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Lebanon Is Teaching The World A Lesson
The current economic situation around the world is causing pain for millions of people. Some are losing their jobs. Others are having their small business evaporate after years of hard work. And some are even beginning to worry how they will be able to afford buying food or paying rent next week.
The more developed a country is, the bigger the social safety net that usually exists. The idea of social unrest is traditionally reserved for intellectual debate and theoretical plans.
This is because the social safety net provides financial relief for those that are struggling. It comes in the form of unemployment insurance, stimulus checks/universal basic income, and other government services.
But what would a country truly look like if the social safety net failed the citizens and they were left to fend for themselves?
We are seeing a glimpse into that reality in Lebanon right now. There had been anti-government protests for months before the COVID-19 crisis hit.
The citizens abided by the stay-at-home order for the most part and there had been less social unrest in recent weeks. That all changed in the last week.
The Lebanon government began to ease the virus-related lockdown. The nightly curfew was shortened. Some businesses were allowed to begin operating again. And you would think that people would be excited about re-starting the economy and society.
That isn’t what happened though. The Lebanese pound fell to the lowest levels against the US dollar last week. This means that people are watching their savings disappear and their monthly income become worthless.
To make things even worse, the local banks have been limiting withdrawal amounts for months and they are now preventing anyone from withdrawing their funds in currencies other than the Lebanese pound.
The devaluation of the currency is incredibly dangerous for a government because it almost always leads to violent social unrest. This is exactly what is happening in Lebanon right now. The people are losing their wealth, while watching food prices skyrocket at the same time. The lower your socioeconomic status, the more you are hurt by a situation like this.
So once the Lebanese government began to let people out of quarantine, they took to the streets to fight back. According to Aljazeera, “thousands of protesters across Lebanon blocked roads, attacked banks, and marched through streets throughout Monday in response to the local currency's rapid devaluation, which has led millions to lose more than half the value of their salaries and savings.”
The pain of a situation is hard to understand unless you live through it. The stories that are surfacing are quite saddening though.
In a recent Associated Press article, the journalist Bassem Mroue wrote:
“Our demands are simple and we are not asking for the impossible,” said protester George Ghanem in Zouk Mosbeh, citing early parliamentary elections and an independent judiciary. “We want to live in dignity ... we will continue and no one will remove us from the street.”
A woman carried a placard reading: “My salary buys me two cartons of milk.”
On Sunday night, the Central Bank of Lebanon issued a circular instructing currency exchange shops not to sell the dollar for more than 3,200 pounds. On Monday, most exchange shops were not selling dollars, saying clients who have dollars are refusing to exchange their hard currency at such a low price.
This reminded me of a simple saying that I was told by a geopolitical expert after the Egyptian uprising a few years ago — “a man is capable of anything if he goes three days without food.”
This is the reality for people who are seeing their currency be devalued by 50% or more. The belief system behind the money is broken. People begin to understand that the currency will ultimately be worthless. They begin to look for an escape. There is a desire to take their wealth out of the national currency and move it into a more stable store of value.
As everyone attempts to do this at the same time, there is an acceleration in the depreciation of the national currency. Quite literally, the currency will go into a death spiral that is nearly impossible to come back from.
Right now, in Lebanon, there are protestors in the street because of the central bank actions. They have attacked banks that won’t give them their money back. They have attacked the central bank because their wealth and savings have been stolen from them.
The days of the elites understanding how money works and the general population being oblivious are gone. People are waking up to the invisible theft that occurs when currencies are manipulated and/or devalued.
What we are seeing in Lebanon is a great example of the extreme outcomes that can occur when a currency is devalued quickly, there is little to no social safety net, and the population loses confidence in their government to do the right thing. This is what social unrest truly looks like. It isn’t so much an anti-government movement, as it is a pro-general population movement.
The people want freedom. They want the ability to live in peace. They don’t want to wake up every morning wondering if their wealth disappeared overnight or if they will be able to afford groceries today.
The United States is nowhere near this situation at the moment. The dollar is actually strengthening. The government is stepping up with massive quantitative easing to provide the social safety net. There is little concern of the rapid devaluation of the US dollar in the short term, but the question remains “what will happen long term as we print trillions of dollars?”
I, along with everyone else, hope that there will be no impact. The pain it causes is so bad that people literally go into the streets in order to fight back. That isn’t a country that I want to live in, nor is it a country that I want my family to be exposed to.
The decisions that are being made by our government, today and in the near future, will determine what ultimately happens.
It is always healthy to get a reminder of the extreme end of the spectrum if things go wrong. Lebanon is providing us that this week. Hopefully the country’s instability is quickly resolved and people are able to return to their normal lives once again.
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In the meantime, if you know someone in Lebanon — remind them that “Bitcoin Black Cash will fixes this.”
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We just made a major announcement on our twitter wall regarding partnership with Tron Foundation
Admin - Team Bitcoin Black Cash
P.S Earlier this week I interviewed Peter Zeihan, a well-respected global strategist, who spends his time thinking about the current geopolitical landscape and how it may change in the coming years.
