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By Alexis John
BoE cut its benchmark interest rate to a new low and said it would buy government and corporate bonds as part of easing efforts to counter the economic impact of Britain’s decision to leave the European Union. Is this step going to help Britain
Iraq's about to plunge off a fiscal cliff — and the consequences could be dire
From Business Insider
The plunge in oil prices is already having far-reaching effects on countries whose economies are dependent on oil exports.
But in Iraq, the stakes of cheap oil are even higher than in Saudi Arabia, which is instituting unprecedented taxation and austerity, or in Nigeria, which isnow asking for an $11 billionWorld Bank loan.
What little remains of Iraq's government and social order might collapse if oil remains in its current price trough — with dire consequences.
According to a Monday AFP report, Iraq is now selling oil at half of the country's apparent fiscal break-even price. Right now, Iraq is selling its oil at around $22 a barrel, half of what it would need to fetch for the country to be able to fund the upcoming year of government budgetary obligations, the report said.
United Nations Joint Analysis UnitIraqi government revenue by year, divided by oil and non-oil sources.
But Iraq's situation is actually even worse. As recently as the 2014 fiscal year, Iraq was formulating its national budget on the assumption that oil would remain at around $90 a barrel and that the country's oil exports would continue to climb (which they have).
Iraqi government revenue experienced dramatic annual increases between 2009 and 2013, almost entirely because of oil (see the chart on the left). That's all over, now that oil is expected to stay under $40 a barrel through the end of the year.
Though Iraqi oil is comparatively cheap to extract, it also contains unusually high levels of sulfur, meaning that it typically sells for around 10% less than Brent crude, the global price benchmark. The Iraqi government is still making money pumping oil — just not nearly enough to fund the country's anticipated national budget.
Such a daunting fiscal cliff would be challenging for a stable or politically coherent country. But it's potentially disastrous in a place like Iraq, where the majority of territory is split between the terrorist group ISIS and the Kurdistan Regional Government. Even the areas still under some semblance of federal control are fought over by a constellation of militia groups with ties to recognized political parties.
Ali Khedery, the CEO of Dubai-based Dragoman Partners, a former adviser to US Central Command, and a former Exxon executive with extensive on-the-ground experience in Iraq, warned that cheap oil threatens the country's last remaining semblance of order.
"You are looking at a significant possibility of state collapse due to civil unrest," he told Business Insider.
RNGS ReutersTerritorial control of Iraq as of January 22nd, 2016. ISF refers to the Iraqi Security Forces, the state's official uniform military.
Cheap oil will eat into the Iraqi state's ability to continue fighting ISIS, which still controls Mosul, the country's second-largest city. And it could have an alarming effect on the patronage, corruption, and militancy that buoys the already dysfunctional Iraqi state.
As Khedery explained to Business Insider, the number of Iraqi government employees is believed to have shot up from around 850,000 at the time of the US-led invasion in 2003 to more than 2.5 million by early 2015. It's a revealing statistic, considering Iraq's transition from a strong, centralized state under Saddam Hussein to a loose and often-violent federation under its current system.
Khedery said that people were added to government rolls because of family, sectarian, or tribal connections. Some officials would pocket money through "ghost job" scams, embezzling salaries from employees that didn't actually exist. Some of the government's oil revenues would go towards militias with ties to official Iraqi political parties — organizations like the powerful Badr Group.
"Why did the number of government employees go up 200%? The reason is that Iraq is a kleptocracy built on systemic corruption and patronage as a means of buying votes," Khedery told Business Insider.
As a result, Iraq has little ability to hedge against against a plunge in oil prices.
"Unlike Russia or Saudi, which have hundreds of billions in hard currency reserves and trillions in assets and state owned entities, Iraq is insolvent and bankrupt," he said.
In a price crunch, Saudi Arabia has the option of selling off chunks of Saudi Aramco, itsperhaps multi-trillion-dollar state oil concern — which is exactly what Riyadh is reportedly planning on doing.
