Tag: russia

Syria’s Annual Inflation Hits 200%

In an attempt to beat Western sanctions and halt the fall in the Syrian pound, the Assad regime – with the help of Iran, Russia, and China – has begun conducting all of its business in rials, roubles, and renminbi. This decision supplements other existing arrangements between Syria and its allies that are keeping the Syrian economy on life-support. These include transfers of $500 million per month in oil and an unlimited credit line with Tehran for food and oil-product imports.

According to Kadri Jamil, Syria’s prime minister for the economy, this life support is necessary because Syria’s devastated economy is the target of an elaborate plot, hatched by the U.S. and Britain, to “sink the Syrian pound.”

So, what about the sinking pound? As the accompanying chart shows, the Syrian pound has lost 66.2% of its value in the last twelve months.

The rout of the Syrian pound has been widely reported in the press.  But, Syria’s inflation problems that have accompanied the collapse of the pound have gone largely unreported.  That’s because, beyond the occasional bits of anecdotal evidence, there has been nothing to report by way of reliable economic data.

To fill that void, I employ standard techniques to estimate Syrian’s current inflation. Currently, Syria is experiencing an annual inflation rate of 200% (see the accompanying chart).

Indeed, Syria is experiencing a monthly inflation rate of 34%. To facilitate the monitoring of the quickly deteriorating situation in Syria, I am creating a resource which will allow readers to view up-to-date data on the Syrian pound and the country’s inflation problems. Soon, black-market exchange-rate data and ­inflation estimates for countries with troubled currencies like Syria will be made available via the “Troubled Currencies Project” – a joint Cato Institute-Johns Hopkins collaboration under my direction. In consequence, the days of Syria’s plunging pound and raging inflation being covered in a shroud of secrecy are soon coming to an end.

Cyprus: Follow the Money

While the Cypriot Parliament may be dragging its feet on a proposed rescue plan for Cyprus’ banks, the country ultimately faces a choice between Brussels’ bitter pill…and bankruptcy. Cyprus’ newly-elected President, Nicos Anastasiades, has quite accurately summed up the situation:

“A disorderly bankruptcy would have forced us to leave the euro and forced a devaluation.”

 Yes, Brussels and the IMF have finally decided to come to the aid of the tiny island, which accounts for just 0.2% of European output – to the tune of roughly $13 Billion. But, this bailout is different. Indeed, the term “bail-in” has emerged, a reference to the fact that EU-IMF aid is conditional upon Cyprus imposing a hefty tax on its depositors. Not surprisingly, the Cypriots, among others, are less than pleased about this so-called “haircut”.

Still, the question lingers: Why now? The sorry state of Cyprus’ banking system is certainly no secret. What’s more, the IMF has supported a “bail-in” solution for some time. So, why has the EU only recently decided to pull the trigger on a Cyprus rescue plan?

One reason can be found by taking a look at the composition of Cyprus’ bank deposits (see the accompanying chart).

 

There are two main take-aways from this chart:

  1. European depositors’ money began to flow out of Cyprus’ banks back in 2010. Indeed, most European depositors have already found the exit door.
  2. Over that same period, non-Europeans (read: Russians) have increased their Cypriot exposure. If the proposed haircut goes through, Russian depositors could lose up to $3 billion. No wonder Valdimir Putin is up in arms about the bail-in.

Perhaps a different “red telephone” from Moscow will be ringing in Brussels soon.

Sequestration Will Not Make the United States Less Safe

Will sequestration undermine U.S. national security? Hardly. Today, the Cato Institute released a new infographic putting these minor cuts in perspective.

Military spending will remain at roughly 2006 levels—$603 billion, higher than peak U.S. spending during the Cold War. Meanwhile, we live in a safer world. The Soviet Union has been dead for more than two decades; no other nation, or combination of nations, has emerged since that can pose a comparable threat. We should have a defense budget that reflects this reality.

To be clear, sequestration was no one’s first choice. But the alternative—ever-increasing military spending detached from a legitimate debate over strategy—is worse. We should have had such a debate, one over the roles and missions of the U.S. military, long before this day of reckoning. And politicians could have pursued serious proposals to prudently reduce military spending. Instead, they chose the easy way out, avoiding difficult decisions that would have allowed for smarter cuts.

Until now, there have been few constraints on Washington’s ability to spend what it pleases on the military. As my colleagues Benjamin Friedman and Justin Logan put it, Americans “buy defense like rich people shop, ignoring the balances of costs and benefits.”

