I have no clear idea, however…
Historically, incidences of hyperinflation result in high
levels of social unrest – protesting, rioting, anger, regime change, etc. This makes total sense; if the masses can’t
afford food they get mad and such conditions are ripe for mobs and rioting.
As Walter
Kurtz points out, “The only question now is who will be the target of
people's rage and desperation this time.”
Will it at be at the regime, the West, or another group?
I want to look at the former (the regime), mainly because
the latter two don’t totally change the current dynamic. In fact, the
only two other hyperinflations this century involved Zimbabwe and North Korea. To my knowledge neither experienced regime
change (Note: I think Zimbabwe does have some joint power agreement) and the
discourse regarding either country has not really changed. Still, I should note that both economies are
much smaller than Iran.
The whole reason I started on this Iran post (aside from
brining attention to it) is to think about the impact of social unrest and
possible regime change. I am not sure
what the conventional wisdom is on an Iranian regime change, but even though
they are the most destructive actor in the world arena, I think at least in the
short-term it would not be a positive geopolitical event:
- I believe that in most cases those with power, especially in extractive governments, want to stay in power and will do what it takes to do so. As a result, saber rattling now may turn into action if the regime feels threatened.
- The analogy may be of an angry pit bull that’s cornered and probably has only one move left.
- Who fills the power vacuum? See Libya and Egypt.
- Contagion to the rest of region. As I look at a map, Saudi Arabia would essentially be surrounded by social unrest.
- Rising oil prices could tip the world into recession again at a time of high fragility.
Caveat: I am painting this with the broadest of brushes here
and shooting from the hip. There could be some important cultural, social,
religious, etc. details of which I am unaware, which could derail my hypothesis.
Still the risk is important to consider, especially since we
could be at an inflection point.
“Turmoil in the middle east” is always an investment risk. Seriously, if you find a list of market
threats that doesn’t list, or that hasn’t listed that in the past 6 years,
please forward it to me.
So to conclude, while the past couple posts have drifted
into world affairs, I believe that what is happening in Iran is at the very
least a thought when considering asset allocation going forward, especially
given the current state of affairs.
