Manning the barricades

Courtesy of the Economist Intelligence Unit, an attempt to gauge the instability of countries around the world as the economic recession deepens.

The report is available in PDF.

Ireland is ranked joint 132nd with the UK on the social unrest index (being the 132nd most unstable), between Singapore and Tunisia. Of course that situation may change. Norway is rated the most table at 165, while Zimbabwe is at Number 1.

It warns of coming inflation problems and problems with the dollar.

First, the high demand for liquidity that prompted the cash injections is not the result of higher demand for goods and services. Banks will be using the money to shore up their own balance sheets rather than reinjecting it into the real economy. And quantitative easing is designed not to send the money supply into orbit but to stop it from crashing—in other words, to ward off deflation.

Second, policymakers are still going to be on their guard against renewed inflationary pressures (at least in developed economies). Hyperinflation occurs when deliberate attempts to stimulate inflation get out of hand. In Weimar Germany, the major concern for the government and the big industrial combines was unemployment, which they feared could lead to a Communist takeover. A cheaper currency was seen as useful to boost exports and keep people in work.

The costs of excessive inflation are now more clearly understood. Indeed, there is a widespread feeling that loose monetary policy earlier this decade was an important cause of the financial bubble that has now burst.

The greater risk, rather than a renewed surge in inflation as a result of the current massive monetary stimulus, is that the first signs of an upturn prompt an unduly rapid tightening of monetary policy that chokes off the nascent recovery.

I bumped into a friend of the US Treasury Secretary Tim Geithner in Washington in January, and his opinion was this: The US will err on the side of higher inflation because it is easier to control with tools such as interest rate increases. Deflation is almost impossible to control.

Silver and gold rose rapidly this week too and this looks set to continue.