Can someone explain Adam's math to me?

[janderson]

I was reading his rate prediction and I just don't understand how the math works:

Let’s say there is a billion USD worth of Dinar out there right now, or 1 trillion IQD. The CBI pays $2.25 for every $3 worth of Dinar, then resells it the next day for $3. That’s a profit of $75 billion just on the spread. Not bad, right?

The problem is it cost them 225 billion to do that… and that 225 billion goes right into the “debt” column.

1 trillion IQD at 3 USD per dinar (minus 25% spread) is 2.25 trillion, not 225 billion.

And for the 10 cent RV:

the CBI makes 250 million in the first 90 days at an expense of only 1 billion. This puts their debt on this transaction at only 750 million… a far cry from the 225 billion in the $3 RV!!!

1 trillion IQD at a 10 cent RV is 100 billion, not 1 billion.

At first I just thought there was some mechanism in there that I didn't understand, but one of his sets of numbers is 10x less than you would expect, and the other set of numbers is 100x less than you would expect, so now I'm just confused. Does anyone understand this?

I also don't understand what he means when he says:

An instantaneous RV to $3.00 will create a ton of wealth – coincidentally, probably about the same amount of wealth that they lost when Saddam Hussein was taken out of power and the value of the Iraqi Dinar plummeted to mere pennies!

Saddam was taken out of power in 2003. According to the CBI the exchange rate in 1995 was already 3,000 to 1. Is he saying the CBI is putting out false information, or is there something else I don't understand here?

Thanks for any help, I'm geniunely confused about all this stuff.

[Kaduku]

Adam was using a CALCULATOR made in China!!!! or he actually failed the 65 series test and wanted to see if anybody would catch up to him LOL.

[Kimjackie]

I am also confused and equally surprised no one with some intelligence about this math stuff has responded. I have no clue myself or I would say something....

[cashman54]

He dropped some LSD like Steve Jobs did and became a genius

[wookie]

I have always kept my kids out of this however, I'm thinking it's time to speak with my son because I don't understand this either. He has his PHD in Mathematics and I bet he could shed a little light.

[ThoughtEcho]

I was reading his rate prediction and I just don't understand how the math works:1 trillion IQD at 3 USD per dinar (minus 25% spread) is 2.25 trillion, not 225 billion.And for the 10 cent RV:1 trillion IQD at a 10 cent RV is 100 billion, not 1 billion.At first I just thought there was some mechanism in there that I didn't understand, but one of his sets of numbers is 10x less than you would expect, and the other set of numbers is 100x less than you would expect, so now I'm just confused. Does anyone understand this?I also don't understand what he means when he says:Saddam was taken out of power in 2003. According to the CBI the exchange rate in 1995 was already 3,000 to 1. Is he saying the CBI is putting out false information, or is there something else I don't understand here?Thanks for any help, I'm geniunely confused about all this stuff.

I was reading his rate prediction and I just don't understand how the math works:

Quote

Let’s say there is a billion USD worth of Dinar out there right now, or 1 trillion IQD. The CBI pays $2.25 for every $3 worth of Dinar, then resells it the next day for $3. That’s a profit of $75 billion just on the spread. Not bad, right?

The problem is it cost them 225 billion to do that… and that 225 billion goes right into the “debt” column.

1 trillion IQD at 3 USD per dinar (minus 25% spread) is 2.25 trillion, not 225 billion.

Adam has intimated for awhile that the RV would fall in the 10 - 30 Cents range. His example in the SPREAD works if he had in mind the RV figure of $0.30 per Dinar x 1 trillion = $300 billion, which are bought by the CBI for $225B (Bid price) and resold for $300B (Ask price), thus making the $75B profit on the SPREAD, but still having the problem of carrying the debt until all those Dinars are eventually resold at $0.30 or higher. So, even at a $0.30 RV, Iraq cannot support an RV on it's own, especially when you begin to factor in multiple trillions of Dinar to retire. Help is required from the world-wide government / financial community to pull this off, and who knows how much of this aparatus is in place and ready to pull the trigger?

