Modern Money Mechanics - Dinar Chapter

[wavggg]

I hope this will help some of you understand how the Central Bank of Iraq can pull off a revaluation without a re-denomination (LOP) and do it totally within the guidelines and framework of modern international fiat currency rules.

If you are not familiar with how the Federal Reserve, Bank of England, and all the other world Central Banks create currency, it is based on fractionalization of currency "In Reserve". This creates what you hear in the news as the M1, M2 and M3 money supplies. First, almost no international currencies are based on Value (gold, silver, oil, etc.) - Rather, they are based on Debt (promises to pay, BoE's, exclusive contracts between a nation and a central bank, etc.). These paper bills are Promissory Notes representing a Nation's debt to its Central Bank, from which it "borrows at interest" the funds to print as currency. The money is made out of thin air and valuable only because people believe they can exchange it for goods and services... It does forever make a nation a debtor to a private bank cartel, but that discussion is for another day. It's just how it rolls in the 21st century. If this money is based on anything at all, it is the good faith, hard work and industry of the people of the nation and their willingness/ability to pay the debt and interest.

The way it works in the US is: M1 is the original "real" assets on hand at the Central and franchise banks, or first generation money. The bank then is allowed to create new M2 money in the form of loans and notes at a rate of 10:1 of the M1 reserves. Then, the M2 supplies are further fractionalized through derivatives, bundled loans and bonds and becomes the M3 supply. So, exponentially, $1 M1 reserve becomes $100 M2 and then $1,000 M3 money.

Thus, one can see how Iraq has quite enough people, resources and debt to create a large, viable M1, M2 & M3 supply, or even better, establish a new valuation ratio of their post 2003 currency to be on par with the Euro and Dollar. - See, the same cartel that controls the Fed and Bank of England, also control the Central Bank of Iraq... Do you think for a minute that they do not want to become even more insanely wealthy and continue to rule the world? We on the outside hold a tiny fraction of Dinar. We will advance along with them BY ACCIDENT. They can't afford to cut off their nose to spite their face.

Google Search and read "Modern Money Mechanics A Workbook on Bank Reserves and Deposit Expansion", published by the Federal Reserve Bank of Chicago. In it, you will fine a great education on what money really is - (which is nothing like what mom & dad taught us...) I'm posting some quotes below to give you an idea...

Quote 1 -

What Makes Money Valuable?

In the United States neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bii is just a piece of paper, deposits merely book entries. Coins do have some intrinsic value as metal, but generally far less than their face value.

What, then, makes these instruments - checks, paper money, and coins - acceptable at face value in payment of all debts and for other monetary uses? Mainly, it is the confidence people have that they will be able to exchange such money for other financial assets and for real goods and services whenever they choose to do so.

Quote 2 -

Who Creates Money?

Changes in the quantity of money may originate with actions of the Federal Reserve System (the central bank), depository institutions (principally commercial banks), or the public. The major control, however, rests with the central bank.

The actual process of money creation takes place primarily in banks.' As noted earlier, checkable liabilities of banks are money. These liabilities are customers' accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers' accounts. In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago.

It started with goldsmiths. As early bankers, they initially provided safekeeping services, making a profit from vault storage fees for gold and coins deposited with them. People would redeem their "deposit receipts" whenever they needed gold or coins to purchase something, and physically take the gold or coins to the seller who, in turn, would deposit them for safekeeping, often with the same banker. Everyone soon found that it was a lot easier simply to use the deposit receipts directly as a means of payment. These receipts, which became known as notes, were acceptable as money since whoever held them could go to the banker and exchange them for metallic money.

Then, bankers discovered that they could make loans merely by giving their promises to pay, or bank notes, to borrowers. In this way, banks began to create money. More notes could be issued than the gold and coin on hand because only a portion of the notes outstanding would be presented for payment at any one time. Enough metallic money had to be kept on hand, of course, to redeem whatever volume of notes was presented for payment. Transaction deposits are the modem counterpart of bank notes. It was a small step from printing notes to making book entries crediting deposits of borrowers, which the borrowers in turn could "spend" by writing checks, thereby "printing" their own money.

Quote 3 -

What Iimits the Amount of Money Banks Can Create?

If deposit money can be created so easily, what is to prevent banks from making too much - more than sufficient to keep the nation's productive resources fully employed without price inflation? Like its predecessor, the modem bank must keep available, to make payment on demand, a considerable amount of currency and funds on deposit with the central bank. The bank must be prepared to convert deposit money into currency for those depositors who request currency. It must make remittance on checks written by depositors and presented for payment by other banks (settle adverse clearings). Finally, it must maintain legally required reserves, in the form of vault cash and/or balances at its Federal Reserve Bank, equal to a prescribed percentage of its deposits.

The public's demand for currency varies greatly, but generally follows a seasonal pattern that is quite predictable. The effects on bank funds of these variations in the amount of currency held by the public usually are offset by the central bank, which replaces the reserves absorbed by currency withdrawals from banks. Oust how this is done will be explained later.) For all banks taken together, there is no net drain of funds through clearings. A check drawn on one bank normally will be deposited to the credit of another account, if not in the same bank, then in some other bank.