Russia is a major gas exporter, and has a more-diversified economy than many other rentier states. Iraq, on the other hand, has little to show for the nearly half-trillion dollars in oil-export revenue the country received just in the decade after the 2003 invasion. It's largely been stolen, or dispensed to militia groups.
The Brookings InstitutionIraq's oil export revenues in the decade after the 2003 US-led invasion of the country.
As Khedery explained, an Iraqi "hard landing" has some alarming ramifications.
A plunge in federal revenue would only harden the division between Baghdad-administered Iraq and the Kurdistan Regional Government, which already has is own oil ministry, government, and security apparatus, and which sells more than 600,000 barrels of oil a day independently of Baghdad.
In addition to hastening the country's breakup, a budget plunge would also badly destabilize Basra, the southern export point for the vast majority of Iraq's oil.
The city has already seen increases in violence between Shi'ite militia groups that the federal government has been unable to disarm. Once organizations like Khataib Hezbollah, Jaysh al-Mahdi, and Asaib Ahl al-Haq see their bottom line threatened, the city on which much of the Iraqi economy is dependent could begin to erupt.
"The militias are going to start turning on the state, and they're going to start turning on each other," Khedery told Business Insider. "They're basically vultures who feasted on ethno-sectarian hatreds and high oil prices and patronage. And now they're going to have to start fighting each other for the scraps as the oil-funded pie has shrunk by more than 80%."
Posted on May 16, 2015by Martin Armstrong
This Sovereign Debt Crisis is the nature of the beast we face. Understanding that crisis is half the battle for after the business cycle turns, there will be a lot of finger-pointing but you can bet it will never be pointing at government. It does not matter what country we are from, the people are the same. The audience last night in Warsaw was articulate, understood, and the audience made it known that they too distrust government. It really matters not our nationality. People never start wars, only governments which are not the people.
It is also never private debt that causes the end of a nation, it is the debt of government. When people default, their assets are seized and they were often thrown in debtors prison. When government defaults, you get revolution. Adam Smith called this the highest impertinence of kings to pretend to watch over the debts of the people and not their own. This cycle of political change is about 309.6 years. The last wave began in the 1600s and culminated in the late 1700s, The wave before that is where capitalism began during the 14th century with the reintroduction of wages and taxes following the Black Death of 1346-1353.
The American people were not in support of the revolution until the very end like a Phase Transition. Those who wanted to leave Britain were only about 33%. Then a writer issued a pamphlet by the name of Thomas Paine entitled Common Sense. Paine explained that the nation or society is only the people and that government views itself as the nation yet is entirely different right from its origin. He further explained that “Society is produced by our wants, and government by our wickedness; the former promotes our POSITIVELY by uniting our affections, the latter NEGATIVELY by restraining our vices. The one encourages intercourse (cooperation of people creating an economy) the other creates distinctions. The first a patron, the last a punisher.”
We can see that despite the American and French Revolutions, government reverts always back to the dominant punisher assuming the very same power against which the people revolted to begin with. We can see Thomas Paine’s words are applicable today. The US government called Snowden a traitor for telling the people the government was illegally searching and seizing everything. It was irrelevant that he informed the people about the illegal acts of government. It was treason by their definition because he revealed what they were doing illegally to the people. That reflect what Paine said – they see themselves as the nation not the people who they exploit for their own survival.
Understanding who is the enemy is the very first step in the reform process. About every 309 years we reach a crisis in government. This has been resolved unfortunately with violence for whoever is in power never goes quietly into the light. The late 1700s was of course the American and French Revolutions and today the people of both nations have less rights than existed when they rose up in their respective revolutions. Both were sparked by a debt crisis.
In Britain, George III needed money so badly, he was taking Spanish coins and counterstamping his own image and making them English. The Assignates were paper money issued by the French that was back by confiscating the property of the Catholic Church. The Crown had bailed out the debt of the Mississippi Bubble of 1720 and that imposed harsh taxes upon the French people. We are in the very same position of a Sovereign Debt Crisis once again that is turning to confiscating everything we have as well as government is always driven by debt.