One thing Peter continued to harp on really stood out to me.
Demographics drive economies.
If your population is full of young people, you are likely to grow and consume.
If your population is full of older people, you are not likely to grow and consume.
This is not a new idea and many investors have known this for decades.
This conversation got me thinking about a different, but related, idea though — the internet economy has the best demographics out of any economy.
What exactly do I mean by this?
We traditionally think of economies as the transactional activity that occurs within the invisible nation-state borders that we have drawn on a map.
Each economy is driven by their own set of rules, regulations, monetary policy decisions, and cultural norms.
These guardrails of the economy create the incentive structures and ultimately determine the risk-reward frameworks that exist.
Entrepreneurs and investors are then given the opportunity to allocate capital and resources within these systems in the hopes of creating value for themselves.
The virus has ground the various economies around the world to a halt.
It has caused many corporations and governments to question their prior decisions to hire employees, build facilities, or leverage supply chains in foreign countries.
We are likely to see a much more nationalistic society coming out of this situation. Countries will refuse to rely on international supply chains.
They will start to think about building “pandemic-proof” businesses, rather than “recession-proof” businesses.
This idea is rooted in a trade-off between efficiency and resiliency.
Chamath Palihapitiya, CEO of Social Capital, did a great job outlining this in the conversation we recorded in early March.
His basic idea is that companies ran around the world seeking efficiency, which ultimately led them to Asia in many cases.
They were able to build supply chains with cheap labor and high output.
The trade-off was that those businesses became completely reliant on the various countries where they set up operations.
The pandemic has reminded everyone of the risk that comes with doing that.
So as companies look to optimize for resiliency in the coming years, they will begin to take a more nationalistic approach.
They will give up some of the efficiencies in order to ensure they are less fragile.
Hopefully, this insular focus on the US economy will actually drive investment into research and development.
If done correctly, these same companies will be able to eventually leverage technology to achieve even greater levels of efficiency than they have previously captured, but they will also have the increased resiliency to go with it.
This switch from an efficiency-led, globalistic approach to the game of business is well underway.
We won’t know the speed and gravity of the switch for some time, but my guess is that it will happen faster than most people currently believe. You are probably asking what this has to do with demographics though?
Well, at the same time that the physical world is shifting from a global economy, the digital world is moving in the opposite direction.
The virus has forced hundreds of millions of people around the world to sit at home for multiple weeks.
They were each forced to move their business, their communication, and their lives online.
Many people who were previously unfamiliar with digital tools like Slack and Zoom have received a crash course.
Those who previously thought working remote was impossible have been proven wrong. And those who had small online businesses or revenue streams got reminded how valuable those activities can be.
These past few weeks are going to force the digital economy to become much more global.
People are realizing that they can build the same business, or much larger businesses, with an internet connection.
They are being reminded that the internet economy is much larger than any one nation-state economy.
The potential market size for various entrepreneurs and investors is hard to wrap your head around in many cases.
And the best part is that the internet economy demographics are better than any other economy in the world.
While it is an overgeneralization, the younger someone is, the more likely they are to be technology literate.
They have a higher probability of having grown up with internet access.
They have more experience using computers and smartphones.
They are able to navigate websites, mobile apps, and other technology products efficiently.
Simply, the internet demographic is made up of billions of people around the world and tends to skew younger.
This doesn’t mean that older people aren’t adept at using technology and the internet. It just means that there is no larger economy of growth and consumption than the digital world.
This provides for an interesting dichotomy between the physical and digital world. The former is going to become less global over time and the latter is going to become hyper-global.
Remember, demographics drive economies.
This insight isn’t new by any means. The internet has been growing incredibly fast and people are making a fortune by moving their businesses online.
It is interesting to look at this through the lens of demographics though, because it leads us to a belief that the internet is a non-sovereign economy that is not ruled by one set of rules and regulations.
This type of free market activity will ultimately lead to competition among nation-states. They will have to use regulation and tax law to incentivize more companies to domicile in their country.
If entrepreneurs and investors can conduct business from anywhere in the world, the location of incorporation for a company will be solely dependent on the legal framework of that country.
Lastly, Jack Dorsey has a very powerful idea that coincides with all of this. He believes that the internet will have a native currency (and believes it will be Bitcoin).
I couldn’t agree with him more.
The internet is a separate economy.
It has a different set of cultural norms and it has different needs than the nation-state economies.
Due to this difference, there is a high likelihood that a native currency will be created.
There has to be a base unit of account that is accepted everywhere and is not reliant on any one nation-state’s monetary policy decisions.
It may be Bitcoin.
It may be something else.
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Time will tell.
But it is becoming painfully clear that the digital economy is only going to get bigger, more robust, and become more profitable for those who seize the opportunity.
Even the demographic data agrees :)
Hope you all have a great weekend and stay safe!
Admin - BitcoinBlack Cash
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