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Egypt and America – Parallels

February 3, 2011 Leave a comment

Just like a lot of you, I’ve been transfixed watching the events unfold in Egypt this week.  I see them on the cusp of a revolution, which will be televised.  As I’ve listened to all the commentators and talking heads, I’ve seen a lot of similarities between Egypt and America on a number of issues.

1)  Economic Bubbles – An economic bubble is when items are traded in high volumes at prices that have been inflated in some way.  When the bubble bursts, the values of the items being traded rapidly diminish to below their original values.  We’ve seen this in America in the stock market, housing market, and in commodities trading.  When the stock market and housing bubbles collapsed, they were considered as major reasons for the depression we’re still digging out of.  The commodities bubble concerns the trading in futures of corn and wheat, which for now is keeping food prices somewhat stable, but there are signs that this bubble is about to burst.

The deregulation of the futures market happened during the Clinton administration – the Financial Services Modernization Act of 1999 and the Commodity Futures Modernization Act of 2000.  These two laws allowed financial institutions to get deeply involved in commodities speculation, which has allowed financial institutions to hold more and more of the commodities futures.  It also took away any oversight by the Commodity Futures Trading Commission of overseas electronic exchanges such as Britain’s InterContinental Exchange.  As a result, there are no position limits on trades made on exchanges  and practically no reporting requirements thereby allowing traders to buy and sell as much as they want with virtually no restrictions.

Since 2008, Egypt has seen occasional rioting over the increasing prices for wheat, corn and fresh vegetables.  In the past year however, food prices have been skyrocketing.  The price of bread has jumped 30% and corn has seen the same levels of increase.  Egypt is the leading purchaser of American wheat and more than 50% of our corn exports head there as well.  There have been warnings of increasing unrest over the price of food since November, according to Hamdi Abdel-Azim, an economist and former president at the Sadat Academy for Social Sciences in Cairo.

2)  Lack of Reforms – As most people who have studied American history know, it was years of pressure from King George III and the lack of representation in the government process (taxation without representation, the quartering of soldiers against the people’s will) that were factors in the American Revolution.  It took many years and thousands of deaths on both sides, but Americans earned their freedom from an oppressive government.

Over the past ten years in Egypt, there has been a lack of political, social, and economic reform in Egypt.  President Mubarak was elected for three successive six-year terms, but the results of those elections, with the exception of the most recent one in 2005, has been questioned due to the fact that Mubarak was the only listed candidate for President.  His political party, National Democratic Party, has held an overwhelming number of seats in the Assembly.  With this level of control over the government he is considered by many to be an autocrat.  It was only recently through new press freedoms that we’ve heard that Egyptians have been subjected to brutal police tactics, and a spate of economic reforms that trickled down to only a handful of Egyptians.

3)  US Support – President Mubarak came to power in 1981 after the death of Anwar Sadat.  It took years to regain the trust of the other Middle Eastern states because of the peace treaty that was brokered with Israel.  He then saw the influence of Egypt wane due to the rise of Hamas and Hezbollah.  But during all of this, Egypt was still a very staunch ally of the United States.  Egypt was part of the coalition put together by the United States to invade Iraq.  They have received billions of dollars of US aid over the years and was a key negotiator during the Palestinian crisis.

So far during the protests, there have been no direct signs that there is any anger directed toward Americans, though there have been reports that pro-Mubarak forces have been trying to keep the press from reporting the events.  There are concerns however that a change in regime in Egypt, along with the unrest in Tunisia and Yemen, may change the face of the Middle East and Africa toward a more anti-American sentiment.

Just like the change of regime going on now in both Iraq and Afghanistan, there are no guarantees that it will be peaceful or even pro-American.  It may be a case of dealing with the Devil you know, compared to the Devil you don’t.

As you watch the events unfold, what are your thoughts?  Do you see other similarities between Egypt and America?  Let me know here or email me at fapolitics@gmail.com.

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Categories: World Issues

Austerity is the new Policy

January 3, 2011 Leave a comment

Happy New Year…..unless you’re in Britain.

On January 1st, a number of austerity measures went into place in order to help reduce their record deficit of around 150 billion pounds (174 billion euros, 231 billion US dollars).  One of the measures that have gone into place is an increase in their Value Added Tax from 17.5 to 20 percent.  There was a rush over the Christmas holidays to purchase big ticket items like televisions before the VAT went up.

Another sign of the times is a cut in government funded food handouts.  In Britain, a family can get a food assistance package – three days of milk, canned meats, fruit, pasta, and other essentials.  Over the past two years, the number of families that are receiving assistance has nearly tripled, and its expected to rise even more between now and 2015.  It’s expected to rise so much that the government will need to build nearly six hundred additional food banks in order to meet the demand for services.

Economists are saying that between the VAT increase, cuts in emergency food assistance, and other austerity measures, that unemployment is expected to rise over the next year, shedding an additional 350,000 private sector jobs.  Along with the job losses, these measures will keep GDP growth down to a meager 2 percent, which is barely enough to hold steady with the sluggish economy and loss of jobs.

Here in the US when the new Congress opens for business this week, there will be a push by Tea Party Republicans to limit our debt ceiling and start our own round of austerity measures beginning with cuts in discretionary spending.  However, many economists, economic advisers, and even Conservative columnists are saying that doing so will only hurt our chances for economic recovery.  As I posted on my Wish List for 2011, we need to start working on paying down our deficit and working toward not having our children and grand-children saddled with a debt they will never be able to pay off, but we can not afford to do so with one hand or both hands tied behind our back.  If we enact austerity measures and not raise the debt ceiling, that will only give the impression that we will not be able to ever pay off our debtors and that could ignite a new round of recessions around the world.

Regardless if we like it or not, the economy of the United States is linked with economies around the world.  If there is a major economic downturn here, it could send ripples of uncertainty that may slow down the recovery of Britain, France, or other European allies.  It could also hurt relations with Saudi Arabia and even China, who is our largest debt holder.

We need to change the dynamic in Congress from one that is headed toward financial suicide to one that will grow jobs and the economy.  What ideas do you have that would help this discussion?  What would you say to your Congressman?

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