SWFloridaGuy (8/22)

[SWFloridaGuy]

8-22-2012 SWFloridaGuy: I am very encouraged by some recent reports out of Iraq regarding the easing of political tensions, the focus on implementing the reform proposal and holding a successful National Meeting. Does this mean we will RV tomorrow at a rate of $42? Of course not; it doesn't relate directly to the exchange rate at all. Indirectly however, we do see a connection. The CBI did say that they will proceed with the National Economic once the GOI resolves this political crisis and if the reports out of Iraq are true, they have made much progress in this area. Just to clarify, the CBI did not say revalue, they said remove the zeros. There seems to be much confusion on what "remove the zeros" actually means. Some researchers like to add their own interpretation and say it refers to a revaluation and the entire process of drawing in the large notes. Deleting the zeros simply means deleting the zeros, pretty straight forward. This simply refers to the CBI's plan to drop the zeros from the nominal value and introduce the lower denoms to ease cash transactions. I'm simply making this point because I see the CBI misquoted quite frequently and I used to struggle with this understanding myself. Having said that, I do believe Iraq will revalue their currency and I think there are many ways they can achieve this. For painfully obvious reasons, the CBI will never announce to the world that they are about to revalue their currency. Shabibi himself alluded to this in Washington when he said "Even if I knew I could never tell you."

Whether there are several incremental adjustments or a historical large currency appreciation of 100,000% to get us to 1 to 1, I do think Iraq will accomplish returning their currency to its previous levels by increasing the value of the paper currency in a quantitative sense. There are several ways I believe Iraq could accomplish this, some are better solutions than others. Under a fixed exchange rate, fluctuations in the value of a currency to which the IQD is pegged could produce volatility. We see these effects when the USD appreciates and other currencies linked to the USD in turn show appreciation also. Iraq does not want unnecessary monetary volatility. There are a few solutions to this. They could include oil in a basket of currencies to which the IQD is to be pegged, in order to facilitate the recovery and expansion of the oil sector. They could define the value of the IQD as 1/3 a USD + 1/3 a Euro (subject to change dependent upon the future of the Euro), + 1/100 of a barrel of oil. An oil-producer like Iraq could thrive with this scenario, even if there were big swings in international exchange rates or global oil prices in the future. For this to work though, they would need to stabilize the price of oil in terms of purchasing power.

Another solution is Iraq could peg the currency to the export commodity (PEP), as I've mentioned in the past. The CBI could set the daily price of IQD in direct proportion to the daily price of a barrel of oil in terms of USD. That would stabilize the price of oil in domestic terms. That's the best of both worlds (fixed & floating) and would also help to promote integration into world markets. I cannot prove that Iraq will revalue their currency but I do postulate that theory and believe there is a great basis for it. The powerful countries, organizations, corporations and foreign Central Banks that have all invested so heavily into Iraq's reconstruction and helped to foster monetary cooperation will also reap the benefits. This is why I believe they have assisted in the development, extended project loans and offered technical assistance with communications and Iraq's banking sector. The global monetary system is broken and although the IQD is not the world's savior by any means, I do believe Iraq presents a unique opportunity and may serve the role of a fulcrum in its recovery. As always, I'm simply stating my opinion, which may or may not be correct.

[Bandit795]

Thanks for the post, SWFG!!

[sandstorm]

8-22-2012 SWFloridaGuy: I am very encouraged by some recent reports out of Iraq regarding the easing of political tensions, the focus on implementing the reform proposal and holding a successful National Meeting. Does this mean we will RV tomorrow at a rate of $42? Of course not; it doesn't relate directly to the exchange rate at all. Indirectly however, we do see a connection. The CBI did say that they will proceed with the National Economic once the GOI resolves this political crisis and if the reports out of Iraq are true, they have made much progress in this area. Just to clarify, the CBI did not say revalue, they said remove the zeros. There seems to be much confusion on what "remove the zeros" actually means. Some researchers like to add their own interpretation and say it refers to a revaluation and the entire process of drawing in the large notes. Deleting the zeros simply means deleting the zeros, pretty straight forward. This simply refers to the CBI's plan to drop the zeros from the nominal value and introduce the lower denoms to ease cash transactions. I'm simply making this point because I see the CBI misquoted quite frequently and I used to struggle with this understanding myself. Having said that, I do believe Iraq will revalue their currency and I think there are many ways they can achieve this. For painfully obvious reasons, the CBI will never announce to the world that they are about to revalue their currency. Shabibi himself alluded to this in Washington when he said "Even if I knew I could never tell you."

