Necessary to reduce the money supply

[Scrumdiddles]

This member has been around in the past defending the LOP theory with every single post he made! I know who you are...

This is Xyzzy who was banned late October. He then created a new name "Xyzzy2" on October 30th. That just so happens to be the same day member "DougsDinar" joined as a member. Probably decided not to go with Xyzzy2 because he had such a bad wrap.

http://dinarvets.com...r/42632-xyzzy2/

I can also tell by how you post and what you post. You are pathetic... Why not just remove yourself from these forums completely?

uh oh was someone just outed. Uh oh.

[Mak63]

Also, I believe it is the Department of Energy that is responsble for the purchase of oil for the Strategic Petroleum Reserves... billions of barrels that are continually replenished.

I believe the Strategic Reserves are not tapped unless by presidential order. They are not cycled through on a regular basis.

[Mak63]

LOPPING does not reduce the currency. DUH, it keeps it the same changed out to a new lower denom, DUH. You want to reduce the currency, take it off the market and issue new currency digitally and print less new currency.

You're kidding, right?

L0pping removes, in the overall conversation on this site, 3 zero's. So, your 25,000 IQD note is l0pped and becomes a 25 IQD note. The CBI has removed 24,975 currency units from its "inventory". How is it "the same changed out to a new lower denom"? The currency supply has been reduced and whatever your holdings are, without an RV, is reduced by a factor of 1000. DUH!!!!!

[PhillyDinar]

Why would they reduce the money supply at all if they were going to lop? Don't make any sense, I think it is just more propaganda to discourage currency speculators.

good question!! its because there will be NO lop =)

[MahiMahi]

good question!! its because there will be NO lop =)

Great Question, Great Answer! +1 preach it brother!

[zul]

LOP will bring down the amount of dinar to 30 billion...for 30 million population. 30 Billion IQD..? .is that enough for a cash society like Iraq. I don't think so. So forget about LOP, never going to happen. Sure they want to reduce the amount of dinar, they need to....but to 30 Billion??

[bales130]

IMO a LOP is highly likely, historically it's the way the effects of inflation have been dealt with by nations in this situation, but a LOP at this point would reduce Iraq's 30 Trillion Dinar to 30 Billion and that does not seem like it would leave them with enough money even if it then RVed to $1. If OTOH they RD and then RV to $3 that's 90 Billion Dollars in worth which is much more realistic. Just thinking here but that would seem like one way of dealing with both the present inflation problem and the effects of past inflation.

Iraq does not have 30 trillion in circulation. Over the past year, Iraq has been pulling the larger notes off the market. The cbi has stated they are going to do a 1 to1 exchange. With all the companies trying to get into Iraq and Iraq wanting investors, how could they lop and then come out at $3 per dinar?

[keepmwlknfny]

Iraq does not have 30 trillion in circulation. Over the past year, Iraq has been pulling the larger notes off the market. The cbi has stated they are going to do a 1 to1 exchange. With all the companies trying to get into Iraq and Iraq wanting investors, how could they lop and then come out at $3 per dinar?

Really?? Where does it say Iraq has a different amount of currency?? Something official, not a guru chat and not a news article.....also please show me where it says the CBI was going to do a 1 to 1 exchange for the new currency.......

[Carrello]

They are not ready to LOP/RD yet. Inflation isn't going to wait until they're ready with newly printed notes. Either way they're going to need at least a small RV soon or they're gonna be in a tight spot on their budget vs GDP. Come on 10%!!!!

Question: Do you think they could/would use the lowe demoninations that were printed and not released? Thx.

[Jaxinjersey]

I believe the Strategic Reserves are not tapped unless by presidential order. They are not cycled through on a regular basis.

Hi Mak... yes, I agree. However, I believe they have been accessed more than we think, or know. And, exchanges often do take place for various reasons. Also, if the DOE can and will be able to purchase at $32/barrel, it would make sense to perhaps add to the reserves... or replace the reserves by selling off the existing higher priced oil. There are many ways to deal with this to make the best economic sense... hopefully!