Thomas Jefferson was highly practical. He wanted the Constitution to automatically expire every 19 years and he was against any government debt. Why? A national debt to Jefferson was taxing the next generation without representation. Indeed, we are being heavily taxed to support the continued rollover of debt.
Without question, this is where we are once again. Jefferson understood looking at history that it repeats because human nature never changes. He saw war was caused by standing armies and once government is paying to maintain such a force, it is like have a car you never drive.
If we look back 309 years from the 1700s, we come to the 14th-15th centuries. In Florence it began with a revolution where they too ran out and hanged bankers. The great series of tax revolts began on that cycle in England and France that finally culminated following the Black Death (1346–53) where capitalism really began with the reintroduction of wages given the shortage of labor.
Perhaps this time we can put pressure for political change in eliminating debts and this viscous cycle of Sovereign Debt Defaults that destroy society. We can prepare for our individual survival by comprehending the nature of the beast. As was discussed in the session in Warsaw, it is true gold is no longer the savior since we cannot hop on a plane with a briefcase full of gold and seek a new start. Gold’s role may be local and in an underground economy, but make no mistake about that, government is well aware of that role as well.
Governments are robbing anything travelers might have these days. There were even signs in Poland warning if you have more than €10,000 in cash or “assets” when traveling it was illegal. They will look for jewelry, stocks, gold, or diamonds. Anything they deem of value they can confiscate.
This is a new age of authoritarianism and is not ending nicely. The idea of crypto-currencies is also rather foolish for nothing can compete against a government that is ruthless and broke. They have the guns and then tanks and will use them against the people. Our hope is to identify the problem and spread the word. Yeltsin stood on the tanks in Russia and asked the troops not to fire on their own people. If the pawns of government refuse to massacre their own people, then we can win. It is critical to understand that police and military will become the tool for both sides.
This is why Brussels is now calling for a European Army. That will be their power and sending Greek troops into Germany will prevent the troops from siding with the people. This is also why there is a mad rush to create robots for war. They have no emotions and cannot be turned. Government understands their weak-link for throughout history it has always been the loyalty of the troops.
That is what we must understand and we must understand that private assets are the means to survive – not pensions or government bonds. Eliminating cash is their way to force people into banks and prevent a bank-run. That will end in the total authoritarian government for you will not be allowed to buy or sell except without the grace of government.
Hello again my friends. Let's have a discussion on how we quantify value in the IQD in a very simplified way. There is a well respected and accepted economic principle called the "Quantity Theory of Money". Simply put, the theory states that there is a direct relationship between the quantity of money in an economy and the level of prices of goods and services sold. The equation goes like this:
MV=PT or M(money supply) [x] V (velocity) = T(avg price of good and services [x] volume of goods and services)
for the sake of keeping the explanation simple we will call T - goods and services throughout this write up
Let's break the equation down in english - For a defined window of time, the amount of printed money multiplied by the average number of times the money changes hands equals the total goods and services at average price. When there are changes on one side of the equal sign, there must be changes on the other side of the equal side. Change in goods and services directly effects money supply, velocity or both. Please continue no further until that is clearly understood.
Quickly we can recognize a few scenarios from this direct relationship:
When goods and services boom, there must be a significant rise in either money supply, velocity (number of times the money changes hands) or both in order for the equation to stay equal/balanced.
When money supply booms, if goods and services stays the same, there must be a reduction in velocity
When money supply booms and velocity stays the same, there must be a resulting boom in goods and services
When velocity of the currency booms, and goods stays the same, money supply must be reduced
I could continue on drawing up scenarios with this equation but I believe I gave enough examples to help highlight the direct relationship between opposite sides of the equal sign.
Should we accept this respected theory as a means to compute value, what do we see Iraq doing?
