Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts

Wednesday, May 9, 2007

Tightening The Iranian Screw & Screwing The Iranian Economy

Who would have thought that Ahmedinejad himself, the Supreme Mouth of Iran, would turn out to be our best agent in the effort to effect regime change. I posted earlier that Iran's economy is bomb waiting to explode and Ahmedinejad's response, rather then economic reform, is to crack down throughout the country in the hopes of stopping the fuse from reaching the powder. Whose advising Mamoud anyway, the CIA? At any rate, now the Iranian author Amir Taheri weighs in on the topic to give us additional perspective:

For the past five weeks, President Mahmoud Ahmadinejad's Islamic Moral Brigades have been clashing with groups of young Iranians on the streets of Tehran and other major cities over the government's crackdown on "immodest dress." The crackdown is seen by many Iranians as another step toward an even more suffocating social atmosphere in the crisis-stricken country. Both Mr. Ahmadinejad and his mentor, the "Supreme Leader" Ayatollah Ali Khamenei, claim that the way young Iranians dress is the most immediate threat to their Islamist dystopia.

. . . While social issues continue to poison life in the Islamic Republic, it is economic issues that spell the most trouble for Mr. Ahmadinejad's struggling presidency.

Last week tens of thousands of angry workers, forming an illegal umbrella organization, flexed their muscles against President Ahmadinejad on International Labor Day in Tehran and a dozen provincial capitals. Marching through the capital's streets, the workers carried a coffin draped in black with the legend "Workers' Rights" inscribed on it. They shouted "No to slave labor! Yes, to freedom and dignity!"

Mr. Ahmadinejad centered his 2005 presidential campaign on a promise to "bring the country's oil money to every family's dinner table." After the election his position was boosted by a dramatic rise in oil prices, providing him with more than $100 million a day in state revenues.

And, yet, all official statistics show that, with inflation running around 18% and unemployment jumping to more than 30%, the average Iranian is worse off than three years ago. . . Under President Ahmadinejad . . . the growth rate has dropped to around 3%--and that despite rising oil revenues.

Because it controls the oil revenue, which comes in U.S. dollars, the Islamic state has a vested interest in a weak national currency. (It could get more rials for the same amount of dollars in the domestic market.) Mr. Ahmadinejad has tried to exploit that opportunity by printing an unprecedented quantity of rials. Economists in Tehran speak of "the torrent of worthless rials" that Mr. Ahmadinejad has used to finance his extravagant promises of poverty eradication. The result has been massive flights of capital, mostly into banks in Dubai, Malaysia and Austria. Ayatollah Mahmoud Shahroudi, the Islamic Chief Justice, claims that as much as $300 billion may have left the country since President Ahmadinejad was sworn in.

According to Abbas Abdi, a Tehran researcher and loyal critic of the regime, Iran is experiencing its worst economic crisis since the late 1970s. The effects of this are seen in the slowdown in real-estate prices--the first since 1997, even in Tehran's prime districts. Printing money and spending on a no-tomorrow basis are not the only reasons for the crisis. President

Ahmadinejad's entire economic philosophy seems to be designed to do more harm than good. The president's favorite catchword is "khodkafa'I" or "self sufficiency." To the horror of most Iranians, especially the millions connected with the bazaars, who regard trade as the noblest of pursuits, Mr. Ahmadinejad insists that the only way Iran can preserve its "Islamic purity" is to reduce dependence on foreign commerce.

"Whatever we can produce we should do ourselves," the president likes to say. "Even if what we produce is not as good, and more costly." His rationale goes something like this: The global economic system is a Jewish-Crusader conspiracy to keep Muslim nations in a position of weakness and dependency. Thus, Muslims would do better by relying on their own resources even if that means lower living standards.

One of President Ahmadinejad's first moves was to freeze a six-year-old policy designed to help the Islamic Republic become a member of the World Trade Organization; in his book the WTO is just another "Jewish-Crusader" invention to cement the inferior position of Muslim economies. . . .

Convinced that Islam is destined for a "clash of civilizations" against the "Infidel"--led by the U.S., of course--President Ahmadinejad is determined to preserve what he regards as the Islamic Republic's "independence." One of his favorite themes is the claim that, forced to choose between freedom and independence, good Muslims would prefer the latter.

