It’s no secret that the situation in Egypt is deteriorating by the day, but for some bizarre reason the ultimate cause of the recent chaos remains generally unknown. Ask any friend or colleague what they think initiated the Egyptian revolution and most will come up with something like ‘The people were unhappy with the government, so they rioted’, or words to that effect.
But that’s only part of the story…nobody seems to be talking about why the people were unhappy in the first place.
The truth is, it was crippling levels of inflation that sparked the rioting, looting, and mayhem that Egypt is still experiencing. Upon the breakout of civil unrest in Tahrir Square back in 2010 CNBC reported:
‘It is food inflation that is ultimately breaking the back of the Murbarek regime – staples like meat, sugar and vegetables have been climbing out of the reach of the ordinary Egyptian for a year’.
Now, if you are like me you don’t necessarily take a mainstream news source like CNBC at their word – but in this case I do. I was in Egypt just before the first revolution in 2010, and spoke with local business owners while filming sequences for the series ‘Hidden Secrets Of Money’. It was easy to detect a heavy sense of desperation and after looking at statistics for their currency supply, the effects of devaluation became all too obvious. As the people suffered a loss of purchasing power, Egypt became more dangerous. And as Egypt became more dangerous, tourism all but dried up. And as tourism revenue dried up…you guessed it, Egypt became more dangerous. And that is a very scary feedback loop.
One of my favorite economic commentators is Ricahard Daughty, at the time of the first revolution he warned: ‘No society breaks up because they don’t have any money — no, they break up because they can’t afford to buy food…that’s how societies fall apart, because of this inflation thing.’
But that’s still just part of the story…to get the big picture we need to know why Egypt is suffering from rampant inflation, and the subsequent loss of purchasing power attributed to the Egyptian Pound.
This is where it gets easier to see through the economic voodoo. The government of Egypt has been ramping up the supply of currency at an ever-increasing rate for a long time. Anybody who has watched the first episode of ‘Hidden Secrets Of Money’ will know what happens next…the prices of everyday goods and services act like a sponge on an expanding currency supply. Prices go up, to a point where people can’t afford to eat. As Max Keiser points out:
‘We see this as a ratio, and we know there are some danger points. For example, in Egypt recently, once that ratio got to 40% of income going to food, with the price of food rising due to inflation, that’s historically a point where people stage a revolution…and that’s exactly what we saw. The French revolution similarly was all around the price of food getting to a certain critical point where the risk/reward was favorable toward revolution’.
It’s that simple. If you are struggling to provide the necessities of life for your family, and prices keep on rising beyond your reach, you get angry, to the point where you have little to lose.
But even still, that’s just part of the story…Why is the government of Egypt printing so much currency if it is so bad for the people?
And sadly, this is also a simple answer: It’s because they can. There is no restraint on the amount of currency creation in modern economies. We are living in an economic twilight zone of history where central banks and governments are free to whip up as much currency as they need for whatever reason they see fit. And because they can, they do, for all manner of excuses including social programs, bailouts, public works, and sometimes war. All that currency has to find a home, and eventually it comes back to haunt a society in the form of inflation.
And you guessed it, that’s still not the whole story…How are we possibly able to create currency at will?