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rockfl9

Letus have a THINK

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On a good month the GOI  will sell $7.5B in oil . We know that is at least 95% of the total income for the month. Pretty much tied to the price of oil.

The lowest grade Iraqi civil servant is paid 500,000 Iqd for the month that is about 430 USD.  Abadi stated in an interview last year that the total operating cost of the GOI ( salaries and pensions ) was 4.5T Iqd ( about 3,7B USD) .

NOW if there would be a one cent RV ( X10 increase )   The cost to the GOI would be increased to 45T Iqd ( about 36B USD) Which would become almost 5 times the oil revenues!!!!

How would the GOI make good on the payroll ?  They could cut salaries or not pay on time as they have in the past but that would only be a temporary solution as the prices of anything imported   and paid in dollars would have to increase,. A major problem.

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:lol: Just because they revalue their currency doesn't mean everyone is getting a pay raise.  

 

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Hi Mark,

NO it is not a pay raise... The civil service law guarantees all salaries.  So they get paid the same amount of dinar at whatever the exchange rate!  So he will  get 500k IQD at the 1 US cent rate .. In fact everything valued in dinar gets the same (official ) value.  The problem is that when the GOI puts up dollars in the "auction" instead of getting 1190 per dollar it only will get 100 !! So to meet the payroll it will have to put up 11 times the dollars to get enough dinar !  Don't you see that as a problem?   It is a basic business rule "You can't pay out more than you take in.

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Rockfish - "You can't pay out more than you take in"....LOL seriously......We (USA) have lived by the exact OPPOSITE of that motto for over hundred years....as has the rest of the world. You need to stop reading books and open the windows & look at the world for what it is...not something uv read....LOPsters & GURU's the gifts that keep on a giving 24/7

Edited by caz1104
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6 hours ago, rockfl9 said:

Hi Mark,

NO it is not a pay raise... The civil service law guarantees all salaries.  So they get paid the same amount of dinar at whatever the exchange rate!  So he will  get 500k IQD at the 1 US cent rate .. In fact everything valued in dinar gets the same (official ) value.  The problem is that when the GOI puts up dollars in the "auction" instead of getting 1190 per dollar it only will get 100 !! So to meet the payroll it will have to put up 11 times the dollars to get enough dinar !  Don't you see that as a problem?   It is a basic business rule "You can't pay out more than you take in.

 

Are you that naive to think the government/employers are going to pay their employees that amount of money??? I'm really astonished that you are that obtuse.  It is a pay raise if the value of the new salary exceeds  the value of the old salary. 

 

The purchasing power of the Dinar increases so they don't have to spend as much Dinar to purchase the same goods and services.  Notice the word "services", that is also called labor, which translates into someone having to do that Labor, which translates into contractors/employees to provide those services.

 

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So you think they will simply adjust the salaries after the RV!  Well that presents a problem of how?  You should have noticed that GOI employees are paid on a rotating basis thruogout the month , a forth in the first week , another fourth in the second, etc. Since it is usually cash paying all at once would be a big hit to the treasury,. Now the question , when do you pull the trigger? The last group  gets paid  at the full old rate  the next three  get partially screwed!  

Another problem is rents , contracts and loan payments how will they be adjusted ?  They present legal issues that are very unlikely to be handled by current laws!

Remember this all has to be handled in secret.

The riots over bad water and poor services would be minor when the govt reduces salaries.  Next consider what and when prices are adjusted. Without a warning would be mass confusion.

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@rockfl9 :lol:  I guess they'll do the same thing if they LOP the Currency.  Are they still going to keep paying them the OLD Value of the Dinar??? :lol:

 

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There are no special adjustments in pay or contracts needed for an RD, and there are (that I can see) no laws possible that would not leave some very upset folks after an RV.  Take 2 folks both living payday to payday and getting 100,000 IQD in pay.  One gets paid just before an RV or RD event, one just afterwards.

 

If getting paid just after an RD you get 100 New IQD instead of 100,000 IQD and the value is the same,  Its the same as your previous pay as well.  No one is upset as everyone is getting the value they expect.  If payed before the RD you can exchange your 100,000 iQD for the same 100 NewIQD you would get paid after and vice-a-versa.

