Tag: Iran

Republicans Go From Daddy Party to Baby Party

During the Cold War Republicans presented themselves as the Daddy Party, prepared to defend America in a dangerous world. They won an enduring electoral advantage on international issues. 

But the GOP lost that advantage with the end of the Cold War. The world is still dangerous, but not so much to America. Terrorism is a monstrous crime that frightens, but it does not pose an existential threat. And the United States far outranges any other power or group of powers militarily. 

The Republican Party has had trouble adjusting to the new world. Losing its automatic advantage on international issues has shifted the political battle further to economic and domestic issues. George W. Bush’s disastrous tenure further soured Americans on the GOP. Mitt Romney spent most of the campaign doing the Maori Haka in an unsuccessful attempt to portray Barack Obama as weak in foreign policy.  

The dishonest and immature campaign against secretary of defense nominee Chuck Hagel demonstrates that the Daddy Party has turned into the Baby Party. There are important defense issues that deserve serious debate. But the Republicans are not interested in conducting one. 

The vicious claims of anti-Semitism from some critics were risible, an attempt to foreclose discussion.  Much of the opposition was driven by politics rather than substance:  war-hawks like Lindsey Graham (R-SC) used Hagel’s confirmation hearing to posture rather than discuss serious defense issues. John McCain (R-AZ) spent most of his time attempting to vindicate his awful judgment in having supported the Iraq war, which left thousands of Americans dead and tens of thousands wounded, created carnage in Iraq, and empowered Iran. 

Even worse, though, Sen. McCain admitted that much of the angry opposition, which led Republicans to block a vote on Hagel’s nomination, was personal. Republicans were irritated that Hagel had the temerity to criticize President Bush, who did so much to ruin America’s fiscal future and strategic position. 

Reported the Huffington Post:

There’s a lot of ill will towards Senator Hagel because when he was a Republican, he attacked President Bush mercilessly, at one point said he was the worst president since Herbert Hoover, said the surge was the worst blunder since the Vietnam War, which is nonsense, and was anti his own party and people,” McCain said during a Thursday interview with Fox News. “You can disagree, but if you’re disagreeable, people don’t forget that.” 

At least McCain agreed that the filibuster would end, probably on February 26, when the next vote on Hagel’s nomination is scheduled. But the GOP has wrecked what little remained of its foreign policy reputation. The world may be in flames, but Republicans don’t care. They are upset that Chuck Hagel had the courage to break with neoconservative orthodoxy when it mattered. While he might not be as transformational a defense secretary as some of his supporters hope, he can be expected to bring a fresh and thoughtful perspective to a foreign policy which is largely brain dead. Most important, it would be good to have a Pentagon chief who understands why war truly should be a last resort.

Value of the Iranian Rial Hits an All Time Low

For months, I have kept careful tabs on the black-market exchange rate between the Iranian rial and the U.S. dollar. This is the metric I used to determine that Iran underwent a brief period of hyperinflation, in October 2012. And, using these data, I calculated that Iran ended 2012 with a year-end annual inflation rate of 110%.

Since the start of the new year (on the Gregorian calendar), the rial has displayed new-found weakness. Indeed, its value reached an all-time low of 38,450 rials to one dollar, on Saturday, February 2. As the accompanying chart shows, it is now trading at 38,250, moving the implied annual inflation rate to 121%, from its year-end value of 110%.

How can the IRR/USD rate be so volatile? After all, both the rial and the dollar represent nothing more than fiat currencies, without any defined value. At the end of the day, the value of a fiat currency is whatever value that fluctuations in the supply of and demand for cash balances accord to a scruffy piece of paper.

The markets for both the rial and dollar respond to conjectures about the ability of the respective governments to deliver on their stated “good” intentions. When it comes to Iran, these conjectures understandably generate sharp fluctuations in the value of the rial. Indeed, it is clear that Iranians do not trust their government to deliver economic stability. In consequence, the rial continues to tumble with increasing volatility, and inflationary pressures continue to mount.