Khodkafa'i has had catastrophic results on many sectors of the Iranian industry. Unable to reduce, let alone stop, imports of mass consumer goods (including almost half of the nation's food) controlled by powerful mullahs and Revolutionary Guard commanders, President Ahmadinejad has tightened import rules for a range of raw materials and spare parts needed by factories across the nation. The policy has already all but killed the once-buoyant textile industry, destroying tens of thousands of jobs. It has also affected hundreds of small and medium-size businesses that, in some cases, have been unable to pay their employees for months.

Mr. Ahmadinejad has also used khodkafa'i as an excuse to freeze a number of business deals aimed at preventing the collapse of Iran's aging and semi-derelict oil and gas fields. He has also vetoed foreign participation in building oil refineries, forcing the Islamic Republic to import more than 40% of the refined petroleum products consumed in Iran. The prospect of a prolonged duel with the U.N., and possible military clash with the U.S., has also hurt the Iranian economy in the past six months.

One result of the president's weird policy is the series of strikes that have continued in Tehran and at least 20 other major cities since last autumn. Last year, one major strike by transport workers in Tehran brought the city of 15 million to a standstill for several days. Right now tens of thousands of workers in industries as diverse as gas refining, paper and newsprint, automobile, and copper mining are on strike.

President Ahmadinejad, however, is determined to impose what looks like a North Korean model on the Iranian economy. He has already dissolved the Syndicate of Iranian Employers (SKI) as a capitalist cabal, and plans to replace it with a government-appointed body. He is also pushing a new Labor Code through the Islamic Majlis (parliament) to replace the existing one written with the help of the International Labor Organization in the 1960s and amended in 1991.

The proposed text abolishes most of the rights won by workers throughout the world as a result of decades of social struggle and political reform. President Ahmadinejad believes that Western-style trade unions and employers' associations have no place in a proper Islamic society where the state, representing the will of Allah, can keep the "community of the faithful" free of class struggle, a typical affliction of "Infidel" societies.

Mr. Ahmadinejad's next coup will likely be a major privatization scheme affecting more than 40 public corporations across the country. He has promised to help the employees buy up to 10% of the shares. The rest will go to rich mullahs and Revolutionary Guard officers and their business associates, using low interest loans from state-owned banks. By the time the scheme is ready, however, the Islamic Republic may be facing too deep an economic crisis for anyone--even greedy mullahs and corrupt Revolutionary Guardsmen--to want to invest even a borrowed rial there.
Read the entire story here. It warms the heart to see the Supreme Mouth in action.

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Saturday, May 5, 2007

Iran's Economic Time Bomb

Even as the Supreme Guide and the Supreme Mouth of Iran, Khamenei and Ahmedinejad respectively, seek to go nuclear, it may well be the local Iranians who go nuclear first. The clerics of Tehran and the IRGC have never paid that much attention to the economy, other then to squeeze every last dime from it that they can get. The Iranian economic system is famed for its corruption. But, up to now, subsidy of many everyday products, such as gas, have kept the middle class from joining the many segments of Iranian society ready to go into open revolt. Now as the economics get ever worse, the clerics are seeking to lay all the blame on Ahmedinejad and jettison him in hopes of keeping their skins intact and their bank accounts solvent (Allah be praised):

The play has ended and the 15 British pawns have returned to their families. The verdict is that President Mahmoud Ahmadinejad neither enhanced his image as the divinely inspired warrior, who humbled the British lion, nor as the humanitarian, who freed the fifteen helpless prisoners.

The public was not fixated on the television drama that Ahmadinejad presented. Instead, Iranians are watching the prices of tomatoes and other basic necessities rising at between 20% and 40% per annum, while salaries and wages are scarcely moving.

On 21 May, the long awaited next economic blow will strike when gasoline rationing goes into effect. Iranian drivers will be limited to three litres per day at the subsidized cost of 40 cents per gallon. They will be permitted to purchase more than the three litres, but anything beyond the limit will be at a higher price. What that higher price will be has not been announced.

Rationing is the final admission by the Ahmadinejad administration that the program of promised prosperity that began a mere two years ago has failed and has brought only inflation, hardship and unemployment. The president’s preoccupation with verbal warfare with the rest of the world has done nothing to improve the lives of the Iranian public.

. . . [Ahmedinejad's recent] statements to the outside world may reduce the level of tension, but his political survival does not depend upon what foreigners think. His survival will be determined by what Iranians do; and they have spoken already. President Ahmadinejad’s days are numbered. His failed policies have alienated the lower income portion of the population that had been is strongest supporters.