[Mak63]

Hi Mak... yes, I agree. However, I believe they have been accessed more than we think, or know. And, exchanges often do take place for various reasons. Also, if the DOE can and will be able to purchase at $32/barrel, it would make sense to perhaps add to the reserves... or replace the reserves by selling off the existing higher priced oil. There are many ways to deal with this to make the best economic sense... hopefully!

Unannounced "dips" into the strategic reserve wouldn't surprise me with our gubment. The current expiring long term oil contracts are between $30-$40. A set $32 would be nice going forward, but I see that number bandered about in a manner like someone threw it out and its been broudly picked up. There could be some mechanism where the gubment agrees to a price then subsidizes it to the oil companies for some reason. The oil guys on here could speak to that.

[Jaxinjersey]

The problem with that is there is no information , at least none that I could find, that indicates any of that has or will happen. In fact the information that is available indicates that it has not happened and any draw downs of the Strategic Reserves are done in accordance with strict regulations. The few times it has been done it was big news for days as the politicians argued over how, or even if, it was to be done since the regulations call for this reserve to be tapped ONLY during a national emergency. The last time it was tapped was when the Obama administration decided to do so because of high gas prices and this brought the politicians out in Washington in full force and it was only narrowly approved, it was also covered by all the news services as top headlines for almost two weeks so it was hardly something we would not have known about. The Reserve being tapped is not something that happens often and when it does, such as after hurricane Katrina, it is national news for days. Even then when the oil is replaced it is not paid for by the U.S.Government but instead it is replaced by agreement by the oil companies that it was released to, private oil corporations who used the oil replaces it not the Energy Dept.

Hi Doug... we are in agreement about a few things here, and I have already addressed you in a previous post here. Thanks for your further input.

Unannounced "dips" into the strategic reserve wouldn't surprise me with our gubment. The current expiring long term oil contracts are between $30-$40. A set $32 would be nice going forward, but I see that number bandered about in a manner like someone threw it out and its been broudly picked up. There could be some mechanism where the gubment agrees to a price then subsidizes it to the oil companies for some reason. The oil guys on here could speak to that.

Agreed Mak... great reply!

[FishmanTx]

I believe the Strategic Reserves are not tapped unless by presidential order. They are not cycled through on a regular basis.

Ok DougsDinar here you go. Get educated. Then get your head out in the sunshine. When has the US Govt ever been concerned about following their own rules? I'm a 20 year vet, I KNOW BETTER.

As an FYI for oil:

DOE Strategic Reserve Profile

Weekly Petroleum Status Report

This Week In Petroleum

For currency:

Treasury Exchange Rates

Edited November 16, 2011 by FishmanTx

[Darin]

Sometimes, I am shocked to see how people continue to not understand a R/D (LOP / removing 3 zeros)...

If they were removing notes from circulation, they would likely state it differently..

i.e. "Reduce the money supply" (They would not use terms like 30 trillion to 30 billion)

"Removing notes from circulation"

"Shrinking the supply"

No value is lost in the current notes, but no value is gained either.

I refer to it as a "Monetary Illusion"

If you look at the situation at hand, in mathematical terms, its simply an equation.

Money Supply (times) Exchange rate = Value of Money Supply

Simplify this down

MS * ER = Value (Of MS)

Example:

50 Trillion * 0.001 = 50 Billion

50 Trillion (Money Supply) Represents the Face value of a note.

How will the re-denomination play out?

3 zero notes will exist until an expiration date

They'll run 2 separate exchange rates

Upon the expiration date, all 000s will be removed (Those not cashed in will be written off)

So lets say this is a 2 year plan...

After 1 year, 25 Trillion of the 000's notes were drawn in by the CBI.

