Monday, March 26, 2012

Why Iran is so Desperate for Confrontation? Hyperinflation?

Iranian President Mahmoud Ahmajinedad
The last refuge of the incompetent throughout history has always been war. Iran is now suffering hyperinflation according to EA Worldview.
“An EA source reports that a relative in Tehran ordered a washing machine for 400,000 Toman (about $240) this week. When he went to the shop the next day, he was told that — amidst the currency crisis and rising import costs — the price was now 800,000 Toman (about $480).
Another EA source says that the price of an item of software for a laptop computer has tripled from 50,000 Toman to 150,000 Toman within days.”
What gets lost is why Iran is suffering hyperinflation, government. Simply put according to the CIA the Iranian government collects 31.2% of the GDP (the USA is currently spends 25.3% and collects 14.4%) in taxes and spends that amount stifling private enterprise. To quote the CIA;
“Iran’s economy is marked by an inefficient state sector, reliance on the oil sector, which provides the majority of government revenues, and statist policies, which create major distortions throughout the system. Private sector activity is typically limited to small-scale workshops, farming, and services. Price controls, subsidies, and other rigidities weigh down the economy, undermining the potential for private-sector-led growth. Significant informal market activity flourishes. The legislature in late 2009 passed President Mahmud AHMADI-NEJAD’s bill to reduce subsidies, particularly on food and energy. The bill would phase out subsidies – which benefit Iran’s upper and middle classes the most – over three to five years and replace them with cash payments to Iran’s lower classes. However, the start of the program was delayed repeatedly throughout 2010 over fears of public reaction to higher prices. This is the most extensive economic reform since the government implemented gasoline rationing in 2007. The recovery of world oil prices in the last year increased Iran’s oil export revenue by at least $10 billion over 2009, easing some of the financial impact of the newest round of international sanctions. Although inflation has fallen substantially since the mid-2000s, Iran continues to suffer from double-digit unemployment and underemployment. Underemployment among Iran’s educated youth has convinced many to seek jobs overseas, resulting in a significant “brain drain.”"
Now all the saber rattling in the Persian Gulf makes sense. The Iranian government has over committed itself with expenditures and is printing money to fill the deficit, which it cannot finance like the USA at 0.008% interest rates, and must try to create tension to drive up the price of its main export, oil.
But what will happen when the USA cannot finance its debt at 0.008%?

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