The Hagel Hearings: Congressional Politics at Its Worst

The confirmation hearings on Chuck Hagel’s nomination to head the Pentagon are mercifully over. His wobbly performance earned derision among neoconservatives, but he responded as they intended to an interrogation that was all about politics, not policy. 

As I have noted before, Hagel is under fire because he disputed neoconservative nostrums to speak unpleasant truths to the Republican Party. He was an orthodox conservative, including on foreign policy. However, he was an Eisenhower, not a Dubya, Republican: Hagel criticized the debacle in Iraq, urged negotiation to forestall Iran from developing nuclear weapons, and backed reductions in today’s bloated military budget. General turned President Dwight Eisenhower could not have put it better. 

But this enraged a GOP that has turned perpetual war into its most important foreign policy plank. Hence the ludicrous attempt to paint him as an anti-Semite. Only slightly less dishonest was the performance of Hagel’s Republican interlocutors in the Senate, who asked the sort of questions which could not be honestly answered without wrecking the political façade behind which legislators on both sides of the aisle hide. His performance was disappointing, but far more striking is the fact that the uber-hawks who badgered him over every past statement exhibited little interest in exploring the most important challenges facing America. 

Consider the analysis of questions from Rosie Gray and Andrew Kaczynski at Buzzfeed.  They counted 166 questions about Israel—an important ally, but more important than every other ally combined? There were 144 questions about Iran. No one wants Tehran to build nukes, but U.S. intelligence does not believe Iran has an active weapons program and there is no evidence that the Iranian government cannot be deterred, as were Joseph Stalin and Mao Zedong. Surely there are options short of war. And is Iran that much more important than Afghanistan, where Americans continue to die, which rated only 20 questions? Sen. John McCain (R-AZ) fixated on Iraq, an invasion that should never have been launched, irrespective of the impact of the “surge.” And from which, if he hadn’t noticed, U.S. troops have been withdrawn. 

Nothing else received serious attention at the hearings. Not how to adjust America’s foreign policy to reflect inevitable Pentagon budget cuts, since Washington no longer can afford to police the globe. Not China, including the worrisome possibility of war between Japan and China over worthless islands in the Sea of Japan. Not North Korea and the enduring challenge of dealing with the world’s most malign actor.  

Not Europe, which continues to under-invest in the military while relying on America for its defense. Not Africa, where the U.S. is steadily being drawn into more conflicts. Not Russia, which, despite the difficult bilateral relationship, has been helpful in Afghanistan and Iran. Not Venezuela, where the possible death of Hugo Chavez could open up opportunities for reform and engagement with America.

And the neoconservatives claim to be serious about international issues and military capabilities. 

Chuck Hagel is eminently qualified to be Secretary of Defense. As my colleague Chris Preble has noted, Hagel’s thinking is mainstream and noncontroversial. Obviously, one can disagree with him on particular issues, such as the possibility of nuclear disarmament.  However, the president still will make the ultimate decisions. Hagel will bring a fresh perspective to administration discussions of foreign and military policy. That is reason enough to welcome him to the Pentagon. 

Chuck Hagel Is Not Controversial

Chuck Hagel’s most vocal and persistent opponents failed to block his nomination to be the next secretary of defense, and most observers predict that he will be confirmed, despite additional unknown persons having spent untold sums to block his path to the Pentagon.

The most outrageous and unsubstantiated charges that were invented against the decorated Vietnam veteran and former senator have been demolished, but not before they crowded out a serious discussion of our national security priorities. 

Reports from his meetings with senators in recent weeks suggest that Hagel’s answers during Thursday’s confirmation hearing before the Senate Armed Services Committee will fit well within the boundaries of what the Beltway foreign policy elite deem acceptable. Chuck Hagel is not as controversial as he was made out to be, and the foreign policy consensus is likely to hold. 

I believed—and still believe—that Hagel will be a good secretary of defense, because he seems generally disinclined to support foolish wars. But he is no peacenik and he’s no radical. He may question assumptions here and there, or give President Obama honest advice that he might not want to hear. But the odds are long against Chuck Hagel being a truly transformative SecDef. 