Your observation that it would cost the CBI $2.25 Trillion to RV only 1 trillion Dinar at $3 (assuming the 25% spread) is a fairly convincing reason why an RV at the higher range of expectations is not in the cards. The money is not there to do it. A $3+ price level of the New Dinar would be too high to attrack any meaningful buying activity to offset redemptions. In essence, virtually all dinar holders would be sellers, and the price could not be sustained, dispite the fractional banking theories...

[pudge]

I was reading his rate prediction and I just don't understand how the math works:

Quote

Let’s say there is a billion USD worth of Dinar out there right now, or 1 trillion IQD. The CBI pays $2.25 for every $3 worth of Dinar, then resells it the next day for $3. That’s a profit of $75 billion just on the spread. Not bad, right?

The problem is it cost them 225 billion to do that… and that 225 billion goes right into the “debt” column.

1 trillion IQD at 3 USD per dinar (minus 25% spread) is 2.25 trillion, not 225 billion.

Adam has intimated for awhile that the RV would fall in the 10 - 30 Cents range. His example in the SPREAD works if he had in mind the RV figure of $0.30 per Dinar x 1 trillion = $300 billion, which are bought by the CBI for $225B (Bid price) and resold for $300B (Ask price), thus making the $75B profit on the SPREAD, but still having the problem of carrying the debt until all those Dinars are eventually resold at $0.30 or higher. So, even at a $0.30 RV, Iraq cannot support an RV on it's own, especially when you begin to factor in multiple trillions of Dinar to retire. Help is required from the world-wide government / financial community to pull this off, and who knows how much of this aparatus is in place and ready to pull the trigger?

Your observation that it would cost the CBI $2.25 Trillion to RV only 1 trillion Dinar at $3 (assuming the 25% spread) is a fairly convincing reason why an RV at the higher range of expectations is not in the cards. The money is not there to do it. A $3+ price level of the New Dinar would be too high to attrack any meaningful buying activity to offset redemptions. In essence, virtually all dinar holders would be sellers, and the price could not be sustained, dispite the fractional banking theories...

Very acute observation. This is one of the basic questions that has never been answered on this site. If Iraq just announces out of the blue that the Dinar is now worth even .01 cent, which is 10 times what it is worth now, it would create a tremendous selling spree of the Dinar. Even at 1 cent it would only take the redemption of 2.5 trillion dinar (out of around 30 trillion in circulation) to use up all of the CBI's U.S. dollar currency reserve. (around 26 billion, according to Shabibi) Not to mention the other 26 billion in Euros and 6 billion in Pounds which would be cashed out. Then the CBI has to turn around and figure out how to sell all this Dinar at a much higher rate then before when it was already considered worthless by the rest of the world? And where does the CBI get more Dollars, Euros and Pounds to redeem for Dinar when they run out? So obviously a $3 to 1dinar ratio or even 1 to 1 is mathematically impossible.

A Nation just artificially announcing that its currency and wealth are ten times higher does not make it so. The world outside of Iraq soes not care what Iraq says its currency is worth. The currency traders will decide that when Iraq begins to float its currency on the open market. With economic and vast infrastructure improvement we may see the Dinar appreciate in time.

Edited October 31, 2011 by pudge

[capt.cliff]

I am as confused as everyone still even with adams reply to my question so let me throw this into the mix

It is my understanding that we will cash in whether with dealers or banks the dinars end up in the US treasary, now we get paid what ever rate the Cbi states less spread , bank fees the vig the treasary may charge, so forth and so on BUT those dinars end up in the US treasary not the the CBI---by agreement the phyiscal dinars are destroyed and the value will be redeemmed through the purchase of oil at a set rate[war will pay for itself] now why would that agreement or method be any different with any other country that holds dinar!--I can see that it will cost something for retreiving the old dinars in country but there would be very little expense to retrieve the dinars from the ooutside the country since it is being exchanged for oil, they don't even have to transport it back to Iraq--- just like the statement both currencies will exsist side by side would that mean as the more 000s are removed from circulation the more lower denominations are injected into use---I am be fuddled , just asking but maybe no one knows till it really happens

just my confused mind

[ssmith]

