For IslandGirl7

[Froto]

IslandGirl7 politely asked me to expand on a comment I made where I called BS on the following statement:

"There were originally 30 trillion dinar printed. Well over 80% of that amount has been accounted for and is in the hands of Iraq."

Froto - Bring what you have to the table...to disprove what was written...all you've said here is poster is wrong...you haven't brought anything to support you're right...just sayin'

This will also be an example of how "Forum Facts" get started.

The statement about the CBI reducing the amount of IQD gets repeated in many ways, but usually within the lines of 70% to 80% of the currency, big notes, notes with 3 zeros, etc..

This rumor got started from an article (abt. Mar/Apr '10) where the CBI said they had reduced "liquidity" 70%. The forums immediately lit up saying that meant they had reduced the amount of IQD in circulation by 70%. (This supported the "imminent RV" rumors of that month) Please note that the actual article did not state that the currency was reduced.

"Liquidity" in its basic form is the ability to meet an obligation. Since the amount of currency in circulation is at the central bank level, I'll discuss it at that level first.

A central bank's obligation is the currency it issues. Its liquidity (ability to meet that obligation) is in its Official International Reserves (reserves).

The CBI is legally required to maintain a relatively large reserve. You can extrapolate this to 33.33% from the 2010 IMF Iraq Country Report. If you increase the size of the reserve, you increase liquidity. If you reduce the size of the reserve, you reduce liquidity. If you increase the amount of currency, you reduce liquidity, and if you decrease the amount of currency, you increase liquidity.

Bottom line; if you "reduce the amount of IQD in circulation by 70%" that would INCREASE LIQUIDITY.

____________

I do not believe that the article was discussing liquidity at the central bank level, since the money supply and the Official International Reserves had been quite stable for a long time at that point. There were two other related articles in the news (the real news, not the forums or dealer websites) before and around that time.

The first was the problem the CBI (which is charged with keeping Iraq's economy growing) had with the banks of Iraq. Going into 2010, banks were required to have a 25% minimum reserve account with the CBI. The banks' reserve accounts are their "liquidity". On a worldwide scale, that is a very high (and healthy) reserve for a bank. The problem the CBI had was that the banks were keeping reserve accounts above the minimum, collecting low but safe interest from the CBI, instead of issuing loans into the Iraqi economy.

The CBI was successful in getting the banks to issue more loans, which lowered the size of their reserves or, reduced their liquidity.

The second related articles were that in 2010, the CBI reduced the banks' minimum reserve requirement from 25% to 15% or in other terms, reduced their liquidity.

If anybody wants to call BS on what I wrote above, that will be fine.

If anybody wants to know the size of Iraq's money supply, I would suggest the IMF Iraq Country Report. I believe Keepem' says the CBI has weekly or monthly reports posted on their website.

If you find that the money supply is up around 30 trillion IQD, that alone would make the statement IslandGirl and I were discussing total BS. That would also mean I just wasted 40 minutes trying to explain it. Dang.

[Islandgirl7]

Thank for the 40 minutes Froto...I appreciate it...Not saying anyone is right or wrong...just like to see the explanation!!!

[ROCKSCISSORSPAPER]

Thanks for the explanation, Froto. Much appreciated.

[Darin]

Couple things that have always concerned me when relating to this topic.

One, how do we truly know how many IQD are currenly in circulation? We read reports of how many bills were printed, but how do we know how many were distributed into the market?

How can we find reports on the amount of currency that may have been drawn in, due to being damaged, in need of replacement, or other reason(s)?

How do we know the complete truth to the entire figures?

I would venture to guess, that in certain cases some information is confidential. Maybe some figures are only speculative but we perceive them as facts (Which for the most part should be true as you have basically de-bunked something some grounded people still believe to be true.)

Anyways, the ride is long, the ride is bumpy, the ride can be scary, and we may be blinded at the idea we see a light at the end of the tunnel. When the ride stops? Nobody knows.

All we can really do is sit back and continue to try to find pertinent information regarding our investment. We will find positive & negative information...

[keepmwlknfny]

Good post Froto....another eye opener for the newbs on how forum facts get started and how they can be completely false...somethings may sound good and its stuff we want to hear but you should really do some leg work of your own to verify information....and in this case it was very easy to do!

[BLEACHERMAN53]

Thanks Froto always good to see where things are!

[Froto]

Thank for the 40 minutes Froto...I appreciate it...Not saying anyone is right or wrong...just like to see the explanation!!!

Not a problem. I went into it knowing that within 24 hours, somebody is going to tell us how Iraq has pulled in 80% of the large denominations.

The funny sad part is that a statement like that is generally accepted, and repeated, and accepted, and repeated. Nobody challenges it like you did to me.

[Lonzworth]

Bottom line; if you "reduce the amount of IQD in circulation by 70%" that would INCREASE LIQUIDITY.

Wasn't TARP as well as QE1 & QE2 designed to INCREASE LIQUIDITY by PUMPING (see also: INCREASING) the amount of USD?

The credit markets were frozen because there wasn't enough cash on hand (liquidity) to meet the reserve requirements to lend, hence increasing the money supply increases liquidity yes?

[Froto]

Wasn't TARP as well as QE1 & QE2 designed to INCREASE LIQUIDITY by PUMPING (see also: INCREASING) the amount of USD?

The credit markets were frozen because there wasn't enough cash on hand (liquidity) to meet the reserve requirements to lend, hence increasing the money supply increases liquidity yes?

I like the way you think.

The answer to your question depends on what level you are talking about. I'm not a scholar of TARP, but I think we can talk about this in general terms.

-The Treasury pumped out a tush-load of USD (their obligation), and that decreased their liquidity. (At the central bank level, Circulation _obligation goes up, liquidity goes down)

-The money ended up in the banks reserves, and that increased their liquidity. (At any level, Reserves go up, liquidity goes up)

-This allowed the banks to lend more money, stimulating the economy.

-At your level, the car loan you signed for is your obligation. As your obligation went up, your liquidity went down.

Your question above has different answers at different levels (and at different points in the process).

Use the KISS principle.

Personally, everything I possess is my reserve, and everything I owe is my obligation.

No matter what level you are looking at, you have to determine what is the reserve, and what is the obligation.

The ratio between the two is the liquidity.

Last spring, when I tried to learn what the articles were referring to about "liquidity", I didn't listen to the forums, I studied up at wiki, the Treasury, and finance/banking sources.

I think I'll stick to my original BS call. I've read some of YOUR stuff; you seem like a bright guy. Instead of posting something you found elsewhere in the forums because it sounded like something you wanted to hear, take it, shred it apart and learn about it anywhere but the forums, and don't believe it until you can't disprove it.

Edited April 19, 2011 by Froto

[Shinnidan]

I HATE YOU FROTO!!!

Naw...i'm just kidding sweetie! BANG!!!! GOTCHA!!!! heheeh...good explanation.

Edited April 19, 2011 by Shinnidan

[Captainron601]

I HATE YOU FROTO!!!

Naw...i'm just kidding sweetie! BANG!!!! GOTCHA!!!! heheeh...good explanation.

Hey BTW, I'm a lifetime member of the NRA, you got a licence for that??

[Shinnidan]

Hey BTW, I'm a lifetime member of the NRA, you got a licence for that??

hehehe....sure do, sweetie!

[Lonzworth]

I like the way you think.

I think I'll stick to my original BS call. I've read some of YOUR stuff; you seem like a bright guy. Instead of posting something you found elsewhere in the forums because it sounded like something you wanted to hear, take it, shred it apart and learn about it anywhere but the forums, and don't believe it until you can't disprove it.

Thank you for prefacing your rebuttal with a compliment. That was pleasant.

However, I never stated that I believed it. My intentions were merely to copy and paste it for the viewing pleasure of DV. I was taking a more backseat-ish, Fox News like approach of "we report, you decide."

Now, as far as the liquidity debate (I'm on my mobile and not so web agile at the moment)... It would make a world of difference if we can figure out if that (reduction) was from the consumer/retail side or the institutional/CB side.

Reduced liquidity on the CBI side would make it sound like they issued the Iraq government a bailout.

That doesn't make sense.

Reduced liquidity on the retail/consumer side, coupled with Visa cards being issued makes it appear as though they are indeed removing currency from circulation and moving towards and more digital monetary system.

Whew, my thumbs are tired from pounding this out on my G2.

[cocklebur]

so in essence the more cash you have on hand and the less debt you have the more liquidity you have. Dammmm I feel constipated.

[pleasantvalleySunday]

Good post Froto....another eye opener for the newbs on how forum facts get started and how they can be completely false...somethings may sound good and its stuff we want to hear but you should really do some leg work of your own to verify information....and in this case it was very easy to do!

Great advise keep ... just do what I do and consider 99.8955% of it to be unverifiable hearsay and the rest ... well the rest is mostly Scooter!! lol

[TPSprayduster]

thanks for the explanation Sniper Hill user

[Froto]

Thank you for prefacing your rebuttal with a compliment. That was pleasant.

However, I never stated that I believed it. My intentions were merely to copy and paste it for the viewing pleasure of DV. I was taking a more backseat-ish, Fox News like approach of "we report, you decide."

Now, as far as the liquidity debate...

The last lines of my original post tell you where to get the answers to all of your questions.

Then, the only argument is whether the CBI and IMF Country Reports are nothing but "smoke and mirrors" and can't be trusted. Thankfully for everybody, I've got no way to argue with that.