military equipment... They are about to shut supplies of this vital resource off from the rest of the world... FOREVER! Click here to see how to make 8,577% gains or more from the greatest global supply squeeze in modern history. Turbulence in the Arab World The Importance of Demographics in a Cultural Revolution Joel Bowman Reporting from Buenos Aires, Argentina... "A kingdom founded on injustice never lasts" - Lucius Annaeus Seneca (tutor and later advisor to emperor Nero) Tunisia...Algeria...Yemen...Egypt...Jordan...the road to $200 oil... And that's just for starters! Tempers are flaring and kingdoms are toppling across the Arab world this week as millions of discontented youths take to the streets to demand the overthrow of their respective leaders. First it was Tunisia's dictator of 23 years, Zine El Abidine Ben Ali, who found his head squarely on the political chopping block. Following a spate of insuppressible food riots across the country, the tiny nation's second president has (after being denied entry to France) since fled to Saudi Arabia, where he is currently residing...although not before his wife, Leila Trabelsi, casually rocked up to Tunisia's central bank to collect 1.5 metric tons of the country's gold - roughly $66 million worth. "That's the trouble with trying to maintain an empire," commented Addison Wiggin in The 5 at the time. "It gets very expensive. And messy." The Tunisian-born, Saudi-residing, US-backed former leader was, as recently as a few months ago, still enjoying some rather generous handouts from Uncle Sam. "Last year," continued Addison, "the Obama administration asked Congress to approve a $282 million sale of 12 'excess' Sikorsky military helicopters to Tunisia with engines made by General Electric. "A deal between the United States and the Ben Ali regime funneled $349 million in US military aid over to Ben Ali over the course of his 23- year regime, official Pentagon figures tell us. "Admittedly, $349 million is not a lot of money considering the trillions the State Department has spent on Iraq and Afghanistan. Still, as just one outpost on the fringe of the empire...these sums begin to pile up." Unfortunately, burning outposts have a historical tendency of bringing the whole fence down. Revolution, ever the last resort for repressed youths the world over, soon spread from Tunisia across the Red Sea, emboldening Yemenis to stampede their capital and to call for the ousting of their own US- backed leader of three decades, Ali Abdullah Saleh. Of course, the mood didn't leave Algeria untouched...nor did it fail to light a spark across America's other "moderate Arab clients," as one blogger wryly referred to them. But this week, the story is all Egypt. Although relatively small, with a total economic output of just $217 billion last year, the Land of the Pharaohs straddles the Suez Canal and is home to the Suez Mediterranean Pipeline, both vital conduits for the delivery of oil and gas between the Red Sea and the Mediterranean. It is little wonder, therefore, that as mobs throng the Egyptian capital, calling for the removal of Hosni Mubarak (another leader seen as sympathetic to the US), London Brent Crude lurched over the $100 per barrel mark. And, at just shy of $92 per barrel this morning, West Texas Intermediate is not far behind. And, as we write, news is crossing the wires that Jordan's King Abdullah II, bowing to public pressure in his own backyard, has fired his government and tasked his new prime minister with implementing new economic policies aimed at giving Jordanians a voice in the political sphere. But is it a case of too little too late? Relays The Associated Press: "The country's powerful Muslim opposition, which had demanded the dismissal of Prime Minister Samir Rifai in several nationwide protests inspired by those in Tunisia and Egypt, said the changes didn't go far enough." [Ed. Note: Byron King, who has been dutifully keeping his Outstanding Investments readers abreast of the rapidly developing situation in the Mid East, yesterday recommended they sell two companies with oil claims in Egypt - just to be on the safe side...and to safely secure certain gains of 44% and 166%. The situation there is nothing if not fast-moving. To help keep you up- to-date, we sent a Special Alert to our Fellow Reckoners this morning. In it, Byron details how events in that volatile region will likely affect oil prices and what you can do about it. If you happened to miss it the first time around, don't worry. You can still access Byron's full presentation right here.] Of course, as any disheveled malcontent worth his (or her) Molotov cocktail will tell you, revolutions like those we're now seeing in that oily patch of the world don't happen overnight. They take patience...political ineptitude...and a demographic spark to set the whole thing off. For some, the writing has been on the wall for some time now. But while the mainstream press was busy reporting on the region with pictures like this: Egypt: The "New Iraq"? [A Screenshot of Fox News' Middle East "Coverage" Taken back in 2009] ..others were pouring over historical documents, doing the math and reaching the logical conclusions. In their 2002 bestseller, Financial Reckoning Day: Surviving the Soft Depression of the 21st Century, Bill