IMF Raises Spectre of Civil Wars

It is astonishing how quickly everything seems to be coming to a head.  Just one month ago those that were warning of food inflation and civil unrest seemed like "gloom and doom" prophets.  Now we are clearly in the middle of a remarkable chain of events.  

We always want to make sure we are looking forward on this blog and bringing subjects to your attention that are very relevant and extremely possible given recent history and basic economic principles.

Today the IMF sounded the alarm on the possibility of civil wars and political unrest on a scale that could signal the next leg down for the global economy.  That is not necessarily "breaking news", however what follows is something nobody wants to hear.  It is very likely that we can and will see unrest in the United States.  The scale of such unrest is not known, but when the government begins to cut our welfare and entitlement programs, and inflation spikes as a result of monetary policies, the poorest Americans will be hit the hardest.   People tend to react in a very aggressive and unpredictable manner when they are backed into a corner, have no hope, and nothing to lose.

IMF raises spectre of civil wars as global inequalities worsen

The International Monetary Fund (IMF) has warned that "dangerous" imbalances have emerged that threaten to derail global recovery and stoke tensions that may ultimately set off civil wars in deeply unequal countries.

By Ambrose Evans-Pritchard 8:22PM GMT 01 Feb 2011

Dominique Strauss-Kahn, the IMF's chief, said the economic rebound across the world is built on unstable foundations, with many rich nations still strapped in job slumps while the rising powers of China, India and Brazil already facing the threat of overheating. "It is not the recovery we wanted. It is a recovery beset by tensions and strain, which could even sow the seeds of the next crisis," he said.

"Global unemployment remains at record highs, with widening income inequality adding to social strains," he said, citing turmoil in North Africa as a prelude to what may happen as 400m youths join the workforce over the next decade. "We could see rising social and political instability within nations – even war," he said.

The IMF has published a paper entitled Inequality, Leverage and Crisis arguing that the extreme gap between rich and poor – with echoes of the US in the late 1920s – was an underlying cause of the Great Recession from 2008-2009.

The paper, by the Fund's modelling unit, warned of "disastrous consequences" for the world economy unless workers regain their "bargaining power" against rentiers. It suggests radical changes to the tax system and debt relief for workers.

Mr Strauss-Kahn said the toxic global imbalances that caused the financial crisis are re-emerging, naming China and Germany as the two arch-sinners that rely on export surpluses to power growth at the expense of the US and other deficit countries.

"The most important question is to deal with the recurrent problem of some countries' large external surpluses," he said, warning that failure to curb excesses will lead to global clashes and rising protectionism in trade and finance.

In a veiled warning to China and other countries holding down their currencies for commercial advantage, the IMF chief said "exchange-rate adjustment should not be resisted". Nor should capital controls be imposed to stop the inflow of funds.

The comments appear to align the IMF behind Washington in the simmering dispute over the declining dollar. China and Brazil have accused the US of covert currency warfare through quantitative easing, but the claim is slippery since the US has a huge structural trade deficit.

Mr Strauss-Kahn also hinted that parts of Asia are exceeding the safe speed limit for growth and needed to "tighten" further before inflation gets out of control. "There are risks of overheating, and even a hard landing," he said.  

          >>  Source: The Telegraph