They also release 25 Billion of the New currency

This would mean they're money supply is 25,025,000,000,000

However 25 Trillion (Old 000 notes) goes against $0.0001 (exchange rate)

25 Billion (New notes) goes against $1.000 (using 1:1 exchange rate for simplicity)

Value of overall money supply remains the same.. $50 Billion

upon the next & final year, prior to expiration, the remaining 25 trillion are received into the CBI & the CBI releases 25 Billion new notes.

The overall money supply is now 50 Billion @ exchange rate $1.000

This means the value, once again, remains at $50 Billion

Since the 000s are now invalid, the use of the old exchange rate for those particular notes is obsolete. (000s, are invalid now).

Here are some things to consider.....

Out of all 50 trillion IQD.... Not everyone will exchange for new IQD.

Why?

Some will be lost, burned, stolen, etc.

Others may hold out thinking something may change.

Simply put, a % of the money supply will not make it to the CBI for given reasons listed above.

The CBI, gets to write that off the books.

For example, lets say 10% of the Old IQDs never make it back to the CBI.

This means, 45 trillion is exchange from old to new..

Reducing the money supply from 45 trillion to 45 billion. 5 trillion will still be outstanding.

If it were to be exchanged, it would become 5 billion (to their money supply)

But, it doesn't make its way back to the bank in time.

Now, 50 trillion becomes 45 billion because not everything is exchanged.

45 Billion @ a value of $50 billion will mean that the exchange rate can appreciate against foreign currencies.

If 50 billion IQD = $50 billion, we know the exchange rate is 1:1.

Basically, this would mean our exchange rate becomes $1.111

(Technically for every $1 you invested, you get $1.11

If you invested $10,000... You would receive $11,100

But, many of us over paid to begin with through currency dealers, having to pay bank fees, exchange fees, and so forth.

But here is the kicker:

This adjustment would not be made until the 000s are obsolete.

Which means for us, we have to do 1 of 2 thing(s):

Exchange our 000 notes for new Lower-denoms

Exchange our 000 notes for USD, than wire our USD into a Warka account.

Either way, any significant adjustment would not be made until the project is complete.... At that point, the CBI would re-assess their liabilities and adjust accordingly.

(Disclaimer: The CBI does not necessarily have to adjust the exchange rate... They could also expand their own money supply to fill that gap, maintaining a 1:1)

My opinion? If they do Re-denominate: We could see a small minor increase in the exchange rate when the project beigns. This adds incentive to get people to exchange & use the IQD. It may also help draw in IQD from surrounding regions to quickly exchange out old for new. But the biggest potential adjustment would be made after the project is complete.

Turkey didn't adjust their rate until after their zero project. After their zero project, the value was appreciated due to higher demand of the domestic currency, less dollarization threat, and the foreign currencies were pulled from their market to help strengthen the vaue. The same effect could happen for the IQD.

But, my overall opinion, is that I simply have a problem with the actual stated #s

Using 30 trillion as an example (taken from articles)

A Re-denomanation puts that same 30 trillion, converting it to 30 billion. The US value of that 30 billion is $25.8 Billion

This leave approximately 967.74 IQD per citizen, at a US value of $832..

This does not include businesses, governments, and foreign entities holding IQD(new).

And also, if foreign speculators are responsible for the 30 trillion... If they cash out, that reduced the number even further. Because now the CBI holds an abundnace of IQD (Old) that they had to fund the exchange for.. reducing their foreign cash reserves. If 25% is held by foreign speculators, than the following statistics change.

30 trillion becomes 22.5 trillion.. R/D makes it 22.5 billion @ a US value of $19.35

967.74 becomes 725.80 IQD per person @ a US value of $624.19

Your all probably thinking, how can they function if every one of their citizens held approximately 725 new IQDs and that accounted for every IQD?

Well, the answer is simply that they also rely heavily on the US dollar. Dollarization is what helps keep their economy functioning properly.

Hence, the biggest threat to the IQD is also their economies allie.

So, IMO, a R/D will not decrease dollarization. It may possibly enhance it...

