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Death, Misery and Debt: Iraq's Unintended Conquest of America

March 25, 2013 in Economics

By Doug Bandow

Doug Bandow

Secretary of State John Kerry made a surprise visit to Baghdad to ask the Iraqi government to stop helping Iran support Syria’s Bashar Assad. Kerry received an embarrassing rebuff—so much for the Bush administration’s celebrated victory over Saddam Hussein.

This time ten years ago the grand Iraqi cakewalk had begun. American military forces were racing toward victory. The world was going to be transformed.

But not in the way President George W. Bush and his top officials imagined. Invading Iraq turned out to be one of Washington’s greatest strategic mistakes.

U.S. policy in the Middle East long has been marked by myopic, counter-productive meddling. Six decades ago the U.S. and British governments organized a coup ousting Iran’s democratically elected Prime Minister Mohammad Mosaddegh. Left in charge was Mohammad Reza Shah Pahlavi.

The Shah was a corrupt dictator who for 26 years suppressed the democratic opposition and brutalized political opponents. Washington was happy, but the Iranian people felt otherwise, forcing him to flee in 1979.

America will pay for its Iraq mistake for years, perhaps decades, to come.”

Islamic fundamentalists led by the Ayatollah Khomeini won control in Tehran.  In response, Washington backed Iraq’s Hussein in his subsequent aggression against Iran. That experience helped convince him that the U.S. would not block his 1990 invasion of Kuwait.

But the U.S. then attacked Iraq to liberate Kuwait. Washington left American troops in Saudi Arabia, antagonizing the likes of Osama bin Laden, who viewed Washington’s presence as desecrating sacred lands.

Although the September 11 atrocities were orchestrated by Afghanistan-based al-Qaeda, neoconservatives and uber-hawks around President George W. Bush used the outrage to advance their objective of removing Hussein. Invading Iraq was presented as a panacea for almost every international ill: terrorism, the Israel-Palestinian conflict, Persian Gulf instability, dictatorship, proliferation, high oil prices. The war would be a cakewalk, the peace a veritable feast.

Administration officials warned of mushroom clouds and suggested Baghdad’s complicity with 9/11 while systematically pressuring intelligence officers, distorting information, and hiding evidence which contradicted their lurid claims. Britain’s famed “Downing Street Memo” explained that “the intelligence and facts were being fixed around the policy” decision to attack Iraq.

The war became a weapon in the increasingly partisan red team-blue team political struggle at home. Backing the administration’s war was a patriotic test: critics were smeared as traitors and friends of Saddam. David Frum, later purged by the Right for his own ideological heresies, …read more
Source: OP-EDS

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Hyperinflation? No. Inflation? Yes.

March 25, 2013 in Economics

By Steve H. Hanke

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Steve H. Hanke

While inflation seems to be on everyone’s mind these days, misconceptions abound. Indeed, few concepts in economics are as misunderstood as inflation. This month I take a look at some common questions about inflation, and a few that I wish more people were asking.

Until we return to a stable, rule-bound international monetary system, inflation will continue to be source of anxiety in economies and asset markets around the world.”

Is hyperinflation coming to the U.S.?
No. Hyperinflation arises only under the most extreme conditions, such as war, political mismanagement, or the transition from a command economy to a market-based economy. If you compare the U.S. to countries that have experienced hyperinflation– think Iran, North Korea, Zimbabwe, and the former Yugoslavia, for example — the U.S. doesn’t even come close. Hyperinflation begins when a country experiences an inflation rate of greater than 50% percent per month — which comes out to about 13,000% per year. Although it experienced elevated inflation around the time of the Revolution and the Civil War, the United States has never passed this magic mark. At present, the U.S. inflation rate, measured by the consumer price index (CPI), is less than 2% per year. So, to say that the U.S. is on its way to hyperinflation is just nonsense.

But what about Quantitative Easing? Won’t that cause high inflation?
No, at least not under the current QE program. What many people fail to understand is that the money created by the Fed, through programs like Quantitative Easing, is what’s known as “state money” (monetary base). In the U.S., this makes up only 15% of the money supply, broadly measured. The remainder is made up of “bank money” — the allimportant portion of the money supply produced by banks, through deposit creation.

So, while the Fed has more than tripled the supply of state money since the collapse of Lehman Brothers, in September 2008, this component of the money supply is still paltry compared to the total money supply. In fact, when measured broadly, using a Divisia M4 metric, the U.S. money supply is actually 6% below trend (see the accompanying chart).

There are a number of factors that affect the growth of money, but there are two main factors that have hamperedbroad money growth in the United States since the financial crisis. Not surprisingly, they are both government created.The first is the squeeze …read more
Source: OP-EDS