HOPE THIS HELPS!

GO RV!

gg

[DinarDana]

Thank you for this post. I found this very insightful. I have read other articles on this forum of the same topic, however none to this degree of clarity and simplicity.

Have an amazing day!

[Scottlassie]

Wow.. I agree with the above comment. I really enjoyed reading this info.. thought provoking but interesting. .and spread out in "Layman's speak. Thanks.

Edited June 16, 2011 by Scottlassie

[Goeers]

Thank you very much. You know, in a way.... just the education I have received from being invested in this on banking, foreign politics, culture, and just being patient has been well worth what I've put into it. BUT $3.89 is gonna be buttercreme icing on the cake!!!!!!!

[Don & Rocio]

Wow gg...thanks a bunch. Im actually starting to understand this. Awesome!

[joekooltrips]

I hope this will help some of you understand how the Central Bank of Iraq can pull off a revaluation without a re-denomination (LOP) and do it totally within the guidelines and framework of modern international fiat currency rules.

If you are not familiar with how the Federal Reserve, Bank of England, and all the other world Central Banks create currency, it is based on fractionalization of currency "In Reserve". This creates what you hear in the news as the M1, M2 and M3 money supplies. First, almost no international currencies are based on Value (gold, silver, oil, etc.) - Rather, they are based on Debt (promises to pay, BoE's, exclusive contracts between a nation and a central bank, etc.). These paper bills are Promissory Notes representing a Nation's debt to its Central Bank, from which it "borrows at interest" the funds to print as currency. The money is made out of thin air and valuable only because people believe they can exchange it for goods and services... It does forever make a nation a debtor to a private bank cartel, but that discussion is for another day. It's just how it rolls in the 21st century. If this money is based on anything at all, it is the good faith, hard work and industry of the people of the nation and their willingness/ability to pay the debt and interest.

The way it works in the US is: M1 is the original "real" assets on hand at the Central and franchise banks, or first generation money. The bank then is allowed to create new M2 money in the form of loans and notes at a rate of 10:1 of the M1 reserves. Then, the M2 supplies are further fractionalized through derivatives, bundled loans and bonds and becomes the M3 supply. So, exponentially, $1 M1 reserve becomes $100 M2 and then $1,000 M3 money.

Thus, one can see how Iraq has quite enough people, resources and debt to create a large, viable M1, M2 & M3 supply, or even better, establish a new valuation ratio of their post 2003 currency to be on par with the Euro and Dollar. - See, the same cartel that controls the Fed and Bank of England, also control the Central Bank of Iraq... Do you think for a minute that they do not want to become even more insanely wealthy and continue to rule the world? We on the outside hold a tiny fraction of Dinar. We will advance along with them BY ACCIDENT. They can't afford to cut off their nose to spite their face.

Google Search and read "Modern Money Mechanics A Workbook on Bank Reserves and Deposit Expansion", published by the Federal Reserve Bank of Chicago. In it, you will fine a great education on what money really is - (which is nothing like what mom & dad taught us...) I'm posting some quotes below to give you an idea...

Quote 1 -

What Makes Money Valuable?

In the United States neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bii is just a piece of paper, deposits merely book entries. Coins do have some intrinsic value as metal, but generally far less than their face value.

What, then, makes these instruments - checks, paper money, and coins - acceptable at face value in payment of all debts and for other monetary uses? Mainly, it is the confidence people have that they will be able to exchange such money for other financial assets and for real goods and services whenever they choose to do so.

Quote 2 -

Who Creates Money?

Changes in the quantity of money may originate with actions of the Federal Reserve System (the central bank), depository institutions (principally commercial banks), or the public. The major control, however, rests with the central bank.

The actual process of money creation takes place primarily in banks.' As noted earlier, checkable liabilities of banks are money. These liabilities are customers' accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers' accounts. In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago.

It started with goldsmiths. As early bankers, they initially provided safekeeping services, making a profit from vault storage fees for gold and coins deposited with them. People would redeem their "deposit receipts" whenever they needed gold or coins to purchase something, and physically take the gold or coins to the seller who, in turn, would deposit them for safekeeping, often with the same banker. Everyone soon found that it was a lot easier simply to use the deposit receipts directly as a means of payment. These receipts, which became known as notes, were acceptable as money since whoever held them could go to the banker and exchange them for metallic money.

Then, bankers discovered that they could make loans merely by giving their promises to pay, or bank notes, to borrowers. In this way, banks began to create money. More notes could be issued than the gold and coin on hand because only a portion of the notes outstanding would be presented for payment at any one time. Enough metallic money had to be kept on hand, of course, to redeem whatever volume of notes was presented for payment. Transaction deposits are the modem counterpart of bank notes. It was a small step from printing notes to making book entries crediting deposits of borrowers, which the borrowers in turn could "spend" by writing checks, thereby "printing" their own money.

Quote 3 -

What Iimits the Amount of Money Banks Can Create?

