Global Violence, Gold: But Not Yet

In Angry Jobless Indians: Social Contracts I warned of the pending social unrest that will sweep the globe as the economic situation continues to deteriorate:

“10 million unemployed you men make for a 'volatile' political environment in the world's largest, messiest democracy where an election goes well if only a few small bombs go off.

Other major export economies are in just as much trouble. In China: “The figures are horrifying.” I wrote:

“The social contract is that the government creates widespread economic prosperity. In return, the plebs won’t make trouble for the ruling patricians. They also won’t demand political liberty. Export jobs in China are disappearing as fast as in India and the social contract is about to be severely stressed.”

In Hyperinflation Then Global War I discussed the book The War of the World by Nial Ferguson:

“Ferguson develops a theory to explain the brutal violence of the 20th century. He postulates that ethnic unrest is prone to break out during periods of economic volatility and uncertainty. Severe economic distress has the tendency to suddenly unravel even advanced processes of ethnic assimilation which then rapidly escalate into full-scale conflict. The catalyst for catastrophe is always the decline of great economic and political powers and more importantly the emergence of new powers.”

Protests are popping up all over the world now. They’re small and they’re being ‘managed’. However, the global economy will continue to deteriorate and somewhere some government will fail under the stress. If the governments that fall are in an ethnically homogenous country, any transition will be fairly uneventful. If the governments that fall are in an ethnically diverse country, expect trouble.

The trade is to go long violence and short tranquility some how. Despite my deflationary stance, gold springs to mind… but not quite yet.

Gold is still making lower highs and the down trend holds. Watch the $900 level and watch the news. Real geopolitical developments will occur quickly.

FACTBOX-European governments face protests over economy: “Protests against governments and banks have increased in some European countries as the global economy has deteriorated.

Here are details of some of the protests around Europe:

* ICELAND:

-- Police used teargas against anti-government protesters when a demonstration outside parliament turned violent on Thursday.

-- The parliament building has become the focus of anger against Prime Minister Geir Haarde's coalition government's handling of the financial crisis. Demonstrators have called for the prime minister and other senior officials to resign and his limousine was pelted with eggs by demonstrators on Wednesday.

* BULGARIA:

-- Hundreds of Bulgarians demanded economic and social reforms in the face of a global slowdown on Wednesday in a second week of anti-government protests.

-- Students, teachers, green activists, doctors and public servants took part in the rally in front of parliament in Sofia, calling on the Socialist-led government to take action or step down. Many shouted "Mafia" and "Resign".

-- Last week hundreds of protesters clashed with police, smashed windows and damaged cars in Sofia when a rally against corruption and slow reforms in the face of the economic crisis turned into a riot.

* GREECE:

-- High youth unemployment was a main driver for unrest in Greece, initially sparked by the police shooting of a youth in an Athens suburb. General unemployment runs just above the EU average at 7.4 percent but the figure is 21.2 percent for the 15-24 age group and 10.5 percent for those aged 25-34. The protest forced a government reshuffle.

* LATVIA:

-- Last week, a 10,000-strong protest in Latvia descended into a riot, some protesters trying to storm parliament before going on the rampage. Government steps to cut wages, as part of an austerity plan to win international aid, have angered people.

* LITHUANIA:

-- Police fired teargas last week to disperse demonstrators who pelted parliament with stones in protest at government cuts in social spending to offset an economic slowdown. Police said 80 people were detained and 20 injured during the violence.

-- Prime Minister Andrius Kubilius, who was only sworn in in December, said the violence would not stop an austerity plan launched after a slide in output and revenues.