Policymakers can’t postpone the tradeoffs forever, especially when the public has grown increasingly weary of foreign entanglements. If forced to choose between higher taxes, less military spending, or lower domestic spending, in order to balance the budget, the military fares least well, with solid pluralities favoring cuts in military spending over cuts in other programs.

Which is why it is so important to get the foreign policy debate right. If we are going to give our military less, we need to think about asking it to do less.

A number of experts have done that, rethinking the military’s purpose, and documenting the savings that would flow from a more modest foreign policy. The sequester is a first step, albeit an imperfect one, that could finally compel policymakers to do the same.

Download and share this infographic on your blog, Twitter, or Facebook.

Russia Responds by Punishing Orphans

When Congress passed legislation this month establishing permanent normal trade relations with Russia, it included travel and financial sanctions against Russians accused of gross human rights violations, particularly those involved in the suspicious death of anti-corruption whistleblower Sergei Magnitsky. At the time, I counseled against “poking Russian officials in the eye with sanctions.” The Russian legislature is currently contemplating its response to that poke, and it doesn’t look good.

Having made clear its intention to retaliate in some way for the Magnitsky bill, which it deemed a national insult and intrusion into domestic affairs, Russia has decided to target America’s own human rights abusers—adoptive parents of Russian orphans. Russian media have been fueling a controversy over abuse by American parents of adopted Russian children, and the Magnitsky bill gave the legislature in Moscow an opportunity to kill two birds with one stone. At first, Russian leaders called for a travel ban on specific people accused of abuse in an obvious parallel to the U.S. sanctions. The current proposal under consideration is to ban all adoptions by American citizens.

Russia has an impressive surplus of orphans and is one the most common countries of origin for international adoptions in the United States. Thousands of children will be denied access to loving families. Not all the blame lies with Congress and its attempt to be a global human rights cop, but the end surely condemns the means.

 

Romney’s Foreign Policy Opportunity

Barack Obama and Mitt Romney will duel on foreign policy this week as they both address the national convention of the Veterans of Foreign Wars and Romney heads off toBritain,Israel, andPoland to burnish his foreign policy credentials.  It will be difficult for Romney to overcome Obama on this set of issues.  Denizens of neoconservatism scorn the president as a weakling on terrorism and other international issues, but that is not how most Americans see him.  The killing of Osama Bin Laden (as well as dozens of other high-level al Qaeda operatives) has largely inoculated Obama against the “weak on terrorism” allegation, and the public generally gives him decent marks on most other foreign policy issues.

In the two areas where there has been grumbling about the president’s performance—escalating and perpetuating the war in Afghanistan and doing little about the bloated Pentagon budget—Romney’s neoconservative allies advocate measures that most voters dislike even more than they do Obama’s approach.  If Romney is to seize the opportunity to score points against the president on foreign policy, he needs to break with the hawkish extremists in his party and take a very different tack than he has done so far in the campaign.  Unfortunately, his harsh statements toward China and Russia—including describing the latter as America’s principal global adversary—and his alarmingly bellicose rhetoric toward Iran suggest that he is taking his foreign policy positions from George W. Bush’s playbook.  That is a bad move both politically and in terms of good policy.

In his speech to the VFW, Romney should outline a new security strategy built on the foundation of cautious, national-interest realism—a position that once characterized the GOP and still finds some resonance among the party’s rank and file.  That move, though, would require him to challenge the neoconservative conventional wisdom on four major issues.

First, he needs to advocate a prompt withdrawal of U.S.forces from Afghanistan, even faster than the Obama administration’s alleged commitment to have U.S.forces out of that country in 2014.  The intervention in Afghanistanis the poster child for how a limited and justified punitive expedition against a terrorist adversary (al Qaeda) can morph into an open-ended, nation-building crusade on behalf of an inept, corrupt Third Worldgovernment.  Unfortunately, it is difficult to discern whether Romney has a policy regardingAfghanistan.  To the extent he has said anything substantive on the issue, it creates worries that he may want to keep American troops in that snake pit indefinitely.

