Friday, August 5, 2016

How Much Did We Own Iran?

The Wall Street Journal got the right wing all excited with some phony suggestion that we sent $400 million in hostage money to Iran. Of course the real story is clear:
Ryan, Trump, and other critics have the facts wrong. The Wall Street Journal story is actually describing a payment that President Obama announced back in January. What’s more, the payment was the result of a 35-year case in international court — and had nothing to do with any "hostage" payments.
Iran was actually seeking $10 billion to settle this matter. Let’s do a little mini-analysis. Suppose you borrowed $400 million in 1979 and did not settle matters until 37 years later. Over the course of this period of time, the general price index has increased by a factor of 3.5. So $400 million back in 1979 would be $1.4 billion today. And of course this calculation assumes you pay zero real interest. While that may be near the real interest rate today – real interest rates back in the early 1980’s were very high. So what should we assume is the appropriate real interest rate for our exercise? If we assume 2 percent, then in real terms the principle should be about 2.1 times higher. So we likely should be paying Iran $2.9 billion. Of course the Republicans likely have a different view as they don’t mind cutting those Social Security benefits we were promised during the 1983 Reagan reforms in order to give tax cuts for rich people. So why not default on our international obligations. Call this Trump Financing.

1 comment:

Bob Michaelson said...

The headline should read "How Much Did We Owe Iran?"
As written it is another question - presumably about during the time of the Shah - no less interesting, perhaps, but on a different toic.