FG

4000

by JustAnIranian on Tue Oct 02, 2012 01:30 AM PDT

1dollar = 4000 toman

We all got to live and see first hand what hyper inflation means. It's not a story in history books about Germany any more. 

value

by maziar 58 on Mon Oct 01, 2012 09:05 PM PDT

It's good that our Rial stands near zimbabwean dolar or PEHEN in the best case scenario!!

you go girl    molla that is.

Maziar

The bleak long term picture Khamenei created even if IRI goes

by FG on Mon Oct 01, 2012 04:10 PM PDT

(I thought readers might be interested in this analysis by FreeIranFree in an earlier subpost on August 16 at Tehran Bureau) 

Short terms measures (not even solutions) is all that the IRI can muster. The long term is bleak and no one really knows how to get out of this mess even if sanctions are lifted. It will take time and a lot of efforts to bring back confidence into the market since the middle class is under a lot pressure, the manufacturing base has all but been wiped out, the traders are jittery with respect to uneducated, half-hazard government economic, financial and industrial policies and the social unrest that will follow cannot be easily contained.

It will take a nationwide effort and not just the elite and the government to work hand in hand for over a decade to just get the basic elements of a normal economy in place and another decade to create the infrastructure for long term growth That is possible in the most optimistic scenario provided Iran will not be in conflict with the rest of the world, no sanctions against its economy, no natural disasters, no internal conflicts, political freedom and a semi functioning democracy in place.

By then our oil and gas resources may be long gone with a population of over 120 million but we will have no choice but to forge ahead.

We are an ancient nation and have survived huge disasters over the course of our history. This one I have to admit is a particularly challenging one. But we will find a way to climb out of this dark hole called the Islamic Republic of Iran since we are resourceful, industrious and more aware than ever before of our power and the rank we deserve in the family of nations.

Total drop in one week was 40%!!!

by FG on Mon Oct 01, 2012 03:54 PM PDT

Remember the figure economists cite to identify hyperinflation: 50% in a month. 

Tehran Bureau also says the day ended with the rial at 35,200.

Expect such fluctuations for now.  It will be interesting to see what happens when the market for food and other consumer goods starts feelig the effects of that 40% increase which have yet to reverberate through the economy.

So far the pattern seems to be:

l. Rial goes up by greater amounts each time.

2.  Climb stalls and rial makes small recovery.

3. Rial goes up by a larger amount again.  Will the next jump take the rial to over 50,000 to a dollar?   What else will people be talking about?

Eventually, the rial may lose these temporary respites entirely.   It wasn't very long since the figure of 15,500 to the dollar looked bad any anything over 20,000 to the dollar looked truely awful.

Other economic developments from Iran (subpost #4)

by FG on Mon Oct 01, 2012 02:01 PM PDT

(From Enduring America)

Do you believe the regime?

 Mahmoud Bahmani, the head of the Central Bank, has declared that with increased trade, the Iranian Rial will gradually strengthen.

Auto Production

 ISNA claims that 90% of automobile manufacturers in Isfahan Province areworking half-time, with a 30% reduction in the workforce of 25,000.

(Remember: Printing more money as less goods and services are produced accelerates inflation.  So here we have one of many cases of reduced production) 

Per Capita Income Falls

 Khabar Online, with charts, writes that per capita income has fallen by $1000between March and September.

The Guardian (UK) is reporting on the rial crisis:

 //www.guardian.co.uk/world/2012/oct/01/iran-currency-rial-all-time-low

EXCERPTS:

 The rial has lost 57% of its value in the past three months and 75% in comparison to the end of last year. The dollar is now three times stronger than early last year...

  In the wake of the currency crisis, many Iranians who have lost faith in the rial are now contributing to its instability by rushing to convert their assets and properties to foreign currency and gold....

 "You can only rely on foreign currency and gold these days in Iran." (Amir, a shopkeeper in Iran)...

 The government has repeatedly attempted to bring the currency under control with no success. Last week it launched an exchange centre aimed at stabilising the rates, but the rial's fall has since increased...

Previous attempts also include a sharp rise in interest rates in February and an order for an imposed exchange rate to be used both in banks and on the open market. At the time, the police were sent to exchange bureaux to implement the order but they reacted by closing down temporarily or refusing to buy or sell foreign currency on official rates....

 Iran's economic weaknesses – perpetually high unemployment and government mismanagement – have been masked in recent years by the high price of oil but its very dependency on oil means the embargo has had a significant impact...

 Britain, France and Germany are pushing for already tough EU sanctions on Iran to be tightened further later this month, to close some of the larger loopholes. Among the measures being sought are stricter maritime controls, which would make it harder for Iran to reflag its ships to sidestep shipping and insurance sanctions. Western European countries also want to put more Iranian banks on the banned list. Rather than targeting specific firms, which can change names to stay ahead of sanctions, the UK is proposing the imposition of sanctions on whole sectors of trade with Iran to cover materials that could help Tehran expand its nuclear programme, particularly uranium enrichment.

