Threat of Hyper-Inflation
The Guardian reports that the British head of the Coalition Provisional Authority in Basra, Patrick Nixon, is warning about the dangers of inflation. The economy is heating up. Rents and housing costs in Basra are way up. Unemployment in Basra has fallen to 15%, in Baghdad to 30%, and in the country as a whole to 33%, according to this article. The prospect of the CPA injecting $18 billion into the still weak Iraqi economy all of a sudden could spark an inflationary spiral. Inflation is defined as too much money chasing too few goods.
Hyper-inflation could be extremely destabilizing for Iraq. It will hurt those on fixed incomes and the ghetto poor, who are already politically radical. Some groups, in contrast, will become extremely wealthy. This phenomenon occurred in Iran in the 1970s because of the oil boom, and contributed to the outbreak of the Islamic Revolution of 1979.