Guest Post: Hyperinflation Has Arrived In Iran

Tyler Durden's picture




 

As we have been actively warning for a few days now (Iran's Misery Index and here) - and has now become mainstream media-critical - Iran is accelerating toward significant regime volatility... it seems our note on hyperinflationary case studies and the 'blame' and 'denial' extension is particularly timely...

Submitted by Steve H. Hanke via Cato-at-Liberty,

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.

When President Obama signed the Comprehensive Iran Sanctions, Accountability, and Divestment Act, in July 2010, the official Iranian rial-U.S. dollar exchange rate was very close to the black-market rate. But, as the accompanying chart shows, the official and black-market rates have increasingly diverged since July 2010. This decline began to accelerate last month, when Iranians witnessed a dramatic 9.65% drop in the value of the rial, over the course of a single weekend (8-10 September 2012). The free-fall has continued since then. On 2 October 2012, the black-market exchange rate reached 35,000 IRR/USD – a rate which reflects a 65% decline in the rial, relative to the U.S. dollar.

The rial’s death spiral is wiping out the currency’s purchasing power. In consequence, Iran is now experiencing a devastating increase in prices – hyperinflation.  As Nicholas Krus and I document in our recent Cato Working Paper, World Hyperinflations, there have been 57 documented cases of hyperinflation in history, the most recent of which was North Korea’s 2009-11 hyperinflation. That said, North Korea’s hyperinflation did not come close to the magnitudes reached in the recent, second-highest hyperinflation in the world, that of Zimbabwe, in 2008, nor has Iran’s hyperinflation – at least not yet.

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Wed, 10/03/2012 - 17:11 | 2853349 idea_hamster
idea_hamster's picture

You've got  to wonder whether it's all just sanctions, or whether someone is actively counterfeiting the currency and pumping it into circulation.

It's an old war-time tactic -- if the North Koreans can fake the US$100, and the US and Israel can put together Stuxnet, I'm pretty sure that a few (hundred (million)) Iranian Rial is probably no big deal....

Wed, 10/03/2012 - 17:13 | 2853363 vast-dom
vast-dom's picture

straits of hormuz closing immanent.

Wed, 10/03/2012 - 17:17 | 2853410 CH1
CH1's picture

I don't think so.

Wed, 10/03/2012 - 17:20 | 2853429 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Usually an opinion is followed by an arguement.

Wed, 10/03/2012 - 17:22 | 2853448 THX 1178
THX 1178's picture

That applies to Vastdom and CH1 both.

Wed, 10/03/2012 - 17:52 | 2853617 strannick
strannick's picture

Dear Iran;

Selling Oil outside of the dollar always has had consequences.

Dear Iranians;

Get gold, as the rest of the world will soon be following suit.

Wed, 10/03/2012 - 18:18 | 2853732 Urban Redneck
Urban Redneck's picture

Russia and China might not concur...

Wed, 10/03/2012 - 18:37 | 2853798 TwoShortPlanks
TwoShortPlanks's picture

"When people have nothing left to lose, they lose it"
- Psycho Celente -

Time to grind up heavy metals into ultra fine powder and load them into missiles.

Wed, 10/03/2012 - 18:47 | 2853838 TwoShortPlanks
TwoShortPlanks's picture

As for Iranian "HyperInflation"...Pffft, our fate is far worse. At the centre of our Financial Galaxy we have an Ultra-Massive Black Hole jam packed with Derivative and Shadow Banking Bull Shit to contend with.

Iranian's will go the way of Cuba and be ok.

But no need to be alarmed, it's not real, it's only Math, and a little Math can't hurt you.

Wed, 10/03/2012 - 18:52 | 2853858 new game
new game's picture

recall the sanctions against japan and how that turned out.  not sayin that iran is going to bomb someone, but cornering

a coon is not a good idea...

Wed, 10/03/2012 - 19:26 | 2853919 surfsup
surfsup's picture

Engineered Activity Meter:  >9      Funny thing, Nature is not charging more to grow food plants...    Delink from a multitdude of grids = relative immunity from shenanigans . . .    Its part of the Path Neo . . .                

Wed, 10/03/2012 - 20:00 | 2853992 Spastica Rex
Spastica Rex's picture

What an allegory. I wonder how much the W. brothers were aware.

Wed, 10/03/2012 - 20:27 | 2854087 Herd Redirectio...
Herd Redirection Committee's picture

My dog cornered a coon in a burrow once.  There was a lot of barking, squealing, shows of aggression, but ultimately a 3rd party stepped in (me) and nobody got hurt.

May we be so lucky.

