Once again I am indebted to Gary North for an article to his members only for an insightful discussion of the hyperinflation going on in Iran. Indirectly, he paints the picture for what will inevitably happen here.
For the record, I pay him $9.95 a month for his daily insights, and I’m glad to do it. I think it’s the bargain of the year. He has thousands of subscribers, so it works well for him too. I recommend that you consider signing up as well. How he writes four insightful articles every day is beyond my comprehension.
Back to Iran: North quotes Steve Hanke at Cato (you can get his article for free!):
Since the U.S. and E.U. first enacted sanctions against Iran, in 2010, the value of the Iranian rial (IRR) has plummeted, imposing untold misery on the Iranian people. When a currency collapses, you can be certain that other economic metrics are moving in a negative direction, too. Indeed, using new data from Iran’s foreign-exchange black market, I estimate that Iran’s monthly inflation rate has reached 69.6%. With a monthly inflation rate this high (over 50%), Iran is undoubtedly experiencing hyperinflation.
The Iranian government is destroying the currency and hence the economy. And from there, the government itself. North thinks if the Israelis wait long enough, they won’t have to attack. Hyperinflation will do the job for them.
North has little regard for most writers who try to make sense out of what’s happening in Iran. North has little use for most commentators on the current scene in general:
Iran is providing a classic case of suicidal government policy. It is also providing a lesson that will probably not be learned by the vast majority of commentators.
The assumption of most commentators is that the sanctions imposed on Iran are the cause of hyperinflation. This is incorrect.
The real reason for hyperinflation in Iran is the exploding money supply:
There is hyperinflation in Iran because Iran is a welfare state. The government owns the oil resources. So, when it sells oil, it gets the money. The government always uses the money for welfare state projects or military projects. This is true of all of the oil-exporting countries. The oil is owned by the government, so the increased revenue from the sale of oil expands government operations. This is why oil-exporting countries are welfare states. The vast majority of the population becomes dependent upon welfare-state spending…
The government has ordered the central bank to create money out of nothing in order to purchase government bonds. The government then uses the money to subsidize its welfare-state programs…
This is what governments always do. At some point, they have to stop the expansion of the money supply. At that point, there will be a massive default. In the case of Iran, the government has decided not to call a halt to the expansion of money. It will have to at some point, but it has allowed hyperinflation to take over. This is a government policy.
That’s why he thinks Israel must be patient and let the government of Iran destroy the country through hyperinflation.
What North does state implicitly is that we’re doing the same thing here. The parallels are obvious and unnerving. North doesn’t think, however, that we’re going to go into hyperinflation: it would destroy the banking system, and the Fed isn’t going to allow that to happen.
What’s left then is default. North thinks, and I agree, that the US will default on its massive $222 trillion national debt, slowly, inch-by-inch. It’s already started. Social Security benefits have been pushed back to age 67, with further delays already in the works. The moment the government changes the deal, that’s a default.
There will be inflation, but North thinks it won’t exceed 30 percent a year here. That’s another way to default – make the paper money worth less.
I agree with that assessment. 30 percent inflation here will be extremely difficult for many people and devastating to people already on the edge.