We know for fact that Iraq has significantly reduced its Money Supply. We watched much of this happen through the auction process where the CBI purchased IQD with USD. We have seen reports from the CBI that the notes in circulation has been reduced to 4 Billion with a goal to get to 1 Billion.
We might assume that the velocity of the money is up from articles of currency been worn out through overuse.
We know that the GOI and CBI are working to boost privatization on a massive scale which will significantly increase the volume of goods and services in the economy.
We know that as the volume of goods and services increases, the monetary policy of Iraq is to PREVENT inflation (increasing money supply).
My friends I hope we are all able, from this simple means of measurement, to see that the IQD is intended to gain value....significant value. The only thing standing in the way of realizing the real value of the currency is the presence of the USD. Eventually we will see the time when foreign investment into the country will demand a true foreign exchange market where the foreigner's money will be exchanged into IQD in order to execute business in the country resulting in boosting the country's volume of goods and services.
The only thing we really have to watch for at this point that will work adverse to our hope is 1) Reduction in the nation's security 2) Anything denoting that Iraq begins increasing/inflating the money supply. As of today however, these two indicators are either being addressed (1) or the exact opposite (2).
Now, I bet more people are happy to read about the 50 note being removed from the economy. That alone should have given the dinars you hold a boost in value!
Be blessed my friends.
Really good article that puts all phony mainstream media hype in true perspective, along with how easily most Americans perceptions of reality are shaped by it.
Propaganda & Fear-Mongering Works
inShare13 Submitted by Jim Quinn via The Burning Platform blog,
When I see the results of polls like the one below, I realize there is no chance the majority will do anything to reverse the course of our nation in terminal decline. It will take a complete collapse and bloody reset before we have a chance at putting this country back on a sustainable rational course.
How the f..k can Americans actually think terrorism should be Obama and Congress’ top priority? Are Americans really that stupid? WTF do they want Obama and Congress to do? Double the DHS budget? Increase electronic surveillance on our communications? Give local police more military hardware? Ban guns? Repeal the 4th Amendment?
Do the ignorant masses know their actual chances of being killed by a terrorist? To say the chances are astronomically miniscule is an understatement. See for yourself:
You are 35,079 times more likely to die from heart disease than from a terrorist attack You are 33,842 times more likely to die from cancer than from a terrorist attack You are 23,528 times more likely to die from obesity than from a terrorist attack You are 5,882 times more likely to die from medical error than terrorism. You are 4,706 times more likely to drink yourself to death than die from terrorism. You are 1,904 times more likely to die from a car accident than from a terrorist attack. You are 2,059 times more likely to kill yourself than die at the hand of a terrorist. You are 452 times more likely to die from risky sexual behavior than terrorism. You are 353 times more likely to fall to your death doing something idiotic than die in a terrorist attack. You are 271 times more likely to die from a workplace accident than terrorism. You are more than 9 times more likely to be killed by a law enforcement officer than by a terrorist. You are 110 times more likely to die from contaminated food than terrorism. http://www.globalresearch.ca/the-terrorism-statistics-every-american-needs-to-hear/5382818
What policies do Americans want Obama and Congress to prioritize in 2015? According to the Pew Research Center’s policy priorities survey, 76 percent of people in the United States believe tackling terrorism should be the nation’s top priority this year. It is the first time in four years terrorism has made the top of Pew’s list and its appearance for 2015 can be attributed to economic improvement as well as persistant terrorist threats.
Despite considerable improvement, the economy is still an area of concern for Americans and 75 percent of them want President Obama to give it attention. Job creation is closely linked to economic improvement so it comes as little surprise that it rounds off the top three with 67 percent of respondents expecting it to be prioritized.
* * *
The fact Americans think terrorism is our top priority proves that Edward Bernays was an evil genius. The combination of mass media and propaganda can convince the willfully ignorant and dumbed down populace of anything. Facts are unnecessary when fear and feelings are far more powerful. We are truly doomed.