Very acute observation. This is one of the basic questions that has never been answered on this site. If Iraq just announces out of the blue that the Dinar is now worth even .01 cent, which is 10 times what it is worth now, it would create a tremendous selling spree of the Dinar. Even at 1 cent it would only take the redemption of 2.5 trillion dinar (out of around 30 trillion in circulation) to use up all of the CBI's U.S. dollar currency reserve. (around 26 billion, according to Shabibi) Not to mention the other 26 billion in Euros and 6 billion in Pounds which would be cashed out. Then the CBI has to turn around and figure out how to sell all this Dinar at a much higher rate then before when it was already considered worthless by the rest of the world? And where does the CBI get more Dollars, Euros and Pounds to redeem for Dinar when they run out? So obviously a $3 to 1dinar ratio or even 1 to 1 is mathematically impossible.

A Nation just artificially announcing that its currency and wealth are ten times higher does not make it so. The world outside of Iraq soes not care what Iraq says its currency is worth. The currency traders will decide that when Iraq begins to float its currency on the open market. With economic and vast infrastructure improvement we may see the Dinar appreciate in time.

Someone neg you , don't know why here's a +1 = even ... With 25% spread and I'll sell it back to for 35% more & then I'll charge wait a minute now I'm confused....

[caughtinthecrossfire]

As stated:

"by agreement the phyiscal dinars are destroyed and the value will be redeemmed through the purchase of oil at a set rate[war will pay for itself] now why would that agreement or method be any different with any other country that holds dinar!"

Read more: http://dinarvets.com.../#ixzz1cJzvSFpM

The devil may very well be in the details of how Iraq will be making up for any easily seen surface costs/losses. In my opinion, there should be a whole lot more calculations in the above breakdown for what it will actually cost Iraq to RV. The numbers of some of the kewlest looking calcs I've seen were even questionable in relation the fact of the numbers (example post was one using the true(?) number of 25k notes in circulation...in or out of Iraq).

Personally, I think that is where most of the speculation at this point should focus. The possible ways of working to both...get dinar out of circulation and then...recoup the cost and begin to profit (as dinar slowly increases over years).

Numbers to consider...

cash in value vs. amounts from outside investors (please consider the speculation of how much money the real players have to manuever markets...even with the Euro aside) to back it

Amount of $(USD particularly and don't forget China)what Iraq can skim off the top from projected oil trade deals to ease initial RV

The effect of a money market going live that really can't be calculated but more speculated.

My point...no post I've ever read has been able to convince me they are including all factors for calculations because the majority of the globe is not aware of a few possible immense investors to the Iraqi success.

Aaaanyway...yeah, you can clearly see that I DO NOT have answers...but...I do know there are more numbers involved that we are currently unable to get for realistic calculations. Soon as anyone sees a list of "inputs" directly from the IMF, CBI, other (presently unknown) players/investors...please post them with a link.

I'll remain inclined to suspect that Iraq is being prepared for an RV (of some profitable size) rather than another outcome.

Best wishes all!

[AirForce17]

I have an idea!!!!! Why not ask Adam? That will save you the problem of injuring your brain trying to figure something out that is way beyond your idea. ;)

[Adam Montana]

I didn't pull a calculator out at all when I was writing the thesis, and it's true I may have mixed up my billions, millions, or trillions. In all honesty, I simply didn't care if the numbers were 100% accurate because my intention was not to present a mathematically precise prediction...

All of the numbers I used were pulled out of the air for one purpose: to illustrate a point.

If you put your fancy calculator down and just pay attention to the logic behind my theory, then you should be able to understand the point I was making and I have accomplished my goal.

Regarding the actual timing of the decline of the value of the Dinar - come on guys, seriously?! Again, I was making a point and although I didn't cite exact dates, the timeframe is still accurate for the purpose of my article.

And finally, as someone suggested - if you have a question for me, don't ask other people. Ask ME.

[Caye98]

I think you did an EXCELLENT job Adam. A+

You accomplished exactly what you set out to do, you explained/illustrated the the thoughts and process that were the basis of your theory.

Even at the "hypothetical" $0.10 rate and 30%+/- cash-in spread(s) everyone makes $$$! Serious long-term investors can understand where this is going.

Anyone who wants to hassle you is just a _____. Legitimate discussion or questions is one thing, but you are certainly often challenged by people who are constantly trying to appear to be "The smartest person in the room". I never get that from you Adam. If you misspeak or learn something new you are quick to clarify (as in last night's email).

Keep up the GREAT work and site Adam!

[Adam Montana]

Thank you Caye98.

I believe you are right, most of the antagonist posts in this thread are made by people who are simply "trolling" for attention and should most likely be banned.

I'm going to hand out a few warnings, but nobody is being banned.

Happy Monday, all!

[ktlamm]

Thanks Adam. I have been keeping up just not posting for a while. You are spot on. Your logic makes more sense then all out there. Most of

us here need to try and look at this thru Iraq's eyes. Its about how much money can we make without losing too much. Its investment 101....

I think they can RV at 3.00, but the question is how long would it take to recoup what it cost...They could could pay out smaller wait on outside investors

to buy more and keep going from there. With the spreads over time they will be more stable. And this will make infrastructure investors more appealing

to go to Iraq. The last thing Iraq needs is to wind up with a high debt ratio. Not truly knowing how long imports and exports and people stability will take.

JMHO.. thanks Adam for all...

[pudge]

Someone neg you , don't know why here's a +1 = even ... With 25% spread and I'll sell it back to for 35% more & then I'll charge wait a minute now I'm confused....

+1

Thanks Adam. I have been keeping up just not posting for a while. You are spot on. Your logic makes more sense then all out there. Most of

us here need to try and look at this thru Iraq's eyes. Its about how much money can we make without losing too much. Its investment 101....

I think they can RV at 3.00, but the question is how long would it take to recoup what it cost...They could could pay out smaller wait on outside investors

to buy more and keep going from there. With the spreads over time they will be more stable. And this will make infrastructure investors more appealing

to go to Iraq. The last thing Iraq needs is to wind up with a high debt ratio. Not truly knowing how long imports and exports and people stability will take.

JMHO.. thanks Adam for all...

Why would Iraq want to do this? What economic advantage or sense would it make for the country?

[Darin]

Many people fail to realize one thing... The CBI makes money via the "spread"

Okay...

Lets say everytime they adjust the rate, an equal amount of people cash-out while an equal amount of people cash-in.

For the purpose of an argument, lets use more simple figures.

1,000 people invested @ 1,000,000 each.

If they bought in at $1 = that would mean $1,000,000,000 ($1 billion) held by speculation.

Lets say they R/V at $2, but, they have a spread of $0.10, so really you get $1.90

1,000 people cashing out would give them a $1 billion hit....(Because they initially bought in at a billion, the CBI now pays out $2 billion to the speculators)

But!! 1,000 people bought in at the new rate.... So they recouped their $2 billion pay-out to the speculators who cashed out.

Even exchange, so to speak, except the CBI makes money from the spread.

Which should equal out to $200 million. Now if those "NEW" speculators cashed out at the current rate (all of them) $200 million would be profit minus $2 billion.

But... as long as a demand stays high, and exchanges are frequent, money is made.

Speculators are not the only ones who buy/sell. Some buy/sell simply for necessary exchanges (purchasing goods, services, etc.)

So, multi-tier R/Vs would help pay for the ones prior based upon the spread. High frequency of transactions results in the CBI profiting from the spread.

Here is another example:

If 1,000 people bought 1,000,000 ID @ 1. And the spread was $0.10, meaning cashing out you would get $0.90 per ID. Right there alone, would be $100 million profit w/o any change in liabilities.

Why? Because an equal amount of people who bought in, cashed out at the same rate (minus spread).

If people buy in & the rate goes down, the CBI profits the spread + depreciation.

Imagine if the dealers we bought through was the CBI.

Imagine what you paid, what it is worth, & what they currently would pay you to buy it back.

The dealers (CBI) would be making some pretty good money because they buy it back for about what its worth, but, you over paid for it in the first place.

If foreign businesses start flocking to that region like we hope & soon expect. Transactions through the CBI would be rather abundant & frequent, which would lead the CBI wishing to have a spread to make huge profits from.

Ideally, they could take the profits from the spread to help appreciate the value of the ID. By either helping back the currency or removing currency from circulation.

