Blissful Ignorance: Why the Financial Markets are Ignoring the Crisis in Egypt

Posterised Vector of Ronald Reagan by Iain Forbes

There is little acknowledgement of the trouble that lies ahead when relying on a philosophy of “blissful ignorance” in regards to Egypt and its impact on the economy.

 The phrase “ignorance is bliss” is a passage from a Thomas Gray poem “Ode on a Distant Prospect of Eton College” (1742). The complete phrase, “Where ignorance is bliss, ‘tis folly to be wise” has often been interpreted as “what you don’t know can’t hurt you”. Unfortunately, using this proverb as the approach by which the United States deals with situations in the Mideast is a dangerous and destructive philosophy.

The most egregious U.S. foreign policy mistake of the last 50 years was Jimmy Carter’s decision to demand the Shah of Iran to step down, together with turning power over to the Ayatollah Khomeini. Carter’s ignorance as to who would fill the “power vacuum” was specifically what led to the grave situation we have in Iran today. President Mahmoud Ahmadinejad presides over one of the most perilous regimes the world has ever known — who exist for the purpose of destroying Israel and the United States.

In the recent Egyptian crisis, the mass protests endure, demanding an end to President Hosni Mubarak’s 30 year rule. It has become apparent that the result will be a “power vacuum” similar to the one created in Iran 30 years ago.

As much of the world applauds the possibility of a Western democracy, it’s important to acknowledge that few “revolutions” succeed without years and sometimes decades of extreme conflict — especially when such polar opposite parties are positioning for power. Organizations such as THE MUSLIM BROTHERHOOD have goals which harbor establishing SHARIA law throughout the world through world domination and Jihad. The Muslim Brotherhood has been banned from Egypt and will without question fight to fill “the power vacuum” to achieve its ultimate goal.

The Dow ended last week up 2.3% and the SP gaining 2.7% with the Nasdaq composite gaining 3.1% after stocks like JDSU (NYSE:JDSU), Aetna Inc. (NYSE:AET), Tyson foods (NYSE:TSN), all beat earnings estimates and conveyed a positive outlook for  the future.

The markets are paying very little attention to Egypt, instead focusing on what they view to be a continuation of the recent recovery. There is little acknowledgement of the trouble that lies ahead when relying on a philosophy of “blissful ignorance” in regards to Egypt and its impact on the economy.

1-The protests, although large in size, have been relatively peaceful giving investors the feeling that the transition to a democracy will be smooth and without consequence. Who can forget the image of the tank commander embracing one of the protestors? The United States has been sending charter flights to evacuate tourists and the press, leaving Egypt with very few objective journalists to talk about what’s actually happening. We are left to rely on a small number of correspondents for our information.

2-The Obama administration while expressing a need for political reform and having Mubarek step down, seemingly ignores the possibility of an “unfriendly regime” interceding. There is no mention of the threat of having Egypt become a “second Iran”. With a population of approximately 80 million each in Egypt and Iran, the combined opposition will be about 50% of the U.S. population, about 20 times the population of Israel, and can cause a shift to the dominant hostile presence in the Mideast.

3-The Obama administration is not acknowledging the talks held between the banned Muslim Brotherhood and Egypt’s Vice President Omar Suleiman. These talks involve massive concessions to the Muslim Brotherhood as an attempt to prevent a violent uprising. However, these efforts have a high probability of failure, greatly increasing the potential of violence in the region.

4-Investors believe the uprising is a result of the Egyptian people’s desire to become a democracy; however, it’s really food inflation which is the ultimate cause. Fitch Ratings determined food inflation in Egypt to be at 18% and Egyptians blame this on the Mubarek administration. Furthermore, the weak currency policy in both the U.S. and China has resulted in massive inflation, spreading throughout the world — including the US. Inflation will be the single biggest threat to the U.S. economy, the equity markets and the world economy.

Most of the economic and geopolitical  calamities we’ve faced as a nation have been the result of engaging in a policy of “blissful ignorance“, by ignoring “what is” for what we want things to be. The U.S. as a freedom loving democracy wants nothing more than to have our enemies retreat through concessions and eventually become our friends. What could be better than Egypt with its vast resources and Suez Canal to become “just like us”? This will not happen overnight in Egypt and we must have a realistic understanding of the long road ahead.

It is imperative that we abandon our “blissful ignorance” when it comes to the economy and understand the consequences of the inflation which we have played a big role in causing. We must recognize the potential of a massive security threat involving the potential of having “two Irans” as opposed to one.

To contend with difficult times like these, it is not “folly to be wise” and to quote Ronald Reagan, We cannot play innocents abroad in a world that is not innocent”.