Whether there are several incremental adjustments or a historical large currency appreciation of 100,000% to get us to 1 to 1, I do think Iraq will accomplish returning their currency to its previous levels by increasing the value of the paper currency in a quantitative sense. There are several ways I believe Iraq could accomplish this, some are better solutions than others. Under a fixed exchange rate, fluctuations in the value of a currency to which the IQD is pegged could produce volatility. We see these effects when the USD appreciates and other currencies linked to the USD in turn show appreciation also. Iraq does not want unnecessary monetary volatility. There are a few solutions to this. They could include oil in a basket of currencies to which the IQD is to be pegged, in order to facilitate the recovery and expansion of the oil sector. They could define the value of the IQD as 1/3 a USD + 1/3 a Euro (subject to change dependent upon the future of the Euro), + 1/100 of a barrel of oil. An oil-producer like Iraq could thrive with this scenario, even if there were big swings in international exchange rates or global oil prices in the future. For this to work though, they would need to stabilize the price of oil in terms of purchasing power.

Another solution is Iraq could peg the currency to the export commodity (PEP), as I've mentioned in the past. The CBI could set the daily price of IQD in direct proportion to the daily price of a barrel of oil in terms of USD. That would stabilize the price of oil in domestic terms. That's the best of both worlds (fixed & floating) and would also help to promote integration into world markets. I cannot prove that Iraq will revalue their currency but I do postulate that theory and believe there is a great basis for it. The powerful countries, organizations, corporations and foreign Central Banks that have all invested so heavily into Iraq's reconstruction and helped to foster monetary cooperation will also reap the benefits. This is why I believe they have assisted in the development, extended project loans and offered technical assistance with communications and Iraq's banking sector. The global monetary system is broken and although the IQD is not the world's savior by any means, I do believe Iraq presents a unique opportunity and may serve the role of a fulcrum in its recovery. As always, I'm simply stating my opinion, which may or may not be correct.

swfg, i love the thought process. i however, dont see oil being tagged to an exchange rate in anyway. Its too dependent on external factors. i dont see oil being used as an asset backing on reserves, because as you remove oil, it continually declines your reserves. along with too huge of swings in inaccirate findings or new findings. just too much risk. For all the currencies in the world to coexist internationally, i believe we will always need currency baskets or sdr type backings. Jmo

[mdmtexas]

Thank you for your post SWFguy but I am a bit confused. If what you are saying is they will simply delete the zeros, are you saying then you believe it will lop? I promise you I am not trying to start anything just valvue yuor opinion.

[puckster_guy]

Sounds reasoned and thought out. A good synopsis. Good job bro a breath of fresh air compared to the obvious bs of the so called gurus. Tyvm

[Carrello]

I love this guy!

[SWFloridaGuy]

swfg, i love the thought process. i however, dont see oil being tagged to an exchange rate in anyway. Its too dependent on external factors. i dont see oil being used as an asset backing on reserves, because as you remove oil, it continually declines your reserves. along with too huge of swings in inaccirate findings or new findings. just too much risk. For all the currencies in the world to coexist internationally, i believe we will always need currency baskets or sdr type backings. Jmo

I understand where you're coming and it is something that they would have to address but I respectfully disagree that it's not a viable option. Just as with fixed exchange rates it would provide a transparent nominal anchor, would promote integration into world markets (initially a great move) and would have an advantage over floating exchange rates with an automatic accommodation of fluctuations in world markets for the export commodity. Best of both worlds. They should peg directly to the relevant commodity which is oil or do a hybrid solution. As I mentioned though, they would have to stabilize the real price of oil domestically. This would be beneficial not only within Iraq but regionally. If Iraq's economy is developed and integrated into the rest of the world it would help if the monetary anchor for Iraq were the same as the monetary anchor for the Gulf states. If they shared a commonality it would boost their trade with eachother substantially. I'm simply stating that Iraq has options and I do believe a drastic change in the monetary system is required for Iraq to accomplish what we believe they will. I certainly don't pretend to have the answers, just offering another point of view.

Thank you for your post SWFguy but I am a bit confused. If what you are saying is they will simply delete the zeros, are you saying then you believe it will lop? I promise you I am not trying to start anything just valvue yuor opinion.

