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Dan Dorfman

Dan Dorfman

Posted: March 1, 2011 07:02 PM

From Tunisia to Egypt to Libya. So where does the parade of revolutions head next? Did I hear someone blurt out Bahrain, Yemen or maybe Oman? Sounds reasonable to me since all three have been stung by recent protests and riots.

Or maybe, suggests Jordan militant and trader Caise Hassan, even Saudi Arabia, the world's biggest oil exporter, whose stock market slumped to a nine-month low on a hefty 11.6 percent loss in just the past three days alone on fears the demonstrations in Libya could spread there.

But wait. Bryan Rich, editor of the World Currency Trader, a Florida-based investment newsletter that tracks the action in currencies around the globe, offers another perspective. "Don't rule out Europe, especially Ireland and Greece," he says.

Surprisingly, he thinks the social unrest could also strike China and India, the planet's two fastest growing economies. Why so? Because despite the growth, he feels both countries are vulnerable to such strife as they have the world's largest poor populations where the distribution of wealth has become increasingly disparate. Russia and Brazil are also included in his candidates for social unrest.

"But before we see social unrest in China and India choke off global growth, Europe may derail the world's economic recovery first," says Rich.

His warning about fresh European unrest sounds like old news, since riots and demonstrations have already happened there. What's more, they've been widely reported. Rich, though, looks at it as new news. In essence, he sees a resumption of the protests and riots that occurred in a number of Eurozone countries during the past few years as a result of the sovereign debt crises, possibly within the next three months.

"Unrest begets more unrest; it's contagious," he says.

Judging from last year's $1 trillion rescue package from the European Union and the nonstop climb in stock prices here, Wall Street is clearly viewing future European risks as ho-hum. Rich, though, isn't yawning. In contrast, he expresses concern, essentially arguing that Europe's financial dilemma remains serious and explosive and could resurface in a major way at any time.

Why could we see renewed chaos in Greece and Ireland (Rich also tosses in Spain and Portugal)? Because all the ingredients in Europe are there, explains Rich, such as high unemployment, stagnant growth, austerity measures, and little hope of restoring the standards of living of three to five years ago. He also points to Europe's fractured fiscal policy, flawed structures and the lack of a unified monetary policy.

Given the massive $2 trillion exposure European banks have to Eurozone sovereign debt, "government defaults," warns Rich, "could easily send the global financial system back into a dangerous tailspin."

He also believes that if people in the weak Eurozone countries get fed up with the reality of austerity and rising food costs, they could well stand up to their governments and scream "no more." That implies, as well, a call for a reduction of the interest on their debt and the need for bondholders to be willing to accept losses.

What does all all of this mean? Some of the ominous possibilities, as Rich sees them, economic shocks that threaten stability, runs on European banks, which we're already seeing to some degree in Ireland and Greece, the withdrawal from the European Union of some PIIGS (Portugal, Ireland, Italy, Greece and Spain), a big decline in the Euro and a massive sell off of equities around the globe, including the U.S.

Viewed as yet another likely result: a flight into the dollar as a safe haven.

What do you think? E-mail me at Dandordan@aol.com.