 

But look at the same (1000 to 1) RV.  If paid just before the RV, the RV makes that pay 1000x the value you are used to.  But if after the RV, your pay is reduced by 1000x (as Markinsa suggests), then being paid just after the RV gets you the old value.  The person paid before is ecstatic, the one paid after not so much.   What set of laws could be passed that makes everyone happy?  I can't think of how such a thing could be structured.

 

Of course since the CBI will run out of its reserves in about 10 seconds of those folks wanting to exchange their 1000x pay, in short order everyone will be upset, but that's another issue.

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Well I think a LOP (or redenomination ) is at least possible while an large RV (say a penny or more) is not.  So while they can't RV, they COULD LOP.  Whether they will or not, I have no idea.    I don't think there is really any pressing economic need to do so, but perhaps its more of a political decision than an economic one, so who knows.

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EC,   In a way you are correct. The Iraqi economy has stalled for 2 years. Mainly due to low crude income. No need to RD now . But as things pick up the money will start moving again .  The question for the CBI is do they just continue reprinting the old or is it the time to drop the zeros and enter a modern style. By that I mean a 1,5,10,25 series of dinar. The CBI appears to have pocketed enough reserves to cover the cost .   

The CBi Gov has said that it will be an orderly change .  No loss no gain .   Usually that means 3 -6  months between announce and release.  If they wish to do it for the next budget cycle ( which would be ideal ) time is running out.

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Right, I'd call the decision to "enter a modern style. By that I mean a 1,5,10,25 series of dinar."  a political decision not an economic one.  South Korea has (and historically has had, though it moves around) an exchange rate even less than the IQD (with 1,000 5,000 10,0000 and 50,000 Won notes) and that has not been a major factor in the ups and downs of their economy.  Iraq might profit some by stranding some currency stolen by ISIS but its not clear how effective that would be (i.e. that currency may already have been laundered).  So maybe they will, maybe they won't but the Iraqi economy will not be much impacted either way in my view.

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Perhaps I should have added, that IQD holders might (and I think should) be worried about their currency being stranded as well (I sold mine for a slight loss shortly after buying it many years ago).  It all depends on how the RD or LOP is done.  Its quite possible, even likely I'd say, that the current IQD will be accepted at major Iraqi banks for many years.  The shorter time limit is likely to pertain to the limit of GETTING current IQD.  But the danger will be the impact of the RD on IQD coming in from outside the country.  If they really clamp down on that, then those holding IQD outside of Iraq may have trouble getting it exchanged and to the extent that they can arrange for this (which might well involve some, at least technically, illegal transactions to get it across the boarder) it will certainly incur additional expenses.

 

Other things to consider would be (all in my view of course), that once (and IF) they RD then that puts a nail in the coffin of the RV i'd say.  Even if you believe an RV is possible now, having s 1 NewIQD bill that is worth $10 (the equivalent of a 1 penny RV now) has great problems for consumers given all the stuff that costs less than $10 (lots of coins).  Of course in my view an RV is financially not possible now anyway and remains so after an RD as well. 

 

Also once (and again IF) an RD is announced I'm guessing there will be a flood of sellers which wold greatly reduce the price you can get.  Of course for those that do not have enough tied up in this to care that might not be an issue.

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Agreed,  But an RD would throw a clinker in the RV. They would not do both.  The cbi cant flush out the lost and stolen value without  a new issue .   

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On 9/20/2018 at 1:41 AM, EverCurious452 said:

Well I think a LOP (or redenomination ) is at least possible while an large RV (say a penny or more) is not.  So while they can't RV, they COULD LOP.  Whether they will or not, I have no idea.    I don't think there is really any pressing economic need to do so, but perhaps its more of a political decision than an economic one, so who knows.

So...I guess I do not understand the reason of why you are here...Rock is on a mission to save all of us.  Are you trying to do the same thing?  IF I really believed in a lop, I would be gone.  Never to ever ever ever enter into another catblasted dinar site ever again.

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