If deposit money can be created so easily, what is to prevent banks from making too much - more than sufficient to keep the nation's productive resources fully employed without price inflation? Like its predecessor, the modem bank must keep available, to make payment on demand, a considerable amount of currency and funds on deposit with the central bank. The bank must be prepared to convert deposit money into currency for those depositors who request currency. It must make remittance on checks written by depositors and presented for payment by other banks (settle adverse clearings). Finally, it must maintain legally required reserves, in the form of vault cash and/or balances at its Federal Reserve Bank, equal to a prescribed percentage of its deposits.

The public's demand for currency varies greatly, but generally follows a seasonal pattern that is quite predictable. The effects on bank funds of these variations in the amount of currency held by the public usually are offset by the central bank, which replaces the reserves absorbed by currency withdrawals from banks. Oust how this is done will be explained later.) For all banks taken together, there is no net drain of funds through clearings. A check drawn on one bank normally will be deposited to the credit of another account, if not in the same bank, then in some other bank.

HOPE THIS HELPS!

GO RV!

gg

Thanks for the post bro, another book that touches on the subject of how the Fed Res and how Central Banking works is a great book called The Creature from Jekyll island.

[jmw]

It is a very good read...but people often confuse fractional reserve banking with Iraq's ability to cover a revaluation of their currency...fractional reserve banking will and does increase the money supply...but it does so through banking loans....then as these loans are deposited in banks and spent it gives them the ability to make new loans thus increasing the money supply exponentially...However, it does not give them the ability to increase the value of their currency or pay the debt created by a revaluation. In addition, there is a lot of IQD held outside of Iraq...such as the U.S....and the CBI doesn't have the ability to increase our M2 in order to cover the debt of a revalution...they would have to have the funds or equivalent assets on hand.

[aliciadogz]

Very educational,Thanks!!

[wavggg]

Hey JMW - Good point.

To build on that, it is feasible that the Central Bank of Iraq would accept a collateral pledge from the GOI in the form of Government Bonds valued at some ridiculous amount which represent the GOI's future earnings from oil and other elements of the Gross Domestic Product. Shabs, getting these at discount, could then put those Bonds on deposit in the Central Bank at their future face redemption value and thus provide all the needed M1 reserve that Iraq would need to fractionalize their M2 and cover the redemption of Dinar. The Central Bank could then reap more revenue by bundling those bonds together with other security instruments and selling them at-large into the world's secondary market to large investment pools (like retirement funds, NMBS, etc.)

Whatcha think?

-gg

[Waco69]

Good write up that explains a lot. Please excuse me for reposting this if it already has but can anyone rebute the following statement I found on another site's web site:

Little know facts about currency revaluations:

1. No country has ever revalued there currency by over 100% without:

a. Issuing new currency and making the previous currency obsolete (and therefore worthless)

b. Changing the face value of the larger bills (LOP). Think Turkish Lira, soon: Zimbabwe, Paraguay, Iran will too according to the news.

2. Kuwait NEVER revalued their currency as some Dinar sites have suggested.

a. When Saddam invaded Kuwait he collected as much of the Kuwait Dinar as he could and then distributed the Iraqi Saddam Dinar to use in country and made everyone else only use the Iraq Dinar. This made the Kuwait Dinar for the most part worthless in country. Street value was around 10 cents but for the most part it just wasn’t used. The official exchange rate DID NOT CHANGE. Because of this when Saddam was removed from Kuwait the Kuwait dinar value did not change except where accepted by street vendors. Yes if you went to Kuwait and was able to find any actual Kuwait Dinars you could have made big money but most of it was gone. They reissued new currency once Kuwait had been liberated. It is for this reason that you find VERY few stories of anyone making a bunch of money from the supposed revalue of the Kuwait Dinar.

I have been told bu Gurus that the LOP only happens where hyper inflation exists. That’s true because in the past the only country that would LOP there currency (LOP=25,000 note is honored at 25 rate after currency revalue)is a country that has hyper inflation.

Statistically the chances of a three zero currency to be still worth the pre-revalued rate is exactly zero. It has never been done. This does not mean it can’t be done. Anything is possible.

If you have data that shows the facts in parts 1 & 2 to be inaccurate please feel free to state “only those facts”. Please show where these facts can be found and verified. I state the above facts to help educate investors since Dinar sites only include pumpers and “Intel”. As for me I am keeping my Dinar investment and praying (literally praying) that this is the “biggest exchange of wealth the world has ever known” and an exception to every economic rule ever set.

Bashing, say “Do your homework newbie”, or any other negative comment is really not necessary or helpful. Please just stick to the facts just once on a post. Let’s just leave emotion out of this post.

After going to the 5th/3rd bank and being told the Dinar is not a good investment and after talking to a neighbor of mind who was doing some contracting work over in Iraq a few months ago who told me do not invest, it will never RV that they plan on changing their currency (told to him by friends he has in the State Department) I am getting a little discouraged. I realize this is an investment and investments have risk but is this really a "pie in the sky" opportunity or is there an actual chance of seeing an RV where we make money?

[Francie26]

" . . . or is there an actual chance of seeing an RV where we make money?"

