Mailbag: Bear Trader Speaks of Iran and Inflation

On Sun, Oct 7, 2012 at 4:00 PM, The Evansville Observer wrote: Bear Trader--- The decline of the Iranian currency has been pretty shocking---like every morning they wake up and call to see what the exchange rate is. I think last month they lost 40%. Come to think of it, the precursor to this is when they give you 1%on your money when they used to give you 6%. Some thoughts on what could cause the currency to decline here so suddenly? Bear Trader Wrote:: First, as Milton Friedman put it, "Inflation is always and everywhere a monetary phenomenon" (approximate quote). So the Iranian inflation is caused by government printing and spending. Secondly, the Iranian government wants to spend all this newly printed money but have no inflation (they are having food prices riots), so they have instituted draconian price controls, up to and including execution. Price controls always fail because governments always figure that, since the price controls are working so slickly, we should print just a teensy, weensy bit more. A little leads to a lot. Everyone wants more money. Vote buying and nuclear weapons projects are expensive. Remember W.I.N. (Whip Inflation Now) under Nixon and the Carter - Volker era? The reason the Iranian inflation looked surprising is just you and I are so completely out of the loop. Kept in the dark and fed shit, like mushrooms. Actually I have been seeing reports of Iranian food riots, crackdowns on "speculators", rapid increases in the value of prime real estate, etc. for two or three years. Note that civil disturbances in Iran have been of the (by Iranian standards) middle class, a sure sign that the root cause is inflation. I was most surprised that the Iranian internal security types let this situation get out of hand, actually. Denial and delusion in the upper reaches of the power structure is tough to deal with for street cops though. That is probably what we are seeing. The Iranian market price controls exploded like any other bubble. People decide that they have to get out and get out now. Prices drop. Other people sell in panic.