Bonner and Addison Wiggin foretold much of the turmoil that would later come to pass, both in the financial markets and in the Middle East. Here's a snippet from Chapter 8, entitled "The Hard Math of Demography": "In his book Revolution and Rebellion in the Early Modern World, the historian Jack Andrew Goldstone argues that the great revolutions of Europe - the English and French revolutions - had one thing in common with the great rebellions of Asia that destroyed the Ottoman Empire and dynasties in Japan and China. All these crises occurred when inflexible political, economic, and social institutions were faced with the twin pressures of population growth and diminishing available resources." Continued Bill and Addison, "A large, unruly, and youthful rural population was a leading cause of social stress in France prior to and during the Revolution." "Likewise," they observed, "the Russian population doubled between the 1850s and the beginning of World War I... The stress of feeding and providing shelter for that many people was too great for the existing order." Sound familiar? In today's essay, we revisit Financial Reckoning Day to see what Bill and Addison had to say about the demographic bulge in the Middle East...with a hint of things to come for the aging West... Inflation...Oil Shocks...Economic Turmoil...It's Back To The 1970s...! The New OIL WAR and Why Iran Threatens Your Money... According to Byron King's new presentation Hezbollah terrorists, militant Muslims and Iran's crackpot leader could be planning the deadliest surprise threat to your money and livelihood this coming year. Yet nobody in the Pentagon will talk about it, and no one in the White House has a clue. Thankfully Byron's taking action and is sharing several ways for you to take to protect yourself against the epic financial crisis ahead... Click here to watch Byron's value-packed presentation now. The Daily Reckoning Presents Youth and Islamic Fundamentalism by Bill Bonner and Addison Wiggin [Ed. Note: The following essay is an excerpt from Bill Bonner and Addison Wiggin's 2002 bestseller, Financial Reckoning Day: Surviving the Soft Depression of the 21st Century.] One of the complications of a declining population in the West is a political one. The War on Terrorism, declared on September 13, 2001, promises to be expensive, simply because there are so many potential terrorists to fight. Westerners constitute a decreasing minority of the global population: In 1900, they amounted to 30 percent of humanity; in 1993 that number had dropped to 13 percent and by 2025, following current trends, the percentage will fall to 10 percent. At the same time, the Muslim world is growing younger and increasing in numbers. In fact, Muslims' market share of the global population has increased dramatically throughout the twentieth century and will continue to do so until the proportion of Westerners to Muslims is inverse that of the 1900 ratio. By 1980, Muslims constituted 18 percent of the world's population and, in 2000, more than 20 percent. By 2025, they are expected to account for 30 percent of world population. In his Clash of Civilizations, Samuel Huntington considers these demographics to have been a major factor in the Islamic resurgence of the late twentieth century. "Population growth in Muslim countries," he says, "and particularly the expansion of the 15- to 24-year-old age cohort, provides recruits for fundamentalism, terrorism, insurgency, and migration...demographic growth threatens Muslim governments and non-Muslim societies." Islamic resurgence began in the 1970s and 1980s, just as the proportion of young people in the 15- to 24-year-old age group in Muslim nations exploded. Indeed this proportion peaked at more than 20 percent of the total population in many Muslim countries during these decades. Muslim youth are a potential supply of members for Islamic organizations and political movements. The Iranian Revolution, for example, in 1979 coincided with a peak in the youth population of Iran. "For years to come Muslim populations will be disproportionately young populations," Huntington explains, "with a notable demographic bulge of teenagers and people in their 20s." What are we to make of it? Huntington suggests that the most accurate analogy in Western Society to this youth bulge in Muslim populations is the Protestant Reformation. Ironically, both the rise of the fundamentalist movement in the Muslim world and the Protestant Reformation came about in reaction "to the stagnation and corruption of existing institutions," says Huntington. Both advocate a "return to a purer and more demanding form of their religion; preach work, order and discipline; and appeal to emerging, dynamic middle-class people." Both challenge the political and economic order of the time; and where the threat of the former is concerned, major defense spending on the part of the West would not seem appropriate. "The Protestant Reformation," writes Huntington, "is an example of one of the outstanding youth movements in history." Citing Jack Goldstone, Huntington continues, "a notable expansion of the proportion of youth in Western countries coincides with the Age of Democratic Revolution in the last decades of the 18th century. In the 19th century successful industrialization