Keep the faith. When things begin to feel their worst, that's when everything is about to change--in a huge. beautiful way. We're almost there, so now is not the time to give up. That's just a fall back position, anyway, one you can claim any time, but giving up without a fight brings you nothing. It's far more productive to keep your hope and trust in that Ole' Universe while it prepares all those countries so it can send us the RV we want. This is so earth-shakingly big that it needs a lot of collective belief, but when enough of us keep the faith long enough, it'll happen. And then-- Voila!! GO RV!!!!!

[Paxx1]

I hope this will help some of you understand how the Central Bank of Iraq can pull off a revaluation without a re-denomination (LOP) and do it totally within the guidelines and framework of modern international fiat currency rules.

If you are not familiar with how the Federal Reserve, Bank of England, and all the other world Central Banks create currency, it is based on fractionalization of currency "In Reserve". This creates what you hear in the news as the M1, M2 and M3 money supplies. First, almost no international currencies are based on Value (gold, silver, oil, etc.) - Rather, they are based on Debt (promises to pay, BoE's, exclusive contracts between a nation and a central bank, etc.). These paper bills are Promissory Notes representing a Nation's debt to its Central Bank, from which it "borrows at interest" the funds to print as currency. The money is made out of thin air and valuable only because people believe they can exchange it for goods and services... It does forever make a nation a debtor to a private bank cartel, but that discussion is for another day. It's just how it rolls in the 21st century. If this money is based on anything at all, it is the good faith, hard work and industry of the people of the nation and their willingness/ability to pay the debt and interest.

The way it works in the US is: M1 is the original "real" assets on hand at the Central and franchise banks, or first generation money. The bank then is allowed to create new M2 money in the form of loans and notes at a rate of 10:1 of the M1 reserves. Then, the M2 supplies are further fractionalized through derivatives, bundled loans and bonds and becomes the M3 supply. So, exponentially, $1 M1 reserve becomes $100 M2 and then $1,000 M3 money.

Thus, one can see how Iraq has quite enough people, resources and debt to create a large, viable M1, M2 & M3 supply, or even better, establish a new valuation ratio of their post 2003 currency to be on par with the Euro and Dollar. - See, the same cartel that controls the Fed and Bank of England, also control the Central Bank of Iraq... Do you think for a minute that they do not want to become even more insanely wealthy and continue to rule the world? We on the outside hold a tiny fraction of Dinar. We will advance along with them BY ACCIDENT. They can't afford to cut off their nose to spite their face.

Google Search and read "Modern Money Mechanics A Workbook on Bank Reserves and Deposit Expansion", published by the Federal Reserve Bank of Chicago. In it, you will fine a great education on what money really is - (which is nothing like what mom & dad taught us...) I'm posting some quotes below to give you an idea...

Quote 1 -

What Makes Money Valuable?

In the United States neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bii is just a piece of paper, deposits merely book entries. Coins do have some intrinsic value as metal, but generally far less than their face value.

What, then, makes these instruments - checks, paper money, and coins - acceptable at face value in payment of all debts and for other monetary uses? Mainly, it is the confidence people have that they will be able to exchange such money for other financial assets and for real goods and services whenever they choose to do so.

Quote 2 -

Who Creates Money?

Changes in the quantity of money may originate with actions of the Federal Reserve System (the central bank), depository institutions (principally commercial banks), or the public. The major control, however, rests with the central bank.

The actual process of money creation takes place primarily in banks.' As noted earlier, checkable liabilities of banks are money. These liabilities are customers' accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers' accounts. In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago.

It started with goldsmiths. As early bankers, they initially provided safekeeping services, making a profit from vault storage fees for gold and coins deposited with them. People would redeem their "deposit receipts" whenever they needed gold or coins to purchase something, and physically take the gold or coins to the seller who, in turn, would deposit them for safekeeping, often with the same banker. Everyone soon found that it was a lot easier simply to use the deposit receipts directly as a means of payment. These receipts, which became known as notes, were acceptable as money since whoever held them could go to the banker and exchange them for metallic money.

Then, bankers discovered that they could make loans merely by giving their promises to pay, or bank notes, to borrowers. In this way, banks began to create money. More notes could be issued than the gold and coin on hand because only a portion of the notes outstanding would be presented for payment at any one time. Enough metallic money had to be kept on hand, of course, to redeem whatever volume of notes was presented for payment. Transaction deposits are the modem counterpart of bank notes. It was a small step from printing notes to making book entries crediting deposits of borrowers, which the borrowers in turn could "spend" by writing checks, thereby "printing" their own money.

Quote 3 -

What Iimits the Amount of Money Banks Can Create?

If deposit money can be created so easily, what is to prevent banks from making too much - more than sufficient to keep the nation's productive resources fully employed without price inflation? Like its predecessor, the modem bank must keep available, to make payment on demand, a considerable amount of currency and funds on deposit with the central bank. The bank must be prepared to convert deposit money into currency for those depositors who request currency. It must make remittance on checks written by depositors and presented for payment by other banks (settle adverse clearings). Finally, it must maintain legally required reserves, in the form of vault cash and/or balances at its Federal Reserve Bank, equal to a prescribed percentage of its deposits.