Causes, government reaction & aftermath (subpost #3)

by FG on Mon Oct 01, 2012 01:45 PM PDT

CAUSES

Hyperinflation occurs when there is a continuing (and often accelerating) rapid increase in the amount of money that is not supported by a corresponding growth in the output of goods and services.  

Very high inflation rates can result in a loss of confidence in the currency, similar to a bank run. Usually, the excessive money supply growth results from the government being either unable or unwilling to fully finance the government budget through taxation or borrowing, and instead it finances the government budget deficit through the printing of money.

As it allows a government to devalue their spending and displace (or avoid) a tax increase, governments have sometimes resorted to excessively loose monetary policy to meet their expenses. 

(NOTE: Production of goods and services has been constantly falling in Iran, especially under Ahmadinejad.  This is what critics mean when they write that government policy--not sanctions--is the main cause.  Sanctions contribute to the extent they deprive the government with its main or sole source of reveue after having destroyed so much domestic production through other means).

 EFFECTS

Hyperinflation effectively wipes out the purchasing power of private and public savings, distorts the economy in favor of the hoarding of real assets, causes the monetary base, whether specie or hard currency, to flee the country, and makes the afflicted area anathema to investment.

Government responses based on price controls (in Iran' case ordering merchants to stay open and sell at previous prices) don't work for two reasons.  First, doing so would bankrupt the merchant who would have no incentive to replace existing inventory once used up.   Secondly, merchants would withhold goods and sell them on the "black market" at the real (and much higher) supply and demand price.

AFTERMATH

Hyperinflation is ended with drastic remedies, such as imposing the shock therapy of slashing government expenditures or altering the currency basis. One form this may take is dollarization, the use of a foreign currency (not necessarily the U.S. dollar) as a national unit of currency.

THE WEIMAR REPUBLIC CASE (GERMANY)

1. Savings were wiped out and the middle class destroyed.

2. People who paid good money for life insurance found that it wasn't worth collecting when a postage stamp cost more than the entire sum of the insurance.

3. In one instance, a guy left a wheelbarrow full of money outside the store because it didn't fit.  When he came out, someone had stolen the wheelbarrow and dumped the money.

4. Debtors made out.  Savers got clobbered. 

 

Germany went through its worst inflation in 1923. In 1922, the highest denomination was 50,000 Mark. By 1923, the highest denomination was 100,000,000,000,000 Mark. In December 1923 the exchange rate was 4,200,000,000,000 Marks to 1 US dollar.[36] In 1923, the rate of inflation hit 3.25 × 106percent per month (prices double every two days). Beginning on 20 November 1923, 1,000,000,000,000 old Marks were exchanged for 1 Rentenmark so that 4.2 Rentenmarks were worth 1 US dollar, exactly the same rate the Mark had in 1914.[36]

Classic signs of hyperinflation (subpost #2)

by FG on Mon Oct 01, 2012 01:24 PM PDT

Source: Verbatim from Wikipedia   To readers: I leave it to you to determine how well these fit Iran at present.   1. The general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power.   2. The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that currency;   3. Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short.   4. Interest rates, wages, and prices are linked to a price index.   5. The cumulative inflation rate over three years approaches, or exceeds, 100%.

Analysis #1: How much will Iranians panic?

by FG on Mon Oct 01, 2012 12:59 PM PDT

 

Mass panic can have an exponential effect on the crisis. Imagine the rial's value after just a week of 15% daily drops. Don't forget to factor in the effect of compounding.

Mistrust of corrupt, brutal and incompetent government has increased tenfold since 2009. Iranians must feel like passengers on accelerating train who realize the engine room is locked and empty but the throttle is set on "full." 

The great irony is that Moussavi--the Victim of 2009--is theonly IRI figure who has previously demonstrated any understanding of  how to move an economy out of crisis. Moussavi is infinitely better equipped than Ahmadinejad, Khamenei, hard line mullahs or IRCG security force generals.

How will different elements of the population respond to Monday's news based on their trust in the government?  

MERCHANTS & CONSUMERS:  This is a crazy time to sell off inventory. Raising prices won't protect you if you come to believe the currency will bcome worthless with each passing hour or day.  A "buy now or else" consumer attitude will simply add more inflationary pressure, undermining the rial further. 

Already some merchants may close their doors temporarily and take a wait-and-see attitude.  How many more will do so given another day like today?   Imagine the consumer pressure on stores that remain open.  Won't they raise their prices further i such an environment?

GOVERNMENT: See later subpost.

PRIVATE EMPLOYEES: How long people will keep working as their pay becomes increasingly worthless when they get paid at all?  Will workers come out into the streets to protest?  If so, what will Khamenei do?

PUBLIC EMPLOYEES: Unlike the above, they enjoy job security.   Nevertheless their paychecks also become increasingly worthless.  The government could raise salaries enought to make a difference, but that will only add to currency/inflation problems and restart the problem.   

RANK AND FILE MILITARY:  Soldiers share the problems of public employees above.  As discontent mounts, will they join protestors rather than crush them upon demand?  If so, will they bring their weapons?