Hey there Mdmtexas. No, I'm not saying Iraq will Lop at all, I am simply conceding the point that "delete the zeros" does not imply a revaluation specifically. I do believe Iraq will revalue their currency. I guess where I'm coming from is... If I were in charge of the Central Bank and I wanted to educate the citizens that a major change was on the horizon for their currency but I also knew that I could never give the world a heads up the plan was a revaluation.... what option would I have other than to say "remove the zeros," and simply focus on the redenomination aspects, rather than any specific large currency appreciation with the physical notes. This part of the discussion is no more than my gut feelings on the subject. I don't have facts to back this up.

Edited August 22, 2012 by SWFloridaGuy

[mdmtexas]

thank you for clearing it up. I will admit in the 2 years I have been invested I STILL find it hard to not fall in the lop catagory (not by choice) but by reason. I feel it is going to end well for all of us "soon" LOL

[mrmcwhipit]

Thanks SWFG very much appreciated.

[respectron]

Thanks SWFG!

For doing a great job and the brain strain you go through to try to make sense of all of this, go ahead and take the rest of the day off and have a few drinks of your choice and know we here at DV value you

[SWFloridaGuy]

thank you for clearing it up. I will admit in the 2 years I have been invested I STILL find it hard to not fall in the lop catagory (not by choice) but by reason. I feel it is going to end well for all of us "soon" LOL

It's far more complex than I had hoped it would be that's for sure. I did sign up for this under many false pretenses. Gurus love to simplify this and pretend that similar revaluations have happened many times in the past but of course they never have. I do think Iraq presents a unique situation though and has come along at a very opportune time as we see the global monetary system struggling. Many institutions and regulators on an international level are all collectively searching for a solution.

Thanks SWFG!

For doing a great job and the brain strain you go through to try to make sense of all of this, go ahead and take the rest of the day off and have a few drinks of your choice and know we here at DV value you

Dude lets blow this joint and knock em back. We all need a break.

Edited August 22, 2012 by SWFloridaGuy

[respectron]

Dude lets blow this joint and knock em back. We all need a break.

I'm with you bud

[NWGUY]

Thanks SW Guy!!!

I really liked your synopsis on this. I think that the deleting the 0's on the nominal rate, and currency is more inline with simplifying the change. JMHO, but I don't think they are planning some major complicated process, that would confuse the Iraqi people. They will keep it as simple as possible.

Pegging the IQD to the oil is one way, but that would be a depreciating, technically. They only have so much oil, even though at this time it is a lot, but my thought is they could peg it to their oil, gas, and gold, which with that combination, could sustain the value for quite sometime.

JMHO, but again, thank you for your thoughts, and also, thank you for what you bring!

Go RV!!

[SWFloridaGuy]

Thanks SW Guy!!!

I really liked your synopsis on this. I think that the deleting the 0's on the nominal rate, and currency is more inline with simplifying the change. JMHO, but I don't think they are planning some major complicated process, that would confuse the Iraqi people. They will keep it as simple as possible.

Pegging the IQD to the oil is one way, but that would be a depreciating, technically. They only have so much oil, even though at this time it is a lot, but my thought is they could peg it to their oil, gas, and gold, which with that combination, could sustain the value for quite sometime.

JMHO, but again, thank you for your thoughts, and also, thank you for what you bring!

Go RV!!

Hey there NWGUY good to see you. You made a great point. The proposal you're referring to is where the monetary policy would target a basket of basic mineral and agricultural commodities. A broad-based commodity standard and not just limited to a single commodity such as gold which would help average out fluctuations.

[sandstorm]

I understand where you're coming and it is something that they would have to address but I respectfully disagree that it's not a viable option. Just as with fixed exchange rates it would provide a transparent nominal anchor, would promote integration into world markets (initially a great move) and would have an advantage over floating exchange rates with an automatic accommodation of fluctuations in world markets for the export commodity. Best of both worlds. They should peg directly to the relevant commodity which is oil or do a hybrid solution. As I mentioned though, they would have to stabilize the real price of oil domestically. This would be beneficial not only within Iraq but regionally. If Iraq's economy is developed and integrated into the rest of the world it would help if the monetary anchor for Iraq were the same as the monetary anchor for the Gulf states. If they shared a commonality it would boost their trade with eachother substantially. I'm simply stating that Iraq has options and I do believe a drastic change in the monetary system is required for Iraq to accomplish what we believe they will. I certainly don't pretend to have the answers, just offering another point of view.

