What do Syria, Egypt, Jordan, Morocco and Algeria all have in common?
Apart from violent street protests or outright revolution, they are the world's most profligate printers of money.
The Johannesburg-based and Austrian-leaning economic research house ETM Analytics recently put out some research that looks at the economic triggers behind social upheaval. Rather than looking at the more obvious political causes of violent revolution, the research shows that those countries with the money printing presses in overdrive are also those experiencing – or about to experience – massive social tension.
Take a look at the accompanying graph and make your own deductions. It's no surprise that Syria tops the list, with a Continuous Commodity Index (CCI) inflation rate of 60% since the start of 2010. Next comes Turkey, Brazil, South Africa and Argentina with CCI inflation of 30-40% over the same period.
It's true that apart from Syria, none of these countries have experienced anything like the kind of upheaval in Egypt, Tunisia and Syria. Not yet, at any rate.
Using the same methodology over a longer time frame, ETM concludes that monetary looseness is a key trigger for social unrest. The second graph shows which countries were printing money the fastest since 2009: Morocco, Syria, Algeria, Egypt, Jordan and Tunisia. Each of these countries subsequently experienced social upheaval or outright revolution. It is therefore fairly safe to assume that the big money printers over the last 12 months can expect heightened social tensions in the coming months. It's already happening in Argentina and in South Africa, where dozens of striking mine workers were gunned down by police in August 2012.
CCI growth as a predictor of social unrest is particularly applicable to emerging economies such as Brazil and South Africa where inflation has eaten into the incomes of poor households.
CCI is used as a more immediate measure of inflation than more conventional measures such as the Consumer Price Index (CPI). The CCI is a basket of some 19 commodities, including food, fuel, industrial commodities and precious metals. It reflects inflationary trends almost immediately on the basis that monetary expansion debases the currency, resulting in higher costs of commodity imports such as fuel and food. CPI, on the other hand, covers a much wider basket of goods such as housing costs, clothing and technology, costs which form an insignificant part of the spending of low income households.
Monetary expansion as a predictor of social tension – countries that printed money the fastest were more likely to experience mass protests.
"When mass unrest broke out across the Middle East in early 2011, the central banks of those countries had presided over substantial monetary inflation that resulted in huge increases of raw commodity prices, which the lower income groups of any population spend most of their incomes on," says ETM Analytics.
The research also suggests that emerging countries' central banks are attempting to inflate their way out trouble now spilling on to the streets. The one monetary delinquent which seems to be the exception to the rule is the U.S., which until March 2011 was the fifth worst offender on the list. It has since slowed down the printing presses relative to other countries.
Based on monetary inflation trends over the last two years, those countries most at risk of social upheaval in the coming months are Turkey, Brazil, South Africa, Argentina and India.
South Africa, already suffering investment flight due to mine labour problems and regulatory strangulation, is likely to face more social unrest going forward, conclude the authors of the research. "The (South African) Reserve Bank continues to focus on headline measures of price inflation, i.e. the consumer price index, to dictate monetary policy. Meanwhile, raw commodity prices that feed straight through to higher food and fuel prices that reduce the disposable incomes of low income earners and unemployed people by the most continues to rage, which risks fuelling even more unrest going forward."
The conclusion is obvious: watch money supply growth rather than twitter traffic if you want to locate the next global hot spot.
Going back to 2009, look who was printing money before riots spilled on to the streets: