Investing in Dinars: - 10. Can Iraq afford to RV? Can we know?

[Enorrste]

10. Can Iraq afford to RV? Can we know?

[Analysis]

Among the most pressing questions that need answering is whether or not Iraq can afford a revaluation of its currency. The argument against this is that there are so many IQD in circulation now that Iraq can

[apilot]

Well written and well done. I have ask the same question and you have given the best explanation I have heard to date.

[gottarock]

It is a pleasure to read your posts. Thank you.

[Nancy]

Your posts are so helpful. Are you a professor??

[pjb]

great post

[Mongo]

Every industrial and emerging industrial nation wants a piece of the Middle East oil pie. Kind of like a wolf pack pulling a dead carcass in 20 different directions at once. How do they deal with this problem? When your not sure, you delay. But the wolves won't wait, for they have a terrible hunger for that black crude. I think OIL will be one of the catalysts for armageddon. yes it is a chess game.

[beachboy7]

Great past! Thanks so much for your effort.

[arco]

very well presented, thank you.

[jroman]

thanks for the information

[WIGO]

Thank you Enorrste! I love your writings...

[DinaRus]

Thanks for the hard work!!!

[lovellg]

Enorsste,

You are a wise and smart man. I appreciate the information you share and I am always so glad to see you pop into the chats. Thank you again. You really put things into percpective. Well said again!

[kaperoni]

Very nice work.

[Drstain]

One of the best post I have read on here, great insight!

[digital11]

Steve,

Thanks for all of the hard work you've put into all of these posts. Your reasoning is soundand very reassuring. Great job.

[digital11]

Also, love the fact that it appears 3.86 is very doable! C'mon RV!!

[Muhammad]

10. Can Iraq afford to RV? Can we know?

[Analysis]

Among the most pressing questions that need answering is whether or not Iraq can afford a revaluation of its currency. The argument against this is that there are so many IQD in circulation now that Iraq can’t afford to buy them back. We need to determine whether this is true or not.

One way to determine the answer to this question is to find comparisons between Iraq and its outstanding amount of dinar and other countries and their outstanding amounts of their currency. In theory, if another country has outstanding currency that is roughly in relationship with Iraq’s outstanding currency, yet is still healthy, then Iraq can afford to revalue and still be healthy as well.

Perhaps the best country to compare to Iraq is the United States, since we have ample figures on our own government expenses, GDP, and worldwide circulation of dollars.

Let’s see if we can simplify this so that the comparisons become obvious.

We will start with the US budget. For 2009 the budget was about $1.2 trillion. Now we can compare this to the amount of dollars in circulation worldwide. That number is about $1 trillion. Now when we compare these two numbers we see that the budget is about 20% higher than the number of dollars in circulation.

Let’s do the same thing with Iraq. The upcoming 2010 budget of Iraq is said to be about $81 billion. Let’s convert this to IQD. This amounts to about 95 trillion IQD.

The next thing we ask is how many IQD are in circulation worldwide. That number is about 20 trillion IQD. Now the last step is to compare the budget to the number of IQD in circulation. We see that the budget is 4.75 times greater than the number of IQD in circulation. That is the same as saying that the budget is 475% higher than the number of IQD in circulation.

Now let’s compare the US situation to the Iraqi situation. We have two numbers to compare: 20% and 475%. What does this mean?

What it means is this: the number of dinars in circulation is small in comparison to its own budget as compared to the number of dollars in circulation in relation to the US budget.

In other words, by this standard of measurement, Iraq can certainly afford the RV.

Let’s try another comparison to see if this is right.

The US gross national product is about $14.4 trillion. The amount of dollars in circulation worldwide is about $1 trillion. So we see that the GDP of the US is about 14.4 times the amount of dollars in circulation around the world.

Let’s do the same comparison for Iraq. The Iraqi GDP at last report (2008) was $113.9 billion (http://en.wikipedia.org/wiki/Economy_of_Iraq). We need to convert this number to dinars, as we did above. That number is 133.2 trillion dinars. We can now put this in comparison to the number of dinars in circulation worldwide, which we saw is about 20 trillion dinars.

So when we compare the GDP of Iraq to the amount of currency in circulation we see that Iraq’s GDP is 6.7 times the amount of dinars in circulation worldwide.

Finally, we are in a position to compare the US situation to the Iraqi situation. Here is the comparison: The US GDP is 14.4 times the amount of dollars in circulation while the Iraqi GDP is 6.7 the amount of dinars in circulation.

Our next question is this: Is this cause for alarm? The answer is clearly no. Admittedly the GDP of Iraq is not so much higher than its dinars in circulation as is the case of the US. In fact it is about half as “good” as the US.

But we now need to factor in one more element: the US currency is the world’s reserve currency. It is the premier currency of the world. It has been for nearly 60 years. Therefore we should expect it to be particularly strong in relation to the GDP of the US.