First, the secretary of defense does not set the nation’s foreign policy; the president does. And on almost every subject where Hagel is—or was—viewed as controversial, President Obama has hewed to the establishment line. Obama expanded the U.S. troop presence in Afghanistan, even though he never seemed to believe that the so-called surge would work. He intervened in Libya, and reserves the right to do so elsewhere, without so much as a wave to the Congress. Obama has proved equally disinterested in congressional oversight (or any other oversight, for that matter), when it comes to assassinating suspected terrorists—including U.S. citizens—at will. On nuclear weapons, Hagel’s past statements in favor of downsizing the arsenal line up with Obama’s—and are similar to almost every other president before him, including Ronald Reagan. Finally, ahead of his hearing Hagel deftly associated himself with the president, and the status-quo, by explaining that the “window is closing” for diplomacy with Iran. 

The second factor in the way of a Hagelian transformation—were he so inclined—is the military-industrial complex. David Ignatius observed that Hagel likes to think of himself as an Eisenhower Republican, but he will have a devil of a time reining in the MIC that Ike warned about. It was difficult enough for Robert Gates to sell modest spending restraint (not actual cuts), and Leon Panetta was disinclined to even pretend, favoring instead the threat of defense cuts to cow Republicans into supporting higher taxes. Hagel has an even greater hill to climb because his predecessors wanted the public to believe that they had already trimmed the fat. By implication, any further reductions will cut into the military’s flesh and bones. 

In other words, additional cuts would require a rethinking of the military’s core missions, and might even force U.S. leaders to embark on a serious effort to shift and shed burdens from U.S. troops and U.S. taxpayers to wealthy, stable allies who benefit from global peace and security, but contribute little to the cause. 

But the president would have to lead such a foreign policy shift, and Barack Obama has shown no enthusiasm for such an undertaking. Given the interests aligned to preserve the status quo, it is clear that it will take much more than one truly committed reformer in the Pentagon to effect meaningful change in our national security strategy. 

All that said, I am happy that Hagel appears to have survived one of the nastiest nomination battles in recent memory, and I hold out hope, as Justin Logan wrote earlier this month, that his ability to prevail will encourage other aspiring leaders to abandon their fear of the small and shrinking pro-war faction. 

The Tyranny of Confusion: A Response to Prof. Djavad Salehi-Isfahani on Iran

In October 2012, I first reported that Iran had experienced hyperinflation. My diagnosis of Iran’s inflation woes has since drawn the ire of Prof. Djavad Salehi-Isfahani, who has written a series of blogs and articles disputing my analysis. Prof. Salehi-Isfahani, an economist at Virginia Tech, has employed a confused (and confusing) mix of half-baked methodologies and selected data to yield unfounded, preposterous claims. Specifically, he claims that Iran never experienced a brief bout of hyperinflation and that Iran’s inflation rate is much lower than the estimates reported by virtually everyone except Iran’s Central Bank. To borrow Jeremy Bentham’s phrase, Prof. Salehi-Isfahani’s claims constitute a series of “vulgar errors.”

What has puzzled me for the past few months is why Prof. Salehi-Isfahani has been so hell-bent on denying Iran’s inflation problems. But finally, in his most recent article in Al Monitor, he showed his hand, revealing his underlying thesis – the same claim propagated by the Iranian regime – that the sanctions imposed by the West have not inflicted economic damage on Iran to the extent that has been reported.

In his most recent blog, Prof. Salehi-Isfahani finally abandons his own confused attempts to calculate Iran’s inflation rate. For his readers, this is a relief, as the variety of methods with which he attempted to calculate inflation in Iran amount to nonsense – and not even good nonsense.

Where’s Iran’s Money?

Since I first estimated Iran’s hyperinflation last month , I have received inquiries as to why I have never so much as mentioned Iran’s money supply. That’s a good question, which comes as no surprise. After all, inflations of significant degree and duration always involve a monetary expansion.