and emigration reduced the political impact of young populations in European societies. The proportion of youth rose again in the 1920s, however, providing recruits to fascist and other extreme movements. Four decades later the post-World War II baby boom generation made its mark in the demonstrations of the 1960s." Whereas young people generally exhibit a rebellious and revolutionary influence on society, what happens when people grow old? The exact opposite. Fearfulness and loss of desire commonly accompany aging. Older people tend not to want as many things in life as young people. They lose their desire to impress friends, relatives, and partners. Instead of buying items they don't need, they tend to become fearful that they will not be able to obtain what they do need. There is nothing peculiar about this; it is just nature's way of recognizing diminishing opportunities. A man in his forties can start over. But in his late sixties, he no longer has the energy or the desire to do so. He therefore starts saving everything - tinfoil, money, rags - for fear he will not be able to get them when he needs them. This is how an elderly individual tends to behave. But what does an aging society look like? Again, we need only look across the ocean - to Japan. Regards, Bill Bonner and Addison Wiggin for The Daily Reckoning Joel's Note: If you'd like to see how this plays out...how the rise of the "young" empires comes to eclipse those of the "old" ones, you might want to take a look at the updated, second edition of Financial Reckoning Day. To that end, and with the help of Doug Hill, co-publisher at Laissez Faire Books, we've secured a discount code especially for Daily Reckoning readers. Simply proceed to the LFB website, here, and enter your code [E401M202] upon checkout to grab Financial Reckoning Day Fallout for 20% off. And, as a special bonus, you'll also receive a free copy of the critically acclaimed documentary, I.O.U.S.A. So grab your code and head here. Welcome to the "Next Net" - It's About To Change Lives and Could Build Fortunes... You simply cannot afford to miss this groundbreaking report... Today's Internet is obsolete! New breakthroughs are building speed! Huge wealth potential! Get all the details right here... Bill Bonner Why Most Consumer Prices Aren’t Affected by Money Printing Bill Bonner Reckoning from Baltimore, Maryland... "Commodities head for longest run since 2000," says a Bloomberg headline. What gives? On Friday, stock markets sold off all over the world. But there was no follow-through on Monday. Instead, the Dow posted another 68-point gain. Gold, meanwhile, lost $7. There's a lot of money in the world. Central banks are printing it! Particularly, the Fed. So what happens when central banks print money? Well, prices move. If you believe the "quantity theory of money" you have to believe that prices will rise. More money in circulation means that there is more money available for every unit of output. So, things that can't be easily reproduced...and things that are priced on the international auction market...go up. Like wheat. Like copper. Like oil. And, of course, like gold. Markets are always discovering prices. Prices go up and down. But they usually find an equilibrium in a fairly narrow range. In a world of real money, prices don't vary that much. But with so much new, ersatz money in circulation, markets have a hard time keeping up. They get bubbly. They discover that yesterday's price was too low...so they move it up again. And then they worry that it is too high, so it drops back again. Generally, as central banks add money, prices move higher and higher...until the bubbles pop. Why don't local items react too? Like the cost of parking...or houses? Well, it's a long story. But the Fed's easy money doesn't lift all prices evenly. Because the money isn't distributed evenly. The Fed prints money, but it doesn't give the money to us. It gives it to the banks. And the banks put it into hedge funds, trading departments, and speculative portfolios. This is what is known as "hot" money. It never gets into consumers' pockets. So, it never is used to buy the ordinary stuff of a domestic economy. Instead, it goes into hot markets - markets for global, auction-priced goods. Those items are soaring...even as the core inflation reading in the US is nearly flat. Oil is at a 2-year high. And check this out. From the Telegraph: Christies auction house has best year in 245-year history. Christie's has announced record sales for 2010 after the auction house enjoyed the best 12 months in its 245-year history. Total sales rose more than 50pc to hit £3.3bn last year, as the company retained its position as the world's largest auction house. Christie's was involved in two-thirds of global artwork sales worth more than $50m (£32m). Works sold over the course of 2010 included Pablo Picasso's Nude, Green Leaves and Bust, which sold for an auction world record £70.3m, as well as the £35.2m sale of Alberto Giacometti's Grande tête mince, both of which were sold on the same day last May. Impressionist and modern art sales [were] Christie's most successful market, with sales [totaling] £767m, followed by post-war and contemporary art sales of £603m. Europe and the US were responsible for the lion's share of sales, but