When the faith breaks

AS it was in the beginning, is now, and forever shall be, this is the cycle. Bad economic policies eventually lead to political chaos. Political chaos causes lack of confidence in government, which then leads to economic chaos. From the economic chaos eventually comes a reset of some sort that creates a different—if not new—economic paradigm.

While there are many experts that want to believe that what is happening is a “populist uprising,” a “clamor for freedom,” or political shift to the left—or right—depending on the expert’s political views, none of that is correct.

In recent weeks, the governments of Chile, Ecuador and now Bolivia have been subject to massive protests. The president of Chile is one of the richest persons in the country and is considered a member of the center-right. The political view and policies of Ecuador’s president is center-left and he is a “democratic

socialist.” Recently resigned Eva Morales is about as left as you can get, his Bolivian political party is the “Movement of Socialism.”

We have been told that these protests are the result of wealth inequality—except for Bolivia, which is now mentioned as the result of a CIA inspired coup. The wealth inequality in Ecuador is the same as in Singapore. Chilean inequality is about the same as Brazil. “Socialist paradise” Bolivia has the same wealth inequality as Malaysia.

However, if you actually look at the data, the major “inequality” is that the economy is worse today than before. In 2013, Bolivia’s economy was growing at 7 percent annually. Today that growth is 3.27 percent. Bolivia’s inflation went from 1 percent to over 2 percent in the past 12 months. Maybe the CIA did not need to stage a coup. Chile’s growth fell from 5.3 percent in early 2018 to less than 2 percent most recently. In that same period Ecuador went from 3-percent growth to zero.

Of countries with a population of over 5 million, Hong Kong has the fifth wealthiest economy per capita in the world. Before Beijing started placing capital controls on mainlanders, Hong Kong economic growth was over 3 percent, which is good for a large and wealthy economy. That fell to 1 percent. The economy improved as mainlanders figured out a way to get around those controls through cryptocurrencies and creative export bookkeeping.

Then, when Beijing got even tougher on money f lows, Hong Kong growth went to 0.6 percent. Likewise, inflation moved higher from 1.3 percent to over 3 percent. Notice the pattern?

Economies and “The People” can handle economic disruptions when and if they retain their confidence in the government to handle those problems. The Philippines with the high 2018 inflation and Indonesia with a depreciating currency and slower economic growth are good examples. Even Thailand with limited political freedom and an overly strong currency and slow growth has been able to sustain.

But when the economy turns shaky and the people lose faith in the government, all hell breaks loose. Stay tuned for 2020. The worst is yet to come. That is because what we are seeing in the examples of Chile, Ecuador, and now Bolivia will lead to more distrust. And that will lead to sovereign debt problems, currency exchange rates spinning out of control, and problems more serious than we now read in the headlines. No revolution in history ever occurred except on the back of an economy failing the people.

E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stockmarket information and technical analysis tools provided by the COL Financial Group Inc.