Middle East

Fiat Money and Real World Impacts

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In the US we have slowly debased our currency, the US dollar, and debt levels have risen at all levels of government. Since the US has extensive economic interests and huge reserves of oil, minerals, and agricultural capabilities, it will be a long time before the proverbial “wolf” shows up at our door.

In other countries, like Egypt, however, the wolf comes to the door right away. Egypt has an immense population concentrated along the Nile River and relatively few sources of income. Tourism has been badly damaged by the revolution against Mubarek and the rise of the Muslim Brotherhood hardly is something to put on a brochure at the pyramids, given that they have been known to slaughter their heathen guests in the past.

In order to feed their population, Egypt needs fuel, particularly diesel fuel. While Egypt does have some petroleum riches, they don’t have much refining capacity, so they must import diesel. In order to import diesel, you need “hard” currency, and the Egyptian dollar has been falling in value.

Finally, the Egyptian government distorts the local price of diesel so that it is subsidized, causing all sorts of negative impacts, including a huge black market, queueing, and all the other behaviors inevitably caused by hare-brained policies.
This situation was described in a recent NY Times article titled “Short of Money, Egypt Sees Crisis in Food and Fuel” which you can find here.

In a place like Egypt on the edge of starvation and social chaos, the safety net is thin, indeed, as they summarize in the last quote of the article:

At the empty Mobil gas station in town, attendants said profiteers, hoarders and desperate farmers were already threatening them with knives, clubs and shotguns. At harvest time, “People are going to kill each other,” said Hamdy Hassan, 37, a truck driver hanging out at the shuttered station.

Our understanding of economics in a theoretical basis and our casual acceptance of paper money has blinded most of us from understanding the practical, real-world economics that stands before us. People need goods or services, and they have to trade for it by providing alternatives that are acceptable to the seller.

If your currency is worthless, you need something else to trade, or your country will be bereft of necessary supplies. In this instance, Egypt needs refined petroleum products (diesel) or their entire economy will grind to a halt (and mass civil strife will immediately follow). As their currently depreciates relative to others in the region, their ability to purchase fuel is accordingly reduced.

This can be seen in medicines and fuel in Greece as well and likely soon to be Cyprus; it is assumed that these countries will be able to maintain first world status for their populace but it is difficult to see how that will happen while they have almost nothing to trade in return. One article about Cyprus ended with a quote from a local that if they don’t act as a banking haven “they will all just be selling ice cream and setting up deck chairs” to support any tourists that happen to visit.

With the implosion in Cyprus and likely deterioration of weakened countries like Egypt, Venezuela  Argentina with minor home currencies, we appear to be entering a new era where things we’ve taken for granted about smooth business transactions and friction-less international banking and trade are going to be put to a severe test.

Cross Posted at LITGM

Quoted Without Comment

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“Bus attacks by suicide bombers have fairly monotonous features. They occur during the morning rush hour because ridership is high at that time. Bombers board buses near the end of their routes in order to maximize the number of people in the bus at the time of detonation. They preferentially board at the middle doors in order to be centered in the midst of the passengers. They detonate shortly after boarding the bus because of concern that they will be discovered, restrained, and prevented from detonating. They stand as they detonate in order to provide a direct, injurious path for shrapnel. Head and chest injuries are common among seated passengers. The injured are usually those some distance away from the bomber; those nearby are killed outright, those at the ends of the bus may escape with minor injuries. The primary mechanism of injury of those not killed outright by the blast is impaling by shrapnel. Shrapnel is sometimes soaked in poison, eg organophosphate crop insecticides, to increase lethality.”

Resilience Engineering: Concepts and Precepts
Chapter 13, Taking Things in One’s Stride: Cognitive Features of Two Resilient Performances
Richard I. Cook and Christopher Nemeth

“But wouldn’t it be luxury to fight in a war some time where, when you were surrounded, you could surrender?”

For Whom the Bell Tolls
Ernest Hemingway

Progress in closing Guantanamo

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In his campaign, president Obama famously promised to “close Guantanamo Bay prison ” early in his administration. It didn’t happen. Then Eric Holder determined that he would try Khalid Sheik Mohammed in federal court in New York City. That didn’t happen.

The death blow was struck by New York’s mayor, Michael Bloomberg, who had previously pledged his support to Holder. On January 27th, Bloomberg distanced himself from the Justice Department, saying that a trial in New York would be too expensive. For months, companies with downtown real-estate interests had been lobbying to stop the trial. Raymond Kelly, the commissioner of the New York Police Department, had fortified their arguments by providing upwardly spiralling estimates of the costs, which the federal government had promised to cover. In a matter of weeks, in what an Obama Administration official called a “classic City Hall jam job,” the police department’s projection of the trial costs went from a few hundred million dollars to a billion dollars.

Eventually, the conservative movement relaxed and concluded that the idea of granting terrorists American style civil rights had lost. Not so fast.

In another of those Obama fast moves, the concept of civilian trials just won the contest. As Mark Twain said, the lie is half way around the world, while the truth is still getting its boots on.

In the blink of an eye, the second Obama term has turned the clock back to the pre-9/11 days, when al-Qaeda was a law-enforcement problem, not a national-security challenge.

Of course, it was a Friday afternoon. That’s when Obama does his best work.

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Iran May Have the Bomb

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A report suggests that the most recent North Korea nuclear test, which used Uranium, not Plutonium as in their others, may have been the Iranian bomb.

the RAND Corporation reports that the third North Korean nuclear test appears to many experts to be fundamentally different from its previous two efforts. North Korea’s first tests used plutonium to trigger the nuclear explosion. This one, according to some atmospheric tests, likely used highly enriched uranium, exactly the form of nuclear weapon pursued by Iran.

The report is not that positive about the weapon type.

Key aspects of North Korea’s third nuclear weapon test, carried out on Tuesday, remain unknown. We do not know whether it was a test of a plutonium or highly enriched uranium weapon, though many experts suspect the latter.

The report is hardly definitive but it would not be a surprise if Iran has pushed through to a success in its program, unencumbered by any serious US opposition. Still, there is some serious concern.

The question is whether the weapon North Korea tested this month was its own, Iran’s or a joint project. A senior U.S. official told The New York Times, “It’s very possible that the North Koreans are testing for two countries.” It would be foolish for Iran to test a nuclear weapon on its own soil. Nuclear weapons cannot be detonated in secret; they leave unique seismic markers that can be traced back to their source. An in-country test would simply confirm the existence of a program that for years Iran has denied.

If that were not enough:

Ralph Peters has some serious concerns about where the Obama administration is going.

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