Adopting a new, smarter position onAfghanistanleads to the second point Romney should emphasize in his VFW speech: a repudiation of nation building as aU.S.foreign policy goal.  It is bitterly ironic that, beginning with the Bush administration, Republicans seem to have become more enthusiastic than Democrats about humanitarian interventions and nation-building ventures.  Republicans rightly used to scorn such crusades as wasteful, utopian schemes.  Condoleezza Rice once remarked that it should not be the mission of theU.S.military to escort children to school in foreign countries.  Romney needs to return the GOP to that wise skepticism.

Third, Romney should advocate a complete reassessment ofWashington’s overgrown network of formal and informal security commitments around the world.  It is absurd for theUnited Statesto continue subsidizing the defense of allies in Europe andEast Asiatwo decades after the collapse of the Soviet empire and nearly seven decades after the end of World War II.  Those allies shamelessly free ride on America’s security exertions, choosing to under-invest in their own defenses and refusing to make a serious effort to manage the security affairs in their respective regions.  Even if theU.S.government was cash-rich and running chronic budget surpluses, the current policy toward obsolete alliances would be wasteful and ill-advised.  Maintaining such a policy whenWashingtonhas to borrow money fromChinaand other foreign creditors to do so, borders on insanity.

Reassessing alliances and other security commitments points to the final change that Romney should advocate: a willingness to cut military spending.  The United Statesspends nearly as much on the military as the rest of the world combined.  The House of Representatives just voted to appropriate $606 billion for defense—and that figure does not include $11 billion to pay for the nuclear arsenal, a budget item housed in the Energy Department.  Instead of promising to increase military spending to four percent of GDP—an extra of $2.5 trillion over ten years—Romney should reverse course and support cutting that bureaucracy’s budget as part of an overall austerity program for the federal government.  And as noted, the overseas missions should be trimmed or eliminated to match the capabilities and budget of a smaller force.

Such an agenda might not please the attendees at the VFW convention, and it certainly would not please the junior varsity from the Bush-Cheney administration that Romney has been relying upon thus far for advice on foreign policy.  But it would appeal to a wide swath of American voters and put Barack Obama on the defensive.  Most important, it would be a wise policy alternative for the American republic.

Cross-posted from the Skeptics at the National Interest.

Romney, Kerry Miss the Point on Threats: Size Matters

Senator John Kerry (D-MA) is the latest person to mock Mitt Romney’s declaration that the Russian Federation “is, without question, our number one geopolitical foe.” It was a pretty silly statement, particularly given the fact that Russia is a demographic basket case and a very humble economic power. But there’s all sorts of weirdness going on in Romney’s assertions and those of his critics.

Take, for example, Wolf Blitzer’s follow up to the Romney assertion:

BLITZER:  But you think Russia is a bigger foe right now than, let’s say, Iran or China or North Korea? Is that—is that what you’re suggesting, Governor?

ROMNEY:  Well, I’m saying in terms of a geopolitical opponent, the nation that lines up with the world’s worst actors.  Of course, the greatest threat that the world faces is a nuclear Iran.  A nuclear North Korea is already troubling enough.

But when these—these terrible actors pursue their course in the world and we go to the United Nations looking for ways to stop them, when—when Assad, for instance, is murdering his own people, we go—we go to the United Nations, and who is it that always stands up for the world’s worst actors?

It is always Russia, typically with China alongside.

And—and so in terms of a geopolitical foe, a nation that’s on the Security Council, that has the heft of the Security Council and is, of course, a—a massive nuclear power, Russia is the—the geopolitical foe and—and the—and they’re—the idea that our president is—is planning on doing something with them that he’s not willing to tell the American people before the election is something I find very, very alarming.

In fairness to Governor Romney, it does seem like he realizes he’s made a gaffe here, so he tries to back up and take another run at it. But in doing so, he just makes it worse. Taking a mulligan, he tries to pivot from the Russia allegation by folding in Iran (“the greatest threat the world faces”) and North Korea, and gesturing at Syria.

It’s the same thing Kerry does in his condescending lecture to Romney:

We have much bigger problems on this planet in the Middle East, with the evolution of Egypt, with the challenge of Syria, terrorism, al-Qaeda in Yemen, and so forth.

Both of these guys should be ashamed of themselves. And they ought to be light-headed from the amount of threat inflation they’re doing. We spend too much time debating the relative size of our enemies and too little debating their absolute size. Every country at all times has a #1, #2, and #3 “geopolitical foe.” But the threat environments posed by those foes vary radically.