Either way, this is going to be interesting to watch play out if this is the route they go.

[FishmanTx]

Iraq does not have 30 trillion in circulation. Over the past year, Iraq has been pulling the larger notes off the market. The cbi has stated they are going to do a 1 to1 exchange. With all the companies trying to get into Iraq and Iraq wanting investors, how could they lop and then come out at $3 per dinar?

Really?? Where does it say Iraq has a different amount of currency?? Something official, not a guru chat and not a news article.....also please show me where it says the CBI was going to do a 1 to 1 exchange for the new currency.......

Just as an FYI; Per the CBI 2010 end of year report there was 27.507328T IQD "issued".

Just my 2 cents

[20MillionDinar]

Sometimes, I am shocked to see how people continue to not understand a R/D (LOP / removing 3 zeros)...

If they were removing notes from circulation, they would likely state it differently..

i.e. "Reduce the money supply" (They would not use terms like 30 trillion to 30 billion)

"Removing notes from circulation"

"Shrinking the supply"

No value is lost in the current notes, but no value is gained either.

I refer to it as a "Monetary Illusion"

If you look at the situation at hand, in mathematical terms, its simply an equation.

Money Supply (times) Exchange rate = Value of Money Supply

Simplify this down

MS * ER = Value (Of MS)

Example:

50 Trillion * 0.001 = 50 Billion

50 Trillion (Money Supply) Represents the Face value of a note.

How will the re-denomination play out?

3 zero notes will exist until an expiration date

They'll run 2 separate exchange rates

Upon the expiration date, all 000s will be removed (Those not cashed in will be written off)

So lets say this is a 2 year plan...

After 1 year, 25 Trillion of the 000's notes were drawn in by the CBI.

They also release 25 Billion of the New currency

This would mean they're money supply is 25,025,000,000,000

However 25 Trillion (Old 000 notes) goes against $0.0001 (exchange rate)

25 Billion (New notes) goes against $1.000 (using 1:1 exchange rate for simplicity)

Value of overall money supply remains the same.. $50 Billion

upon the next & final year, prior to expiration, the remaining 25 trillion are received into the CBI & the CBI releases 25 Billion new notes.

The overall money supply is now 50 Billion @ exchange rate $1.000

This means the value, once again, remains at $50 Billion

Since the 000s are now invalid, the use of the old exchange rate for those particular notes is obsolete. (000s, are invalid now).

Here are some things to consider.....

Out of all 50 trillion IQD.... Not everyone will exchange for new IQD.

Why?

Some will be lost, burned, stolen, etc.

Others may hold out thinking something may change.

Simply put, a % of the money supply will not make it to the CBI for given reasons listed above.

The CBI, gets to write that off the books.

For example, lets say 10% of the Old IQDs never make it back to the CBI.

This means, 45 trillion is exchange from old to new..

Reducing the money supply from 45 trillion to 45 billion. 5 trillion will still be outstanding.

If it were to be exchanged, it would become 5 billion (to their money supply)

But, it doesn't make its way back to the bank in time.

Now, 50 trillion becomes 45 billion because not everything is exchanged.

45 Billion @ a value of $50 billion will mean that the exchange rate can appreciate against foreign currencies.

If 50 billion IQD = $50 billion, we know the exchange rate is 1:1.

Basically, this would mean our exchange rate becomes $1.111

(Technically for every $1 you invested, you get $1.11

If you invested $10,000... You would receive $11,100

But, many of us over paid to begin with through currency dealers, having to pay bank fees, exchange fees, and so forth.

But here is the kicker:

This adjustment would not be made until the 000s are obsolete.

Which means for us, we have to do 1 of 2 thing(s):

Exchange our 000 notes for new Lower-denoms

Exchange our 000 notes for USD, than wire our USD into a Warka account.

Either way, any significant adjustment would not be made until the project is complete.... At that point, the CBI would re-assess their liabilities and adjust accordingly.

