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Egypt and Turkey: Middle East Basket Cases

No wonder the country is blowing up. An out-of-control kleptocracy is frantically trying to close on townhouses in Chelsea and apartments in the 16th arrondissement before the central bank's foreign exchange reserves run out. What will ensue, will be horrifying.

Turkey is in no danger of starvation, to be sure, but it faces a severe economic setback: Tayyip Erdogan, the country's Islamist prime minister, spurred the country's banks to lend huge amounts to consumers in advance of last June's national elections. Bank lending rose by 40% in 2010 and by another 40% in 2011, and Turks bought consumer goods from abroad, running up a balance of payments deficit exceeding 10% of GDP (the same level as Greece). Most of that is financed by short-term debt. Turkey won't go bankrupt -- it's overall debt levels are manageable -- but its economy will have to shrink by a good 5% to staunch the bleeding. That will deflate the neo-Ottoman balloon that Erdogan has been floating, and make it much harder to suppress Turkish grievances in the impoverished Eastern corner of the country.

There is no center of power, no reorientation, no neo-Ottoman empire, no Shi'ite crescent, no Arab Spring, no coherent description of what is occurring in the Middle East. There is only catastrophic social breakdown, civil unrest, despair and violence. If Iran gets nuclear weapons, they will be used. We cannot fix the Middle East. We can only protect ourselves from the fallout, starting with acquisition of WMD by a terrorist state. The last sentence of my book How Civilizations Die (and why Islam is Dying, Too) quotes Virgil's warning to Dante in Canto III of the Inferno: Non ragionam da lor, ma guarda e pasa. Nothing to see here, folks. Keep moving.



Chart forMarket Vectors Egypt Index ETF (EGPT)