[Darin]

IMO the logic doesn't work if the numbers are off by 100x. A 10 cent RV is no problem if it equates to a "cost" of 750 million. They can pay that out of their reserves no problem. But the actual numbers, even using only 1 trillion IQD being cashed in (which IMO, and from what I've seen, most people's opinions, is extremely low), is 75 billion. They don't have that. If you just look at USD (40% of their 58 billion in reserves), they don't even have 1/3 of that. Even if they convert all the euros, gbp, and gold they're still almost 20 billion short. And then you have the problem of there still being trillions of IQD out there, and they now have zero cash reserves backing them. They'd pay off part of the foreign currency speculators, have zero currency reserves, and the value of the IQD would drop like a stone. It's 1170 WITH 58 billion in reserves backing it, imagine what it would be WITHOUT the reserves. It'd take a billion IQD to buy a soda.

I disagree. Guru's have spread the misinformation that the IQD was artificially devalued by the US/IMF/etc in 2003 and that the three zeros were added during that process. If that were true it'd make sense that once their ducks were back in a row the value would return to 3 USD+. But it isn't true, the dinar wasn't artificially and intentionally devalued by the US in 2003, it was primarily devalued due to Saddam printing trillions of dinar in the 90s. The difference between the US doing it in 2003 and Saddam doing it in 1991 completely changes the situation and reality of what happened, and therefore what is likely to happen in the future regarding the dinars value.

Your not accounting for a LOT of information.

First, your making the assumption every Tom, Richard, & Harry will cash out at $0.10....

Than, your obviously excluding the idea that "no one" will buy in at the new rate of $0.10....

And.... You're also thinking they only have $58 billion in their foreign cash reserves....

For point #1 - I've heard some people who wouldn't cash out unless it was over $3.00, $2.00, $1.00, etc. And have it in their head that even @ $0.10, they would only cash out a little bit.

For point #2 - If it becomes traded, via Fx or whatever route, it is obvious that many will likely buy-in through speculation. The ease of point & click to buy or sell would make it more likely to be speculated upon.

Maybe it drops to a nickel during that time, and people lose $ and the CBI profits from the spread + depreciation. Playing a market is a dangerous game, and you need to omit emotions, and have luck & common sense to come out ahead.

For point #3 - Pretty sure that the CBI or GOI have funds other than their $58B.. They may have stabilization funds, other investments, etc. etc. You do know they have to buy bonds through the US per an agreement w/ OPEC, right? When the bonds mature, they're worth good money. Now, I can't remember, but they have billions in bonds. I think one is worth $80+ B

When the DFI funds were released, they went to a different acct w/ a different name. I believe this is the GOI's $, not necessarily the CBI. Who knows what is in that account.

You are right though, the old regime went on a printing spree which depreciated the value of the ID. However, a lot of that currency was outside of the country. Not sure on numbers, BUT, they locked their borders down & allowed only a limited time for exchange of old for new. This alone likely took a lot of their liabilites off the books as the old regime notes were now invalid. A lot of neighboring countries got the shaft, but, the CBI gained from that. No idea what those figures would be...

[Darin]

Not really, because I think there are a lot more than 1 trillion IQD outside of Iraq.

No one with a brain would, to be honest. People don't buy after something increases in value by 100 times overnight, they sell. Especially when the investment in question doesn't have the fundamentals behind it to back the new value, which Iraq doesn't.

Because that's what they say they have, and there's no reason to think they're lying. The IMF isn't going to let them lie to everyone on the planet and increase the value of their currency by 100x. No way.

Not at ten cents. No one would touch it. You think there'd be a lot of people buying Apple stock if it went to 40,000 dollars a share tomorrow?

I don't really see how the CBI profits from paying a bunch of people 10 cents per dinar and then having the value drop by 50%.

Source?

If it's not the CBIs, who cares what's in it?

Which is one of the reasons why it's now worth a lot more than it was then. 3x as much or so. Unfortunately instead of allowing the dinar to appreciate in value as the economy has improved, the CBI has instead printed trillions of more dinar.