(Disclaimer: The CBI does not necessarily have to adjust the exchange rate... They could also expand their own money supply to fill that gap, maintaining a 1:1)

My opinion? If they do Re-denominate: We could see a small minor increase in the exchange rate when the project beigns. This adds incentive to get people to exchange & use the IQD. It may also help draw in IQD from surrounding regions to quickly exchange out old for new. But the biggest potential adjustment would be made after the project is complete.

Turkey didn't adjust their rate until after their zero project. After their zero project, the value was appreciated due to higher demand of the domestic currency, less dollarization threat, and the foreign currencies were pulled from their market to help strengthen the vaue. The same effect could happen for the IQD.

But, my overall opinion, is that I simply have a problem with the actual stated #s

Using 30 trillion as an example (taken from articles)

A Re-denomanation puts that same 30 trillion, converting it to 30 billion. The US value of that 30 billion is $25.8 Billion

This leave approximately 967.74 IQD per citizen, at a US value of $832..

This does not include businesses, governments, and foreign entities holding IQD(new).

And also, if foreign speculators are responsible for the 30 trillion... If they cash out, that reduced the number even further. Because now the CBI holds an abundnace of IQD (Old) that they had to fund the exchange for.. reducing their foreign cash reserves. If 25% is held by foreign speculators, than the following statistics change.

30 trillion becomes 22.5 trillion.. R/D makes it 22.5 billion @ a US value of $19.35

967.74 becomes 725.80 IQD per person @ a US value of $624.19

Your all probably thinking, how can they function if every one of their citizens held approximately 725 new IQDs and that accounted for every IQD?

Well, the answer is simply that they also rely heavily on the US dollar. Dollarization is what helps keep their economy functioning properly.

Hence, the biggest threat to the IQD is also their economies allie.

So, IMO, a R/D will not decrease dollarization. It may possibly enhance it...

Either way, this is going to be interesting to watch play out if this is the route they go.

Darin,

Excellent post! I always enjoy reading what you have to say. Thank you for the breakdown!

[Darin]

Darin,

Excellent post! I always enjoy reading what you have to say. Thank you for the breakdown!

Thanks, I probably should of proof-read it, and its too late to edit.

If 50 billion IQD = $50 billion, we know the exchange rate is 1:1.

Basically, this would mean our exchange rate becomes $1.111

(Technically for every $1 you invested, you get $1.11

The 50 Billion IQD should be 45 Billion IQD.

So basically, a Money Supply of 45 billion IQD has a value of $50 Billion, we should be able to assume they could appreciate the exchange rate to 1.11111

I was basically arguing that upon a R/D, not everyone will get the chance to cash-out/exchange, etc.

So what was originally 50 Billion expected to funnel through the CBI becomes only 45 Billion, if they're backed by $50 billion in foreign reserves, they could r/v to 1.11111

If life expectancy of notes is really short... The reality of what exists could be much less than the CBI accounts for.

Notes held abroad may have been forgotten about or the GURUs got to them and they continue to hold out or decide not to cash out.

Other notes may have been lost (buried in sand) or burned, yet the notes are still accounted for by the CBI as they do not have that knowledge.. It would be hard to account for every single note.

See, the CBI will likely appreciate the value when they believe the least amount of people will cash it out.

So, the PERFECT time to do it would be after the 000s are invalid.. Before others start buying into the new lower denominations.

Less liabilities will be abroad, and even with those existant liabilities, they may not cash out right away.

I.e., maybe they R/V to $1.50 after the R/D, but those aborad may hold out til $3

Either way, their reserves take less of a hit.

This is just how I foresee a R/D play out.... If the IQD does indeed R/D..

It would make the most logical sense.. But, we have to also understand that a possibility exists of them never adjusting the rate again.. for a long period of time.

If they have the ability to back their currency at 120%, they may print more money to make up for that 20%..

Anyways, I'm still hoping they choose a different route (i.e., R/V @ $0.01 or more)