Hey there Mdmtexas. No, I'm not saying Iraq will Lop at all, I am simply conceding the point that "delete the zeros" does not imply a revaluation specifically. I do believe Iraq will revalue their currency. I guess where I'm coming from is... If I were in charge of the Central Bank and I wanted to educate the citizens that a major change was on the horizon for their currency but I also knew that I could never give the world a heads up the plan was a revaluation.... what option would I have other than to say "remove the zeros," and simply focus on the redenomination aspects, rather than any specific large currency appreciation with the physical notes. This part of the discussion is no more than my gut feelings on the subject. I don't have facts to back this up.

thanks for the post. i agree it would be beneficial if they could control the parameters. at this time, i just dont think they could. just closing the strait of hormuz for a few days, could lead to volatility in the price. but if its proportioned and they have enough assets and monetary capability to curb such actions, its feasible. A very interesting brain teaser. thanks again.

[NWGUY]

Hey there NWGUY good to see you. You made a great point. The proposal you're referring to is where the monetary policy would target a basket of basic mineral and agricultural commodities. A broad-based commodity standard and not just limited to a single commodity such as gold which would help average out fluctuations.

Exactly!! If they were going to peg it to something, this would be the best case senario, IMO. I know we are just throwing thoughts around, but I guess that is what makes this so interesting, and sometimes, aggrevating!!!

Anyway....great thoughts my dinar brother!!

Go RV!!!!

[SWFloridaGuy]

thanks for the post. i agree it would be beneficial if they could control the parameters. at this time, i just dont think they could. just closing the strait of hormuz for a few days, could lead to volatility in the price. but if its proportioned and they have enough assets and monetary capability to curb such actions, its feasible. A very interesting brain teaser. thanks again.

These are issues heavily debated by professional economists who actually have a good understanding of this, which I certainly do not. I'm with ya that this is way above our paygrade and all we can do is hope that whatever solution they choose, it benefits the country of Iraq and anyone holding their currency. We better profit from this or else I'll never be able to justify years of being single, developing bad posture and a chat room addiction.

[grand pubah]

my prediction is that they will soon replace Maliki with a more suitable replacement like dinar thug. They are a bunch of psycho circus clowns running things over there so he should fit in well.

He may not be an iraqi but I do believe he would RV the currency and help straighten out the political debacle known as the Iraqi democratic system.

Afterall it would definitely be a step forward...

SWFLorida I appreciate your sound thinking in your posts and the sanity you help bring to some of the outlandish predictions being offered by so many!

+1 for you again my dinar friend!

GP

[RVPleaseToday]

I guess the biggest problem with backing a currency with oil that is in the ground is determining exactly how much actually is in the ground. At best, the numbers we hear are estimates. I also don't see how Iraq could control the volatility of the price of oil even in their own country, much less the world. Don't understand how that would work. There has been a 10.5 percent change in the price of oil over the last month.

Edited August 22, 2012 by RVPleaseToday

[DinarThug]

my prediction is that they will soon replace Maliki with a more suitable replacement like dinar thug.

I Just Pulled Some Lint From My Belly Button .....

[grand pubah]

I Just Pulled Some Lint From My Belly Button .....

and that my friends is what makes DinarThug more qualified than the psycho circus clowns in charge over there now. thanks for making my point for me Thug!

+1

[cws]

I Just Pulled Some Lint From My Belly Button .....

Is this our new method for determining a rate and date???

What does it say DT??

Is it worth starting a new thread?? :D

[grand pubah]

i have it on good information from a reliable source (a friend of my next door neighbor's cousin's wife) that Thug's belly button fuzz has mystical powers. All we have to do now is wait for Thug to make a wish and blow the belly button fuzz into the wind and the RV will be a done deal.

This ride is all but over. To determine the rate my sources tell me that has to do with thug's earwax. so we will need to wait for him to clean his ears to get that info..

GP is excited to see this ride finally coming to an end

Come on Thug, clean your ears for gosh sakes and don't keep us in suspense any longer!!!

[SWFloridaGuy]

i have it on good information from a reliable source (a friend of my next door neighbor's cousin's wife) that Thug's belly button fuzz has mystical powers. All we have to do now is wait for Thug to make a wish and blow the belly button fuzz into the wind and the RV will be a done deal.

This ride is all but over. To determine the rate my sources tell me that has to do with thug's earwax. so we will need to wait for him to clean his ears to get that info..

GP is excited to see this ride finally coming to an end

Come on Thug, clean your ears for gosh sakes and don't keep us in suspense any longer!!!

I prefer Thug's belly button lint to jumbo jet 747s and mystical manna falling from heavens. Go Thug!!

Edited August 22, 2012 by SWFloridaGuy

[DinarThug]

I Just Pulled Some Lint From My Belly Button .....

Is this our new method for determining a rate and date???

What does it say DT??

U Mean That I Wasn't Supposed To Eat It ?