The public's demand for currency varies greatly, but generally follows a seasonal pattern that is quite predictable. The effects on bank funds of these variations in the amount of currency held by the public usually are offset by the central bank, which replaces the reserves absorbed by currency withdrawals from banks. Oust how this is done will be explained later.) For all banks taken together, there is no net drain of funds through clearings. A check drawn on one bank normally will be deposited to the credit of another account, if not in the same bank, then in some other bank.

HOPE THIS HELPS!

GO RV!

gg

Thanks a million for you educating post. Keep them coming and maybe it will overshadow all of the nonsense coming from these idiots called pumpers. Thanks again!

[dinarck]

Hey JMW - Good point.

To build on that, it is feasible that the Central Bank of Iraq would accept a collateral pledge from the GOI in the form of Government Bonds valued at some ridiculous amount which represent the GOI's future earnings from oil and other elements of the Gross Domestic Product. Shabs, getting these at discount, could then put those Bonds on deposit in the Central Bank at their future face redemption value and thus provide all the needed M1 reserve that Iraq would need to fractionalize their M2 and cover the redemption of Dinar. The Central Bank could then reap more revenue by bundling those bonds together with other security instruments and selling them at-large into the world's secondary market to large investment pools (like retirement funds, NMBS, etc.)

Whatcha think?

-gg

Wouldn't those bonds have to have a worth of 45 to 50 trillion USD for a RV to 1. USD? That is a lot of coin that I don't think any country could afford. If I am wrong here then please explain what I am missing. Would like to hear more about the subject.

Edited June 16, 2011 by dinarck

[pontiyak]

wavggg... great post....

But I would still like to see the end of the Creature from Jekyll Island...

and all it's baggage.

yak

[wavggg]

Hey dinarck & friends:

The point is that all money is all "make-believe". You BELIEVE it has an assigned value because the MAKE you.

There is no underlying essence of value in any world fiat currency. It has perceived value by "edict".

Every single thing, I mean EVERY SINGLE THING, that you learned from mom & dad, your boss, the government and the local banker about what money was is absolute bullshit!

An ounce of gold in 1929 bought apx the same amount of gasoline that it does in 2011... now valued near $1,500 / ounce.

Things of real value stayed in lock-step for a century... Gold, Oil, Corn, Bribes to Politicians and of course...nice hookers & gigolos-lol.

Once the Dollar was disconnected from Gold.. it was the Dollar that De-Valued.- NOT Gold becoming MORE valuable.

There has never been anything called inflation since the de-coupling. It has all been the gradual de-valuation of the Dollar - Period.

Put another way, the banks and government have you staring at the basketball hoop telling you it is getting higher when all the while, what really has been happening is that they are lowering the friggin floor! Get it?

So do not let your common sense persuade you to disbelieve that a revaluation of remarkable proportions is possible. In the end, we are either going to double our money or hit that magic multiplier... either way, we've learned and grown a lot together and for ordinary guys and gals like us... that's pretty friggin' special...

Stay tight with each other and loose about the B.S. The Masters of the world will do whatever the please... we get the crumbs. Let's continue to pray for crumbs the size of basketballs!

Best!

gg

[wavggg]

wavggg... great post....

But I would still like to see the end of the Creature from Jekyll Island...

and all it's baggage.

yak

Yak -

I'm down with ya on that. However, one thing at a time, bro...

We (the people) gave these folks 200 years to perfect their quiet, stepwise stranglehold... it might take the same time to turn it back peacefully.

If anybody in the room is also a Secured Party Creditor - you'll know what I mean when I say we could retire the national debt and the Federal Reserve if every man and woman in America did an A4V on all the bonds and securities the US has sold to international creditors, applying just $100,000 from their Treasury Direct Account... Money the gov't owes you for using your "person" as the surety in creating Federal Reserve Notes...

Everone in the room is already a billionaire... they just don't have a clue on how to force the government to give them access...

Best!

gg

[Basilthyme]

The way it works in the US is: M1 is the original "real" assets on hand at the Central and franchise banks, or first generation money. The bank then is allowed to create new M2 money in the form of loans and notes at a rate of 10:1 of the M1 reserves. Then, the M2 supplies are further fractionalized through derivatives, bundled loans and bonds and becomes the M3 supply. So, exponentially, $1 M1 reserve becomes $100 M2 and then $1,000 M3 money.

This overview of fractional reserve banking is entirely correct. And also totally irrelevant.

Thus, one can see how Iraq has quite enough people, resources and debt to create a large, viable M1, M2 & M3 supply, or even better, establish a new valuation ratio of their post 2003 currency to be on par with the Euro and Dollar.

The mere existence of fractional reserve banking and its layers of complexity doesn't mean that anything at all can happen, even if you squint really hard.

Iraq already uses fractional reserve banking and its money supply is what it is, and the central bank can either increase it or decrease it. Arguing that money is created out of "thin air" all the time and Iraq should just get on the bandwagon is an empty argument; they're already doing it.

Lowering reserve requirements, buying foreign reserves, buying government bonds increases money supply. Raising reserve requirements, spending foreign reserves, selling government bonds decreases the money supply.

Increasing the money supply does not have the effect you want - rather it increases inflation, which eventually causes the currency the depreciate. Decreasing the money supply would serve to appreciate the currency, but it also causes deflation. Not to mention the size of the reduction would have to be enormous to cause a 1,000fold increase in the exchange rate (which, by the way, is a separate thing, and is not the same as money supply). Any economist can tell you deflation wrecks economies, and relatively quickly. To put things in perspective, the Federal Reserve increased the federal funds rate from 6% to 6.25% on June 29th, 2006. From June 2006 to December 2006, M1 decreased from 1376.2 Billion to 1365.9 Billion. That's a seven tenths of one percent reduction (.7%) for one quarter of a percent in interest. If you look at the USD/CAD (the CAD being one of the most stable currencies in the world) exchange rate during the same period, it appreciated from 1.1091 on June 5th to 1.1607 on December 31st, for a 5.16% gain. Inflation for the same time dropped from 4.32% to 2.54%, a 176 basis point decrease June to December.

So, a 5% exchange rate appreciation requires a .7% reduction in M1, which can be effected by a .25% interest rate increase, which costs 1.76% in economic slowdown.

To go from .00086 to 1 IQD/USD, 116,279% appreciation is required. Assuming (for simplicity) that the above relationships are linear, and that they would hold for Iraq (no reason to think they wouldn't, not even "oil"), the required money supply reduction would be:

116,279% / 5% = 23255.8 * .7% = 16,279.09%

25,000,000,000,000 / 16,279.09% = 153,571,238,000

And entail an interest rate hike of :

116,279 / 5 = 23255.8 * .25 = 5813.95% (I'd buy those bonds, wouldn't you?)

With a cost, in terms of deflation, at:

23255.8 * 1.76 = 39,170.20% (So a car that costs 20k today would cost about 51$ at the end of the year.)

Even if you covered your ears really tightly and shouted as loud as you could, it highly doubtful that it would even be possible for the CBI to undertake this kind of action, let alone desirable. Torch the economy, Zimbabwe style, for the benefit of foreign currency speculators? That sound like its going to happen to anybody?

---------------------------------

Of course none of the above analysis is required to understand why this will never happen, regardless of any fractional wizardry. All you really need to understand is the concept of a bank run.

Many of you are clinging to the hope that I'm wrong and that Iraq can just "announce" what the IQD will exchange for because, after all, that's what Saddam did, isn't it???

Think about it like this. The IQD is pegged to the USD. Oil is denominated in USD. If the USD crashes, so does the IQD. Likewise, the IQD's value is established by the amount of USD the CBI is currently holding.

If the CBI announces tomorrow that a million Dinars are now worth a million American dollars, how many Iraqi's who have been suffering for decades under corrupt governments are going to believe it? If they don't believe it, they will immediately want to exchange IQD for USD, and in very short order foreign reserves would be completely depleted. Of course, the CBI could refuse redemptions, but then, it wouldn't really be worth anything would it? Ironically enough, this is exactly what Saddam did: only certain individuals were able to receive his announced redemption rate. He was essentially rewarding whomever he pleased out of his own pocket.

It's not hard to imagine. What if the Fed announced tomorrow that every US dollar would now buy 1000 Euros from here on out. Do you think you could beat me to be first in line for that exchange?

[wavggg]

Basilthyme:

Thanks for a great balance at the opposite end of the teeter-totter.

I can tell ya have some background.

Let's hope that the reality of what the polticians and bankers do is somewhere in the middle and we can at least afford a great party with our friends...

Best,

gg

[jmw]

Finally!...someone who gets it... this should be pinned for everyone who think Iraq can just wiggle their nose and make the world rich....nicely done!

This overview of fractional reserve banking is entirely correct. And also totally irrelevant.

The mere existence of fractional reserve banking and its layers of complexity doesn't mean that anything at all can happen, even if you squint really hard.

Iraq already uses fractional reserve banking and its money supply is what it is, and the central bank can either increase it or decrease it. Arguing that money is created out of "thin air" all the time and Iraq should just get on the bandwagon is an empty argument; they're already doing it.

Lowering reserve requirements, buying foreign reserves, buying government bonds increases money supply. Raising reserve requirements, spending foreign reserves, selling government bonds decreases the money supply.

Increasing the money supply does not have the effect you want - rather it increases inflation, which eventually causes the currency the depreciate. Decreasing the money supply would serve to appreciate the currency, but it also causes deflation. Not to mention the size of the reduction would have to be enormous to cause a 1,000fold increase in the exchange rate (which, by the way, is a separate thing, and is not the same as money supply). Any economist can tell you deflation wrecks economies, and relatively quickly. To put things in perspective, the Federal Reserve increased the federal funds rate from 6% to 6.25% on June 29th, 2006. From June 2006 to December 2006, M1 decreased from 1376.2 Billion to 1365.9 Billion. That's a seven tenths of one percent reduction (.7%) for one quarter of a percent in interest. If you look at the USD/CAD (the CAD being one of the most stable currencies in the world) exchange rate during the same period, it appreciated from 1.1091 on June 5th to 1.1607 on December 31st, for a 5.16% gain. Inflation for the same time dropped from 4.32% to 2.54%, a 176 basis point decrease June to December.

So, a 5% exchange rate appreciation requires a .7% reduction in M1, which can be effected by a .25% interest rate increase, which costs 1.76% in economic slowdown.

To go from .00086 to 1 IQD/USD, 116,279% appreciation is required. Assuming (for simplicity) that the above relationships are linear, and that they would hold for Iraq (no reason to think they wouldn't, not even "oil"), the required money supply reduction would be:

116,279% / 5% = 23255.8 * .7% = 16,279.09%

25,000,000,000,000 / 16,279.09% = 153,571,238,000

And entail an interest rate hike of :

116,279 / 5 = 23255.8 * .25 = 5813.95% (I'd buy those bonds, wouldn't you?)

With a cost, in terms of deflation, at:

23255.8 * 1.76 = 39,170.20% (So a car that costs 20k today would cost about 51$ at the end of the year.)

Even if you covered your ears really tightly and shouted as loud as you could, it highly doubtful that it would even be possible for the CBI to undertake this kind of action, let alone desirable. Torch the economy, Zimbabwe style, for the benefit of foreign currency speculators? That sound like its going to happen to anybody?

---------------------------------

Of course none of the above analysis is required to understand why this will never happen, regardless of any fractional wizardry. All you really need to understand is the concept of a bank run.

Many of you are clinging to the hope that I'm wrong and that Iraq can just "announce" what the IQD will exchange for because, after all, that's what Saddam did, isn't it???

Think about it like this. The IQD is pegged to the USD. Oil is denominated in USD. If the USD crashes, so does the IQD. Likewise, the IQD's value is established by the amount of USD the CBI is currently holding.

If the CBI announces tomorrow that a million Dinars are now worth a million American dollars, how many Iraqi's who have been suffering for decades under corrupt governments are going to believe it? If they don't believe it, they will immediately want to exchange IQD for USD, and in very short order foreign reserves would be completely depleted. Of course, the CBI could refuse redemptions, but then, it wouldn't really be worth anything would it? Ironically enough, this is exactly what Saddam did: only certain individuals were able to receive his announced redemption rate. He was essentially rewarding whomever he pleased out of his own pocket.

It's not hard to imagine. What if the Fed announced tomorrow that every US dollar would now buy 1000 Euros from here on out. Do you think you could beat me to be first in line for that exchange?

[jmw]

Hey JMW - Good point.

To build on that, it is feasible that the Central Bank of Iraq would accept a collateral pledge from the GOI in the form of Government Bonds valued at some ridiculous amount which represent the GOI's future earnings from oil and other elements of the Gross Domestic Product. Shabs, getting these at discount, could then put those Bonds on deposit in the Central Bank at their future face redemption value and thus provide all the needed M1 reserve that Iraq would need to fractionalize their M2 and cover the redemption of Dinar. The Central Bank could then reap more revenue by bundling those bonds together with other security instruments and selling them at-large into the world's secondary market to large investment pools (like retirement funds, NMBS, etc.)

Whatcha think?

-gg

One last thought on this gg....you are using fractional reserve banking to expand the money supply of Iraq...since it is an increase in the exchange rate they would need to expand the money supply of the countries that hold IQD...since they would have to cover the exchange relative to the country exchanging...for example...they would need to have US currency on hand to cover what we hold since they can't expand our M2 through fractional reserve banking....thanks for the thoughts.

[wavggg]

Hey JMW

Had another reflection. Who's to say that anyone will want these Dinar to find their way home? Once they arr recognized internationally as valuable instruments, they effectively take on a life of their own, dont' they? After all, I don't go running over to Germany to cash in my Marks for Dollars... Our banks recognize the asset and apply them just as they do Dollars in an account and then MY bank and the Fed use the asset to create 100x the money (via fractionalization) right here in America. It is (arguably) an unending circe of sorts. Then - The US treasury will use the Dinar they collect in exchange for oil, little by little, as it is brought up and processed. The Dinars then effectively become a powerful lein on the Iraqi oil held by the US. This would allow the US to have some control over the price, under threat of "dumping" all the Dinar in their laps at once. Give it a thought, please (it's late and I kinda rushed through the idea).

Thanks!

gg

[joekooltrips]

I hope this will help some of you understand how the Central Bank of Iraq can pull off a revaluation without a re-denomination (LOP) and do it totally within the guidelines and framework of modern international fiat currency rules.

If you are not familiar with how the Federal Reserve, Bank of England, and all the other world Central Banks create currency, it is based on fractionalization of currency "In Reserve". This creates what you hear in the news as the M1, M2 and M3 money supplies. First, almost no international currencies are based on Value (gold, silver, oil, etc.) - Rather, they are based on Debt (promises to pay, BoE's, exclusive contracts between a nation and a central bank, etc.). These paper bills are Promissory Notes representing a Nation's debt to its Central Bank, from which it "borrows at interest" the funds to print as currency. The money is made out of thin air and valuable only because people believe they can exchange it for goods and services... It does forever make a nation a debtor to a private bank cartel, but that discussion is for another day. It's just how it rolls in the 21st century. If this money is based on anything at all, it is the good faith, hard work and industry of the people of the nation and their willingness/ability to pay the debt and interest.

The way it works in the US is: M1 is the original "real" assets on hand at the Central and franchise banks, or first generation money. The bank then is allowed to create new M2 money in the form of loans and notes at a rate of 10:1 of the M1 reserves. Then, the M2 supplies are further fractionalized through derivatives, bundled loans and bonds and becomes the M3 supply. So, exponentially, $1 M1 reserve becomes $100 M2 and then $1,000 M3 money.

Thus, one can see how Iraq has quite enough people, resources and debt to create a large, viable M1, M2 & M3 supply, or even better, establish a new valuation ratio of their post 2003 currency to be on par with the Euro and Dollar. - See, the same cartel that controls the Fed and Bank of England, also control the Central Bank of Iraq... Do you think for a minute that they do not want to become even more insanely wealthy and continue to rule the world? We on the outside hold a tiny fraction of Dinar. We will advance along with them BY ACCIDENT. They can't afford to cut off their nose to spite their face.

Google Search and read "Modern Money Mechanics A Workbook on Bank Reserves and Deposit Expansion", published by the Federal Reserve Bank of Chicago. In it, you will fine a great education on what money really is - (which is nothing like what mom & dad taught us...) I'm posting some quotes below to give you an idea...

Quote 1 -

What Makes Money Valuable?

In the United States neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bii is just a piece of paper, deposits merely book entries. Coins do have some intrinsic value as metal, but generally far less than their face value.

What, then, makes these instruments - checks, paper money, and coins - acceptable at face value in payment of all debts and for other monetary uses? Mainly, it is the confidence people have that they will be able to exchange such money for other financial assets and for real goods and services whenever they choose to do so.

Quote 2 -

Who Creates Money?

Changes in the quantity of money may originate with actions of the Federal Reserve System (the central bank), depository institutions (principally commercial banks), or the public. The major control, however, rests with the central bank.

The actual process of money creation takes place primarily in banks.' As noted earlier, checkable liabilities of banks are money. These liabilities are customers' accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers' accounts. In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago.

It started with goldsmiths. As early bankers, they initially provided safekeeping services, making a profit from vault storage fees for gold and coins deposited with them. People would redeem their "deposit receipts" whenever they needed gold or coins to purchase something, and physically take the gold or coins to the seller who, in turn, would deposit them for safekeeping, often with the same banker. Everyone soon found that it was a lot easier simply to use the deposit receipts directly as a means of payment. These receipts, which became known as notes, were acceptable as money since whoever held them could go to the banker and exchange them for metallic money.

Then, bankers discovered that they could make loans merely by giving their promises to pay, or bank notes, to borrowers. In this way, banks began to create money. More notes could be issued than the gold and coin on hand because only a portion of the notes outstanding would be presented for payment at any one time. Enough metallic money had to be kept on hand, of course, to redeem whatever volume of notes was presented for payment. Transaction deposits are the modem counterpart of bank notes. It was a small step from printing notes to making book entries crediting deposits of borrowers, which the borrowers in turn could "spend" by writing checks, thereby "printing" their own money.

Quote 3 -

What Iimits the Amount of Money Banks Can Create?

If deposit money can be created so easily, what is to prevent banks from making too much - more than sufficient to keep the nation's productive resources fully employed without price inflation? Like its predecessor, the modem bank must keep available, to make payment on demand, a considerable amount of currency and funds on deposit with the central bank. The bank must be prepared to convert deposit money into currency for those depositors who request currency. It must make remittance on checks written by depositors and presented for payment by other banks (settle adverse clearings). Finally, it must maintain legally required reserves, in the form of vault cash and/or balances at its Federal Reserve Bank, equal to a prescribed percentage of its deposits.

The public's demand for currency varies greatly, but generally follows a seasonal pattern that is quite predictable. The effects on bank funds of these variations in the amount of currency held by the public usually are offset by the central bank, which replaces the reserves absorbed by currency withdrawals from banks. Oust how this is done will be explained later.) For all banks taken together, there is no net drain of funds through clearings. A check drawn on one bank normally will be deposited to the credit of another account, if not in the same bank, then in some other bank.

HOPE THIS HELPS!

GO RV!

gg

Great post I read the Creature from Jekyll Island also a book on the Fed Reserve that explained this as well.

[R2d2dc]

Didn't we just expand our M2? I've read a lot of negative information on our having done this this and last week.

[tommyboy]

This is a good video to help some better understand the Fed, IRS, etc. Have posted it many times, but always get some who haven't seen it before. In case you wonder the significance of the "red shield", think Rothschild, originally as "Rott Schield", which means Red Shield, but translated to Rothschild.

VOTE RON PAUL.

You can find out more about him on his dot com site.

If this video keeps buffering just change it from hidef (420 pixels) to a lower rate and it will stop even if you have to go to 240.

Edited June 24, 2011 by tommyboy

[quadraph0nic]

Basilthyme, I appreciate your post on this thread.