Your forgetting that if they were to per say R/V at $0.10, they maybe would enter the Fx market. Now, if you can buy & sell at the click of a button, I would argue people would buy it up. That way, if things get shaky, they'll dump... If good reports come in, they'll buy like crazy. So yes, I would argue Fx traders would buy in at $0.10..

1 trillion or more may easily sit outside of their country. But it may take a very long time to return back to their central bank. Other banks may hold on to it to allow exchange to other customers. (I would imagine this would happen in surrounding countries, mostly). Other central banks may hold on to it as well, since if it becomes trade-able, it is now a liquid asset. If they have aspirations to becomes a reserve currency, everyone may want to get their hands on it to help diversify their liquid asset holdings.

They may have $58 Billion allocated as foreign net cash reserves. But, they may have money in other accounts. They also have the ability to sell their own bonds which should help reduce their money supply. Now, if you look at U.A.E., they have a trillion dollar stabilization fund... They don't count those in the foreign net reserves, because if they did, they would come in #2 (ahead of Japan) out of all countries for most reserves (China is #1). Refer to Wiki to read the definition on that.

If they have a 10 cent spread, for all transactions, they make $0.10 per dollar. If the rate were to remain the same day in & day out, the more transactions they do, (or sales in dollars) would equal money made via spread. If the value dropped, and people cashed out.. The CBI profits... How would they not profit if the value dropped if they have to pay out if the value goes up?

As per the bonds? Check Scoot & BIW's research.. Its in there, I just can't remember the figures.

[Darin]

At 10 cents they have an M2 of 6 trillion USD. That's, what, 30 times Saudis M2? 7 times Canadas? Equal to Chinas? Almost as much as Japans? 12 times Australias? You really think there are that many clueless forex traders out there with millions of dollars burning a hole in their pocket? No one would buy at 10 cents, you'd have to either be completely insane or completely clueless, and there aren't that many people out there like that with millions of dollars burning holes in their profits.

That's an awful lot of "mays." They may have 10 trillion USD worth of gold plated toilets, but it's extremely doubtful and there's no reason to think they do.

Value dropping decreases their liability. It doesn't mean they "profit". Value = assets - liabilities. Coming out at a rate that they don't have the assets to support would be economic suicide. Being overvalued and dropping is exactly what they HAVE to avoid, because if the currency is valued too greatly it causes a rush to cash out and directly depletes their reserves, causing massive inflation which is what got them into trouble with their currency in the first place.

Bonds are listed as assets by the CBI. Their TOTAL assets at the end of 2010 were about 55 billion USD. And that includes things like property and equipment. It's gone up by around 8 billion since then, so around 63 or so billion. There are not 80 billion dollar bonds that they own that they're keeping off the books. It's wishful thinking.

MOST of their reserve is NOT in actual foreign currency. At the end of 2010 they had around 18 billion in actual currency, most of the rest of their reserve (close to 30 billion) was in bonds and other investment securities. This is all clearly listed on their financial statements. Hoping that they have hundreds of billions in bonds that they're hiding isn't reasonable.

For the first part of your quote, I was speaking out of logic... And Japan currently has a M2 figure higher than the CBI does right now.. they're past the 100 trillion mark. At $0.01 for an exchange rate.

By your logic, anyone who trades Japanese currency is out of their mind & clueless. The "Mays" are just points to consider that they could have as options... It appears some of us take transparency so LITERAL now days... If they were so keen and accurate on their accounting, I don't think they would have so easily misplaced 6.6 billion.

As for the second part.. A decrease in value could be considered a profit.

If I sell you a 25,000 note for $25.... You later sell it back to me for $20 (as the value has gone down).. I make $5..

So now I am holding what I hold before I did any transactions with you, but I have $5 more dollars. I guess that $5 appeared out of thin air??

If my net was faster from where I am at, I'd find the bonds that I speak of.

But in your spare time, look up the M2 of Japan.. Its like 120 trillion

they exchange their currency @ $0.01 or so..

[GeologyGirl]

I understood Adam then I got confused in the few thread points... okay I get it. Thank you explaining.

[jv1054]

Reading the posts that I do makes me feel really dumb. All this genious. Thanks Adam without you I would give up reading any posts and just wait it out on my own and probably make bad decisions.