Sense on Cents

Is the ongoing political firestorm in Egypt an individual event or part of a larger movement? Can the Egyptian turmoil be contained or might it spread to other nations in the Middle East? Are we witnessing the civil unrest of a disenfranchised populace or something truly much larger than that?

Certainly, peace loving people hope that calm can be restored in Egypt and the inevitable transfer of power happens in an orderly fashion. From that standpoint, we would hope a democratic regime ultimately gains control in Egypt. What if democracy does not carry the day, though?

While we can hope all we want, remember “Hope is a lousy hedge.”  Prudence dictates that we take a wider angle perspective in terms of the risks embedded in Egypt specifically and the Middle East at large. Sense on cents compels us to assess risks and prepare accordingly. If democracy does not carry the day in Egypt, what are the risks of a more repressive regime? On this note, let’s review a rather chilling commentary in The Moscow Times, entitled The New Iron Curtain:

The current upheavals in Egypt might signal the start of a new chapter in world history. A new Iron Curtain is rapidly descending over the Middle East.

Any revolution in Egypt will be fundamentalist in nature. It will have a domino effect, leading to fundamentalist revolutions in the region and creating a new geopolitical reality that is only a little less scary and tense than was the confrontation between communism and capitalism in the 20th century.

Really? Is this a foregone conclusion? I am not ready to categorically accept that premise, but I certainly want to be aware of its potential. Let’s continue.

The totalitarian Soviet Union was set on spreading socialist-communist revolution all over the world. The Communist Party called it “liberation movements.” The Kremlin also warned that the West was determined to conquer the Soviet Union. In exporting revolution, Moscow supported any terrorist group willing to fight against open society.

As a result, however, the Soviet Union itself collapsed. The ideological shackles it had imposed on its own economy and science turned out to be incompatible with its bid for world leadership.

For an ideology to die, it must first become an official state ideology. Marxists tried for 70 years to kill off the Russian state, but Russia is still alive and Marxism is dead. In the short run, religious fundamentalism might win out in the Middle East, but in the end the Middle East will survive and fundamentalism will discredit itself.

For those who love peace, prosperity, and a safer world stage, hopefully those virtuous realities carry the day. However, how long may it take? What may transpire in the interim?

But the establishment of fundamentalist regimes in the Middle East will lead to a serious confrontation with most of the world. Moreover, their ban on banking activities and the denial of women’s basic human rights — both integral elements of Islamic fundamentalism — alone will make it impossible for a fundamentalist Middle East to defeat the free world economically or militarily. As a result, those states will rely on terrorism as the main weapon for promoting militant Islam throughout the world.

In its never-ending battle against global terrorism, the West will ultimately have to reconsider its current ideas about what constitutes acceptable losses. To a large extent, the West finds itself in a humiliating position before the fundamentalist threat because liberal demagogic principles dictate that a government cannot permit the death of even one of its citizens at the hands of terrorists, and terrorists cannot be killed without due course of law.

The entire Islamic world will not become fundamentalist. For example, the military leadership in Dubai and Turkey will never allow fundamentalists to come to power, and those two will be for the new Middle East what Taiwan was for China.

We are standing at the threshold of a new world. If the fundamentalists get their way, secular authoritarian Middle East regimes will be replaced by Islamist extremist, totalitarian ones. As a result, oil tanker ships will have to sail around Cape Horn, the West will have to urgently search for alternatives to oil as an energy source, Russia will lose the North Caucasus, and Israel will be wiped off the face of the Earth.

Certainly any of these scenarios would have a profound impact on our global economy. Additionally, while we would hope counteractive forces would prevent these scenarios from unfolding, we should not be so naive to think that political operatives around the world are not currently discussing these topics.

That is the price the Middle East would have to pay for its dictatorial governments that have exploited its citizens for decades. This is also the price the West would pay for its own “humanitarian” bureaucracy and the misguided campaign its nongovernmental organizations have waged for the last decade defending the rights of Muslim fundamentalists.

The writer certainly does not sugarcoat the situation. I appreciate the writer’s historical context and perspective. I place this commentary next to my writing the other day, The Ripple Effect of Unintended Consequences or How Ben Bernanke Plays in Cairo, and I realize the world remains fraught with risk.

Navigate accordingly.

Thoughts and color encouraged and appreciated.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own and not those of Greenwich Investment Management. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

This entry was posted on Wednesday, February 2nd, 2011 at 7:33 AM and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.