The fact that Iraq’s statistics in this comparison show it to be almost half of that of the US is truly remarkable. As small and troubled as Iraq is, it reaches to nearly one-half of the US in this comparison. Rather than being a sign of the weakness of Iraq it is actually a sign of the strength of Iraq.

To put it more simply, by this comparison Iraq can definitely afford to RV.

Now that we see that Iraq “measures up” well against the powerhouse US in terms of comparison of its currency in circulation we need to move on and ask another important question.

That question is this: Is it fair to compare the dollar to the dinar in any way whatsoever?

This is a fair question because the US dollar is the most respected currency in the world. Iraq certainly cannot make that claim about its own currency. At least not yet.

Let’s look at the two currencies and see if we can find another relationship that will answer our question.

We will first take the dollar. What makes the dollar so powerful? We know that initially it was because it was backed entirely by gold when other currencies were not. But in 1971 President Nixon took the dollar off the gold standard. After that time the dollar was supported by the “full faith and credit of the United States.”

In the 70s that meant a lot because the US was the greatest manufacturer of products in the world. There was real wealth behind the dollar and the “faith and credit” had meaning.

Today, however, that “faith and credit” has been challenged both because the manufacturing capacity of the US has fallen behind other countries, especially China, but also because the administration is printing dollars at a pace never imagined.

Therefore it is fair to say that the “full faith and credit of the US” has come under challenge.

Now let’s look at the dinar. Is there anything to indicate that the dinar has real value? The answer here is a clear and resounding “yes”, at least potentially. The proven oil reserves in Iraq are the second highest in the world. Additionally the crude is known as “pure sweet” which means that it is less expensive to process. Furthermore Iraq is poised to become once again the “bread basket” of the Middle East. This position can only grow since both the Tigris and Euphrates rivers run through Iraq, something that no other desert ME country can claim.

Therefore it is without exaggeration that we can say that the dinar has real wealth behind it. In comparison to the US dollar it also follows that the dollar has reached its apex while the dinar is just getting off the ground.

Finally, it is not a stretch to see that the dinar could well become one of the strongest currencies in the world within the next decade.

The conclusion then is simple: Iraq can definitely afford to RV.

Now that we know this we can eliminate all arguments above regarding Iraq not being able to afford the RV. This further supports the view that the highest number ($3.86) is the most reasonable number for Iraq to revalue its currency.

Is Iraq playing chess?

I realize that this is a strange question, but as we shall see it is a very good question to ask.

Surprisingly, Iraq is the founder of the game of chess. The Iraqi people have played chess since the time of Nebuchadnezzer (Emperor of Babylon/Iraq) around 585 BC.

Suffice it to say, then, that the Iraqi people understand the concepts of chess. Furthermore, we should not be surprised to find them using those concepts in the world economic/political sphere.

What is a keynote of the game of chess and playing chess successfully? The answer to this will allow us to better understand what is taking place today. That answer is this: the winner of a chess game is almost always the one who can see more plays ahead than his competition.

Now let’s see how this applies to the real world. What we see in the real world is that everytime we think that all the pieces of the puzzle have been put in place, something else comes up and the RV is delayed, at least from our point of view.

However, what if we just aren’t as good at chess as the Iraqis?

In other words, what if we aren’t looking ahead as many plays as the Iraqis are?

I submit that the enigma of understanding the Iraqi “mind” if you will is nothing more than this: we don’t play chess as well as they do!

Therefore we should stop being frustrated when a date passes without an RV. Instead, we should be looking ahead and seeing what plays are yet to occur that we have overlooked.

And finally, we should attempt to see as far ahead as the Iraqis themselves so that the game playing field is leveled. When we do that we can relax and let the individual plays occur, knowing that we are “on track” with the greatest chess players in the world.

You have placed the scenario of a win-win situation for all. I do personally applaud you. Would we all as well?

[gregg450]

Thanks Steve. Always enjoy your wisdom!

[popo24]

By your reasoning, Iraq can afford to RV, but at a rate of $3.86? Not even close. Your reasoning is only showing that Iraq could RV at a rate of maybe $.01.

[rt59]

10. Can Iraq afford to RV? Can we know?

[Analysis]

Among the most pressing questions that need answering is whether or not Iraq can afford a revaluation of its currency. The argument against this is that there are so many IQD in circulation now that Iraq can

[jeff stevens]

O.K Enorrste what is the next play IYO? Great post and thank you for your time and work to make things clear.

[VICTORIALAWIZZA]

thank you Enorrste,

You alway have such good posts that are easy to understand and I can comprehend the facts being presented.

[jeff stevens]

O.K Enorrste what is the next play IYO? Thank you for all of your work.

Wha

[dinarrvplz]

I don't think any of us can say they know what the RV is or the plan of the government over there, but I am very thankful for your great posts as I can actually understand and relate to every one of them. thank you!!

[quickchange]

thanks for the post