But when it comes to Iran, there is not too much one can say about its money supply, as it relates to Iran’s recent bout of hyperinflation. Iran’s money supply data are inconsistent and dated. In short, the available money supply data don’t shed much light on the current state of Iran’s inflation.

Iran mysteriously stopped publishing any sort of data on its money supply after March 2011. Additionally, Iranian officials decided to change their definition of broad money in March 2010. This resulted in a sudden drop in the reported all-important bank money  portion of the total money supply, and, as a result, in the total. In consequence, a quick glance at the total money supply chart would have given off a false signal, suggesting a slump and significant deflationary pressures, as early as 2010

While very dated, at least Iran’s state money, or money produced by the central bank (monetary base, M0), is a uniform time series. The state money picture, though dated, is consistent with a “high” inflation story. Indeed, the monetary base was growing at an exponential rate in the years leading up to the end of the reported annual series.  No annual data are available after 2010 (see the chart below).

Iran is following in Zimbabwe’s well-worn footsteps, trying to throw a shroud of secrecy over the country’s monetary statistics, and ultimately its inflation problems. Fortunately for us, the availability of black-market exchange-rate data has allowed for a reliable estimate  of Iran’s inflation—casting light on its death spiral .

Is Turkey Golden?

Recently, Moody’s Investors Service took some wind from Turkey’s sails, when it declined to upgrade Turkey’s credit rating to investment grade. Moody’s cited external imbalances, along with slowing domestic growth, as factors in its decision. This move is in sharp contrast to the one Fitch made earlier this month, when it upgraded Turkey to investment grade.   Moody’s decision not to upgrade Turkey, and its justification, left me somewhat underwhelmed – given how well the Turkish economy has done in recent years.

Since the fall of Lehman Brothers, Turkey’s central bank has employed a so-called unorthodox monetary policy mix. For example, a little over a year ago, it began to allow commercial banks to purchase gold from Turkish citizens and allowed banks to count gold to fulfill their reserve requirements. Incidentally, this was a remarkable success – from 2010-2012, the Turkish banking sector’s precious metal account increased by over 7 billion USD.

For all the criticism its unconventional monetary policies have garnered, the Central Bank of the Republic of Turkey has, in fact, produced orthodox, golden results. Indeed, as the accompanying chart shows, the central bank has delivered on the only thing that really matters – money.

Turkey’s economic performance has been quite strong (despite some concerns about inflation and its current account deficit) . Turkey’s money supply has been close to the trend level for some time, and it currently stands 2.41% above trend. This positive pattern is similar to that of many Asian countries, who continue to weather the current economic storm better than the West.  And, it stands in sharp contrast to the unhealthy economic picture in the United States and Europe – both of which register significant money supply deficiencies.

So, why would Moody’s not follow Fitch’s lead and upgrade Turkey to investment grade? To understand this divergence, one should examine Turkey’s recent current account activity. Since late 2011, Turkey’s current account has rebounded somewhat (see the accompanying chart).

But, if gold exports are excluded from the current account (on a 12-month rolling basis), a rather significant 47% of this improvement, from the end of 2011 to September 2012, magically disappears.

Where is this gold going? Well, a quick look at the accompanying chart shows just how drastically exports to Iran and the UAE have surged this year.

Taken together, the charts indicate that Turkey is exporting gold to Iran, both directly and via the UAE , propping up their current account in the process. This has put Turkey and the UAE in the crosshairs of proponents of anti-Iranian sanctions.   Those who beat the sanctions drum are now seeking to impose another round of sanctions, aimed at disrupting programs such as Turkey’s gold-for-natural-gas exchange. This proposal clearly highlights some of the problems associated with sanctions, specifically the unintended costs imposed on the friends of the U.S. and EU in the region. Indeed, Dubai has already taken a hit, with its re-exports falling dramatically as a result of the sanctions.

What is the U.S. to do – go against Turkey, its NATO ally? Believe it or not, some in the Senate are allegedly considering such a wrong-headed move.

If these proposed sanctions are implemented, then Moody’s pessimistic outlook on Turkey may turn out to be not so far from the mark, after all – and Turkey will have no one but its “allies” to blame.