The latest currency collapse - keep an eye on Lebanon

 

I've warned that dollar depreciation is one of the evils the USA is facing.  It's been going on for a long time, and is rapidly getting worse.

Lebanon is facing a very similar situation, with a government that's mismanaged its economy for decades, and corruption and political pandering making the situation worse.  The Lebanese pound is now at breaking point.

After reaching a record-breaking rate against the dollar, touching almost 11,000 LBP, the Lebanese president held a security and financial meeting to find a quick solution.

However, even after the meeting, the Lebanese pound value still dropped. On Tuesday, black market traders are selling the dollar for 10,575 LBP and buying it for 10,525 LBP.

. . .

[President] Aoun has tasked security forces with arresting everyone who violates the provisions of the Currency and Credit Law and the law regulating the money exchange profession, including both licensed and unlicensed money changers who practice speculation.

He has also tasked them to continue closing local illegal electronic platforms and groups that determine the prices of the U.S. dollar against the Lebanese pound.

There's more at the link.

This is the classic conundrum between politicians, who decree what the value of the currency should be, and the markets, which know what the currency is really worth and price it accordingly.  It's no good politicians dictating what they want their currency's value to be, if the fundamentals of the economy they oversee can't support that value.  They'll be ignored.  We saw that a few weeks ago in our discussion of hyperinflation in Weimar Germany.  Multiple failed states since then (Zimbabwe, Venezuela and many others) have merely proved the same point, time after time.

Note, too, that currency and economic instability leads to civil instability as well.

Violent protests erupted across Lebanon on Saturday after the country’s currency plummeted to a new record low, amid an economic crisis that poses the biggest threat to its stability since the 1975-1990 civil war.

The Lebanese pound has lost roughly 85 percent of its value in recent months and slid to a record new low on Saturday, falling to 12,500 pounds to the US dollar on the black market, though the official rate remains at roughly 1,500 pounds to the dollar. 

In response, there was a protest near the parliament in Beirut, during which protesters briefly stormed a reinforced gate leading into the compound, only to be repelled by riot police firing tear gas canisters.

“We are hungry. It is that simple. That is why we are taking part here,” said one protester.

Additional protests were held in Tripoli, Sidon, and Tyre, with road blockades reported throughout the country.

. . .

French Foreign Minister Jean-Yves Le Drian, who has led international efforts to break the deadlock in Lebanon and bring the country back from the brink, gave a stark assessment of the reality facing its population. 

“I do believe that it is still not too late, but we're running out of time before total collapse,” he said on Thursday.

Again, more at the link.

If you're wondering why I'm highlighting the situation in Lebanon, please go back and re-read my article last week titled "The economic elephant in the electoral fraud living-room".  I'd say it's not unlikely that we may face similar problems in this country as the dollar continues its decline, and our economy runs out of money.  All we've done for years is paper over the cracks by issuing massive amounts in Treasury bonds, and getting the Federal Reserve to generate massive quantities of dollars to "buy" them.  It's been nothing but an exchange of pieces of paper, with no sound underlying economic reality to back them up.

Sooner or later, those economic chickens are going to come home to roost - and then what's happening in Lebanon today may well begin to happen here, too.  I've seen it in the Third World before, and I'm under no illusions that our battered, perilously balanced First World economy is in any better shape to withstand that.

Peter