growth was fastest in the company's Asian business, with sales more than doubling to £499m. These price increases are not driven by consumer price inflation. People aren't desperate to get rid of money before it loses value. This phenomenon is driven by greed, not fear. And more thoughts... Juan came to help on Sunday afternoon. Juan is a short, sturdy man with a ready smile. All the gardeners, maids, cleaning ladies, field hands, pot and pan washers, car parkers and tree trimmers are Hispanic now. Juan is from El Salvador. We were pruning apple trees - about 100 of them. They've been let go for so long the branches grow every which way, but mostly where you don't want them - straight up. You have to prune them twice. First, we get up in the crotch of the tree with a chainsaw. We cut out big limbs growing up through the center of the tree - often big boughs, the size of a gypsy's thigh, bristling with little branches. Then, we go through the tree again with pruning shears, lopping off all the smaller, unwanted limbs. "Corte todos que suben por arriba," we told Juan. We don't know whether that was correct or not. Juan didn't try to improve our Spanish. Instead, he spoke English: "Juan, you mean, I cut the ones that grow up?" "Si..." "Why is he calling you Juan?" Edward asked later. "I don't know... I gave him my name. But my Spanish accent is so bad...somehow, I guess he heard 'Juan.'" "Well, why don't you tell him your name isn't Juan?" "Why? I don't mind being called Juan." "What's his name?" "Juan." "You've got to be kidding." "Nope. Two Juans." Juan (the other one) was pruning a tree. The field was covered in snow. The trees were icy. We slipped and fell out of one tree. Another tree attacked us. We cut off a big limb and it fell on us. It was nice to have Juan backing us up. When we checked on Juan, we realized that our instructions hadn't been specific enough. He had cut off all the limbs. All that was left were nubs and stumps. "You better give him another lesson," Elizabeth suggested. "Juan, no corte todas las ramas. Solamente los que crecen directement por arriba." "What did you tell him?" "I think I told him to cut off only those branches that are growing straight up. But we'll have to see what he does." Later, at lunchtime, Juan told us a little about his experience as an immigrant from El Salvador. "I came here illegally. But that was a long time ago. I've got my papers now. I've been here for 20 years. I lived in Houston first. And then, I heard about a job on a horse farm here in Maryland. So I came here. "We were 7 brothers in El Salvador. And there weren't any jobs. And there was a lot of fighting. It wasn't safe. My father told us all to go away. So my oldest brother came here. And then the rest of us came. Now, we're all in the US. "But it wasn't easy. I had to work hard. This fellow who hired me on the horse farm, he has 40 horses. And those horses are a lot to take care of. And he didn't have enough people to take care of them. So, when I came, I had to work every day, 7 days a week, for three years without a single day off. "It was rough. And I didn't earn much money. But I kept at it. Because it was a job. And he gave me a trailer to live in. Then, after three years, I got to take a Sunday off. And then it got better. My wife came to live with me. And now we have a family. And I take off every Sunday afternoon. "But I like to work. So that's why I'm over here helping you." Regards, Bill Bonner for The Daily Reckoning ------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com The Meddling of Global “Thinkers” Now here’s something interesting. Every year, Foreign Policy magazine produces a list of the Top 100 Global Thinkers in the World. We picked up the list...looking for our own name. But wait... The key is that these are “global” thinkers. They’re not just thinkers, in other words, they are people who are thinking about how people on the other side of the planet should conduct their business. When All Roads Lead to Default US Continues Deficit Spending With No End in Sight The Continuing Argument Over Fiscal Policy I note that a Bloomberg.com article reported that Jean-Claude Trichet – whom I refer to as “socialist moron Keynesian euro-trash halfwit,” but which everyone else refers to as European Central Bank President – is said to have said, while “speaking on behalf of the world’s central bankers,” that “the global economy has recovered better than expected, boosting inflation pressures in emerging markets.” Hahaha! Investing in Gold and Silver for the Long Haul Inflation to Help the Less Fortunate? Ron Paul: We Need More WikiLeaks on the Federal Reserve This past Sunday, WikiLeaks founder Julian Assange was featured on 60 Minutes for his hand in uncovering classified documents. So, it seems an even better time than most to highlight this Dr. Ron Paul interview on Judge Andrew Napolitano’s Freedom Watch television show, where he states that, “what we need is more WikiLeaks on the Federal Reserve.” Indications of the Broadest Measure of Money Supply Asian Growth Spurs Currency Rally The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. Cast of Characters: Bill Bonner Founder Addison Wiggin Publisher Eric Fry Editorial Director Joel Bowman Managing Editor The Mogambo Guru Editor Rocky Vega Editor