He ignored in December the discontent of the public when his faction was defeated in the local elections. In spite of the severe losses, he continued his confrontations with the U.S. and the U.N.

Although he failed to heed the warning from the disenchanted voters, the conservative clergy that had elevated him from obscurity as the mayor of Tehran to the prominence of the presidency, were aware of his falling star. In January, while Ahmadinejad was visiting Hugo Chavez of Venezuela and other leaders with an anti-American view, the unelected Supreme Leader Ayatollah Ali Khamenei withdrew his support. Since then, the Supreme Leader has retreated into the safety of the shadows, while Ahmadinejad remains exposed to the public scorn.

Blame for everything that has gone wrong with the economy is being placed directly upon Ahmadinejad. Ayatollah Ali Khamenei said that “economics is for donkeys,” but he is demonstrating by his silence that he understands just how hard a hungry donkey can kick.

Ahmadinejad is learning that his former supporters have abandoned him and that is personal connections with the divine world will not protect him from the angry public. For that, he is relying upon the police and brute force. Any demonstration is being met with police batons and arrests. Opposing newspapers have been shut down; bloggers are being required to register. Once ignored morality codes are being enforced with a new vigour. Women wearing Western fashions are being warned that they can be flogged and barbers are under orders to provide only Islamic haircuts or face revocation of their business licenses.

The crack down gives signs of a pre emptive strike by a government preparing for worse conditions ahead. The real trouble is expected when the full impact of the rationing regulations is felt. During April, the first sign was an increase in the minimum charge by taxis that are often used for car-pooling. One more squeeze on already stretched home budgets could very easily be the breaking point that could send people into the streets to demand the resignation of the president. Saeed Laylaz, an Iranian economist, believes that rationing will stir social disorder and further economic stresses. His words are given credibility by the open grumbling that is being heard on the streets.

Khamenei and the “Grey Elite,” the conservative clergy that dominates much of Iranian life, seems to be preparing for Ahmadinejad’s departure. When the protesting demonstrators turn into the screaming mobs that want someone to pay for the public misfortune, the clergy will need a scapegoat; and no one fills that role better than Ahmadinejad, who has spent the two years of his administration cultivating the image of the firebrand.

Waiting in the wings to replace Ahmadinejad is Brigadier General Mohamed Baqer Qalibaf. Like Ahmadinejad, he was a member of the Iranian Revolutionary Guard (IRG).

Mohamed Baqer Qalibaf was chief of the national police and succeeded Ahmadinejad to the office of mayor of Tehran. While Ahmadinejad has been portrayed often as a mystic, Mohamed Baqer Qalibaf is described as a “pragmatic conservative,” a man concerned with civic improvements and not with international confrontations.

. . . This is not a change in the essence of the system that gives the clergy its privileges. It is a change only of style in an effort to preserve the status quo, while giving the appearance of substantive change. A brief look at Qalibaf’s credentials reveals a man dedicated to the preservation of the current system.

How quickly the change comes will depend upon the determination of the demonstrators in the streets. When the mob demands blood, the Ayatollah will serve up the head of Ahmadinejad to satisfy the blood lust.

For the outside world, it should bring a respite from the months of threats and bluster. At that point, how much of a risk premium has been built into the price of crude oil should reveal itself. Whatever it is, the oil markets are likely to experience a softening in price, which actions by the George Bush Administration is making a more likely possibility.

. . . Now, we wait. Already, the grumbling in the streets has begun. Somewhere down the road in the near future, as people run out of gas, Ahmadinejad will run out of time. The neglected people will openly express their rage, and the pretence of change will come. It should for a while lower the pressure in the region; and it will all depend upon the anger of the mob.
Read the entire article here. My own personal suggestion to Khamenei and his corrupt and bloody clerics is that they pacify the mobs by suggesting that they eat some cake.

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Saturday, March 3, 2007

Trade, China, and Economic Reform


1776 was a watershed year. Not only was America born, but Adam Smith penned his famous treatise on capitalism, "The Wealth of Nations," wherein he advocated for free trade and the dismantling of protectionist schemes. His ideas were as true then as they are today, and in the long run, nations which follow his advice are the most wealthy. But it is a constant battle, as governments have a natural inclination to protectionism and, in many cases, subsidization of elements of their domestic economy. And we see these forces playing out in the grand stage today in China and the U.S. It was the recent topic of an interview on NPR with United States Treasury Secretary Henry Paulson.