Wed, 10/03/2012 - 20:00 | 2853993 Spastica Rex
Spastica Rex's picture

dupe.

Wed, 10/03/2012 - 19:43 | 2853954 monogratis
monogratis's picture

Iran should immediately remove all taxes from gold and silver buying/selling as well as legalize them for transactional purposes.  Iran should immediately backstop all bank deposits with stock in state oil holdings to prevent loss of private wealth.  Iran should legalize as many currencies as possible.   American dollars and Euros as currency, as well as Iraqi dinars, Chinese yuan, Indian rupees...  maybe even bitcoins?

Wed, 10/03/2012 - 20:00 | 2853995 patb
patb's picture

Iran should peg their currency to Oil Production.  That 5,000 Rial may be redeemed against a Bbl of Oil, that will

backstop things....

Wed, 10/03/2012 - 20:30 | 2854093 Herd Redirectio...
Herd Redirection Committee's picture

They need to set a fixed silver/gold exchange rate, that backs the Rial.  Only problem is the currency has probably been COUNTERFEITED in massive quantities by.... umm... MOSSAD and the CIA wouldn't be capable of that, would they?  The Intelligence Agencies and Banksters are completely oblivious to one another, right???  Right?

Wed, 10/03/2012 - 20:20 | 2854064 Mr.Bigfoot
Mr.Bigfoot's picture

My Iranian buddy said his nephews in Isfahan called him and told him riots were starting in other cities because people can't afford food. The shit's going down.

Wed, 10/03/2012 - 20:37 | 2854116 Mr.Bigfoot
Mr.Bigfoot's picture

He said the dollar increasing by 400 rial per day. Merchants have closed their stores holding out for higher prices, stores keeping food off the shelves until just before it spoils to get the best prices. Hyperinflation really is taking hold there.

Wed, 10/03/2012 - 21:57 | 2854390 Dingleberry
Dingleberry's picture

If I may be so bold.....allow me to retort for the above "CH1" and "Vatsdom"........the NANOSECOND that the Strait is closed......Iran is a distant, cloudy memory.  Iran has no shortage of ISLAMIC enemies, not to mention a plethora of Western ones.

And no.....the Chinese and Russians are not going to commit economic suicide for the Iranians.

 

They know. We know it. You know it. And everyone knows everyone else knows it.

 

There you go.

Thu, 10/04/2012 - 06:33 | 2855146 Ace Ventura
Ace Ventura's picture

Ahhh yessss......the distinct odor of fermenting hubris. Seems to me we heard similar postulations in the lead-up to the ongoing Iraq-Opiumlanistan War.....'cakewalk'....'over quickly due to shock and awe'....'welcomed as liberators'.....etc, etc, etc. Well, here we are 11 years into it, and how close are we to 'winning'?

There you go.

P.S. Not trying to nitpick, just wanted to put the whole thing in perspective. I really wish our scumbag 'leaders' would quit trying to start a war with the Persians. The fact they are so ardently aching for it should give every sentient being in this country some MAJOR not-warm-and-fuzzies.

Wed, 10/03/2012 - 17:24 | 2853465 akak
akak's picture

You clearly have not been following the online trolling career of AnMonotonous.

Wed, 10/03/2012 - 17:48 | 2853577 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I have yet to witness this creature but I have heard a lot about it.  This creature to me is like Nessi, or the Yeti; it remains a mythological monster....

Wed, 10/03/2012 - 17:55 | 2853629 strannick
strannick's picture

He resides in the Keynsian paradise where dollars grow on trees, and the benevolent philospher king rules wisely from his Ivory Tower and the urinals are guilded with gold.

Wed, 10/03/2012 - 18:05 | 2853673 akak
akak's picture

My own theory is that he is an experimental (but clearly unsuccessful) Chinese AI trollbot who escaped from his creators and now maintains an independent existence on the interwebs, driving all who encounter him, and who attempt to argue and reason with him, into madness and despair.

Wed, 10/03/2012 - 18:09 | 2853689 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Whatever it is I think it has learned how to "junk".

Wed, 10/03/2012 - 18:49 | 2853846 ForTheWorld
ForTheWorld's picture

I actually read a book with a somewhat similar (but very well threaded) plot: http://www.amazon.com/Daemon-Daniel-Suarez/dp/0451228731/

And here I thought it would stay in the realm of fiction...

Wed, 10/03/2012 - 20:15 | 2854055 Oldrepublic
Oldrepublic's picture

you can get that book for 67 cents!!! used

Wed, 10/03/2012 - 18:24 | 2853664 PiratePawpaw
PiratePawpaw's picture

It's real I tell you. Ive seen it!...

It has a gaping maw to spew anti-america(ism) rants.

