What’s the explanation behind the recent rise in price levels?

I remember a couple of weeks ago A1+ website posted a poll “Which one in your opinion is the reason behind the recent rise in prices?”  and there were some answers to choose from like “increase in taxes”, “price fixation” etc, yet none of these options seemed to pin the problem down.  So, what are the reasons behind these sharp increases in prices? 

The simple answer is WAR, or more precisely, WARS!!!  Here’s a breakdown of how it works:

1) The WAR in Iraq. The continuous “misfortunes” (to put it in mild terms) that the Americans are experiencing in Iraq have caused the dollar to dwindle to a level of lowest value in it’s recent history.

1a) This has caused a steep rise in prices that is already felt in many lesser-industrialised countries and those countries that are not self-sufficient in terms of their food-supply including some European countries (like Greece and Portugal), though this rise in international prices is mostly felt in lesser-developed world countries like Armenia and Georgia and Azerbaijan.

1b) This has led Bush administration to initiate the kind of fiscal and monetary policies that puts a lot of strain on the dollar and utilises the dollar’s potential to its maximum.  In effect, this has led to a decline of confidence in stock trading, but more so in futures trading.  In simple terms, Bush is really pushing it, and the American economy (and the dollar) is really walking on knife’s edge.  If not carefull, it’s a bubble that could burst any time.

1c) Armenian economy depends on dollar more than on any other currency, not just for imports but also for everyday spending and money sent from relatives abroad.  As a result, the war in Iraq (which Armenia officially participates in) has an indirect effect on everyday livelihood of ordinary people in Armenia.

2) The WAR in Artsakh – Armenia is preparing to match Azeri military spending. The increased oil revenues of Azerbaijan (due to [A] the opening of the Baku-Ceykhan pipeline and [B] the unexpected rise in international prices of oil in the last 2 years, which was also due to the war in Iraq) have caused Azerbaijan to become the fastest growing economy with 37% growth rate. Yet instead of addressing its socio-economic problems and the problem of the refugees Azerbaijan has increased its spending on police force and the military. In 2007 the military budget of Azerbaijan was set at $600million, yet increased to $1.1billion (more than Armenia’s whole state budget).

2a) In response, to match Azerbaijan’s military build-up, Kocharyan’s new year started with tightening his grip on taxes and state revenues.

2b) Dram was artificially appreciated (to allow for a pumped up budget figure in dollar terms).  Anyone with a basic knowledge of economics knows that this a very unhealthy policy as it has immediate destabilising repercussions in next fiscal year.   Nevertheless, in theory the prices of basic necessities should have declined, but exactly the opposite happened. Why?

2b-i) Because of the point 1

2b-ii) Because tax officials are working harder

2b-iii) Because Central Bank is under president’s control and is pursuing monetary policies of helping the president to raise the necessary war budget – i.e. helping to extract the surplus volume created by appreciated dram (minus the depreciated dollar caused by the war in Iraq).

 

If there was no war in Iraq, Kocharyan would be in a lot easier position because then he wouldn’t have to deal with the depreciated dollar effects.  But, being a spineless president of a Banana Republic, just like so many other Banana Republics, he sold out to US and joined the so called “Coalition of the Willing” for some petty $10million in military aid.  Now he has to deal with both points 1 and 2.

And who takes all this the blow??? The ordinary people.          

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