BLOCK: People whom you might consider protectionists would say, 'We're defending American workers who have seen their jobs shipped overseas. That's not – if that's protectionist, that's protecting people at home.'

PAULSON: Oh, absolutely. That's absolutely what they're saying. And another point I made in the speech is, let's not trade away the benefits of the future to deal with short-term problems, dislocations. You know, we've always had – job losses are very painful wherever they occur, and I don't take them lightly, and I don't think at any point in our history people have taken them lightly — but the fact is more of the job losses, in my judgment, are coming from technology and automation than they are for global integration. But I don't have people – one of the things I said in the speech is, you don't hear people say, let's turn back technology; let's shut off the Internet.


Read the transcript of the entire interview here.


Update: Niall Ferguson has an article in today's Telegraph discussing the interrelationship of the Chinese and American economies, or as he terms it, Chimerica.

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Wednesday, February 21, 2007

AARP SEEKS REFORM OF SOCIAL SECURITY. See here. Why now?

I for one have lost all respect for the AARP. Their extensive campaign against Bush's proposals to tackle the problem of Social Security, coupled with incredibly cynical arguments from Democrats (led by Harry Reid, who had years before sought to allow Congressman to opt out of the Social Security system), doomed Bush's plan to failure. If you will recall, the Democrats and AARP accomplished this without proposing any alternatives. Now, with a Democratic Congress, the AARP seeks to reengage on the Social Security issue. People, the AARP are not your friends.

Since this is a new blog and I have not addressed this subject before, I am going to take the opportunity now. As a threshold matter, if a private individual ran Social Security, he would be put in jail for running a ponzi scheme. A ponzi scheme is a classic of white collar crime. It is where a person takes your money for investment but, instead, spends it, relying on future deposits to cover then current payouts. That is in essence what happens with Social Security. Our Social Security taxes first fund current payouts, then the remainder goes into the general fund to be spent by the government that year. Thus, Social Security, like a ponzi scheme, is doomed to fail.

Bush proposed to both fully fund Social Security and to allow a portion of those funds to be invested in the stock market or a bond fund. Such a plan is precisely what we need.

One, it would give everyone a stake in the economic growth of this nation -- i.e., the profitability of U.S. business. We do not have that now. We have poorly designed and often gross over regulation of businesses (i.e., Sarbanes-Oxley), we have attacks on profitable businesses (i.e., Walmart), we have a litigation system that at times resembles a lottery (punitive damage awards that can literally drive companies out of business), we have unions with far too much power to prevent changes in business models so as to insure profitability (i.e., American automobile manufacturers), we have Hillary Clinton threatening to nationalize at least a portion of our oil and gas industry as well as health care, and our taxation systems on corporations and capital gains are and will cause capital flight. If we all had a stake in the wealth of our nation, I have no doubt there would be much less "class warfare" and much more emphasis on increasing profitability and reasonableness in all of the areas listed above.

Two, the historic returns of the stock market are far greater then a calculated rate of return on total investments into Social Security. In attacking a private account plan for Social Security, Harry Reid put up a web site that showed a person investing in a stock plan with a lower payout than what they would have received through a straight Social Security account. If memory serves, I believe he calculated a much weaker economy in the future and a rate of return for stocks at 3%. Based on historic rates of return (over 10% annually since 1938 by my spreadsheet), that is just purely ridiculous and displays the ultimate in cynicism.

Now, gather around brothers and sisters . . . here is a little secret -- if our stockmarket is not performing above 3% over a ten year period, then our economy is in the tubes. Our ability to pay out Social Security at a higher rate of return will necessarily be impaired because our tax base will be insufficient. In other words, the government will have to print money or sell far more government bonds to China in order to fund the payout. The first is inflationary -- thus decreasing the value of the Social Security payout -- while the second is a massive increase in our national debt which will eventually come due.

The cost of funding the Bush program is high -- but we can bite the bullet now our later. Certainly for our progeny, the Bush program was and still is our best option. I for one would willingly submit to a temporarily higher tax burden in order to fund such a plan. What say you?.

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Saturday, February 17, 2007

GOOD NEWS ABOUT THE ECONOMY. From across the pond . . .

The [U.S.] economy seems about as good as it can get. But the political life of America is a mess . . .
As we all know from November, the economy only counts if its bad . . . at least when there is a republican at the helm. Read the whole story.

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