It has an enormous cranium to hold all the things it alone imagines.

It has eyes all around its head so it can see its circular logic.

It has incredibly long legs so it can side step rational arguements.

It travels to and fro in a magical flying device which AKAK himself has seen.

And according to certain stooges it is prone to squating on roadsides.

Believe it or not....it exists.

*edit* and it has an elongated well muscled index finger for clicking the down arrow. (its preferred method of answering dissenting opinions)

Wed, 10/03/2012 - 17:18 | 2853417 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Oil down, Turkey going nutso, and Iran has entered DefCon 5....

....Move along!

Wed, 10/03/2012 - 17:22 | 2853451 IndicaTive
IndicaTive's picture

All I can say is way to go ZH! Keep getting the scoop before the MSM idiots. This time by days not hours. Keep it up. not to mention you make me look smart when I mention your revelations before they hits the "news"

Wed, 10/03/2012 - 18:38 | 2853802 azzhatter
azzhatter's picture

I usually get "where the fuck did you hear that?"

Wed, 10/03/2012 - 18:45 | 2853829 Yamaha
Yamaha's picture

and after the "where the fuck....." you will be dining alone at lunch and considered mentally unstable.......

Wed, 10/03/2012 - 20:01 | 2854001 Spastica Rex
Spastica Rex's picture

Eventually you are simply forgotten.

Wed, 10/03/2012 - 20:33 | 2854106 Herd Redirectio...
Herd Redirection Committee's picture

LOL.  Denial is a hell of a drug.

Wed, 10/03/2012 - 22:09 | 2854431 Jackfish
Jackfish's picture

Cocaine is a hell of a drug

http://youtu.be/udNHsk57f24

Thu, 10/04/2012 - 08:54 | 2855385 GlobalCtzn
GlobalCtzn's picture

So that is why I have been dining alone so much lately, my ZH regurgitations? I guess I can stop trying all those different deoderants.

Wed, 10/03/2012 - 17:24 | 2853466 giggler123
giggler123's picture

... and all before November's re-election of Obummer

Wed, 10/03/2012 - 18:22 | 2853747 Urban Redneck
Urban Redneck's picture

Barry broke both the reset button and the easy button.  Someone should have told him foreign policy is not a game of whack-a-mole.

Wed, 10/03/2012 - 18:27 | 2853763 magpie
magpie's picture

Oil down is Finwar Round 2 after the initial assault on the Rial.

Wed, 10/03/2012 - 17:33 | 2853520 tradebot
tradebot's picture

Cool, we haven't blasted anyone in weeks!

Wed, 10/03/2012 - 17:39 | 2853550 rfaze
rfaze's picture

Nothing more exciting then backing a rat into a corner..... I'm sure it will end well.

Wed, 10/03/2012 - 17:50 | 2853611 CrockettAlmanac.com
CrockettAlmanac.com's picture

Especially when the rat pals around with a bear and a dragon.

Wed, 10/03/2012 - 18:34 | 2853786 viahj
viahj's picture

THEY'VE GOT BLASTERS, BLAST THEM!

Wed, 10/03/2012 - 17:12 | 2853371 Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

NEXT UP: ARGENTINA

 

In Argentina, when people buy large amounts at supermarkets (say, over 1000usd or something), they have to do some paperwork/explaining to do.  

 

Let's keep our eyes on the first worldwide hyperinflation run.  

 

Thank you for choosing Zimbabwe airlines.

Wed, 10/03/2012 - 18:35 | 2853789 Harbanger
Harbanger's picture

Maybe, but it has more to do with their form of centrally planned business model than with Iran or the Fed.  They have financial collapses in Argentina on a pretty regular basis. 

Wed, 10/03/2012 - 19:38 | 2853886 Red Heeler
Red Heeler's picture

"In Argentina, when people buy large amounts at supermarkets (say, over 1000usd or something), they have to do some paperwork/explaining to do."

In Florida, too:

Motorists can be held indefinitely at toll booths if they pay with large denomination bills, according to a federal appeals court ruling handed down Wednesday.

http://thenewspaper.com/news/39/3904.asp

Thank you for choosing American Airlines (the country, not the one with the loose seats).

Wed, 10/03/2012 - 17:17 | 2853413 fonzannoon
fonzannoon's picture

Luckily the US counterfeiters are easy to spot

Wed, 10/03/2012 - 17:43 | 2853568 SilverTree
SilverTree's picture

They all look the same to me.

Wed, 10/03/2012 - 17:58 | 2853646 ShrNfr
ShrNfr's picture

Yeah, they have Turbo Tax Timmy's signature on them.

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