In a better world, American political elites would discuss the absolute level of threat they face rather than just bickering over our enemies’ batting order. As Ben Friedman and I recently wrote in Orbis:

The dirty little secret of U.S. defense politics is that the United States is safe—probably the most secure great power in modern history. Weak neighbors, vast ocean barriers, nuclear weapons and the wealth to build up forces make almost nonexistent the threats that militaries traditionally existed to thwart. Americans cannot seriously fear territorial conquest, civil war, annexation of peripheral territories, or blockade. What passes for enemies here are small potatoes compared with what worried most states at most times. Most U.S. military interventions affect U.S. security at best marginally. We have hopes and sometimes interests in the places where we send troops, but no matter how much we repeat it to honor the troops, it is untrue that they are fighting to protect our freedom.

Part of the reason our national security politics are pathological is that we focus disproportionately on debating which enemy is the biggest without stopping to ask how big the enemies are.

If your three biggest problems are being infected with Black Death, having a bull rhino charging at you, and being knee-deep in quicksand, you can wonder—for a few seconds, at least—which is your #1 problem. Similarly, if your three biggest problems are that you got into an argument with your spouse about who left a dish in the sink, your shoelaces are untied, and you can’t log in to Facebook, you can puzzle over which of those is bigger. But only a fool would miss the distinctions between the two scenarios.

Cross-posted from the Skeptics at the National Interest.

NATO Has Become a Form of U.S. Foreign Aid

The NATO summit starts Sunday in Chicago and will be the largest gathering ever held by the alliance. This is fitting given NATO’s desire to act around the globe. While U.S. officials say no decisions on further expanding membership will be made at the meeting, they explain that the door remains open. Adding additional security commitments in this way would be a mistake.  

The United States has always been and will continue to be the guarantor of NATO’s military promises. In reality, NATO could not pay its bills without the United States, much less conduct serious military operations. American alliance policy has become a form of foreign aid. Nowhere is that more true than in Europe.  

America’s alliances once had a serious purpose: to increase U.S. security. NATO joined the United States and Western Europe to prevent the Soviet Union from dominating Eurasia. The alliance lost its raison d’être in 1989 when the Berlin Wall fell. Communist regimes throughout Eastern Europe had toppled. The Warsaw Pact soon dissolved. Ultimately the Soviet Union collapsed.

Yet 23 years later NATO labors on, attempting to remake failed societies and anoint winners in civil wars. There’s no big threat left: Russia isn’t going to revive the Red Army and conquer the European continent. Moscow was barely capable of beating up on hapless Georgia.

Moreover, the Euro zone crisis threatens to turn NATO’s military capabilities into a farce. Virtually every European state is cutting back on its military, even France and Great Britain, which traditionally had the most serious—and most deployable—forces. NATO always looked like North America and The Others. Today the only power prepared to battle even a decrepit North African dictatorship is America.

Yet like the Borg of Star Trek fame, the alliance wants to ever-expand, absorbing every country in its path. Bosnia—an artificial nation who military was cobbled together from three warring factions—hopes to join. So, too, Macedonia, which remains at odds with Greece over its very name. Georgia, which triggered a war with Russia in apparent expectation of receiving U.S. support, wants in. Montenegro, which has no military of note, is also interested.

There is even talk of adding Kosovo, another artificial country in which the majority ethnically cleansed national and religious minorities while under allied occupation. Serbia, bombed by NATO in 1999 and still resisting Kosovo’s secession, is on the long list. As is Ukraine, a country with a large Russophile population and a government that acts more Russian than Western.

Adding these countries would greatly expand America’s liabilities while adding minimal capabilities. The United States would have to further subsidize the new members to bring their militaries up to Western standards while making their disputes and controversies into America’s disputes and controversies. Worst would be expanding the alliance up to Russia’s southern border, giving further evidence to Moscow of a plan of encirclement. As Henry Kissinger once said, even paranoids have enemies. Indeed, Washington would not react well if the Warsaw Pact had included Mexico and Canada.

The United States cannot afford to take on more allies and effectively underwrite their security. It is not worth protecting Georgia at the risk of confronting Russia, for instance. Moreover, now is the time to end this foreign aid to wealthy European countries. The Europeans have a GDP ten times as large as that of Russia. Europe’s population is three times as big. The Europeans should defend themselves.  If they want to expand their alliance all around Russia, let them. But the U.S. government, bankrupt in all but name, should finally focus on defending Americans, not most everyone else in the world.