For new 'Dinarians', to help clarify common questions...

[chas32]

Remember an excess of money supply is only inflationary if people spend it, and if that spending exceeds the economy's capacity to produce.

If the world was really concerned about money supply take a look at Japan: “Japan's key money supply gauge rose 2.9 percent in January from a year earlier, as companies piled up demand deposits while remaining reluctant to make fresh business investment amid the slow economy, the Bank of Japan's survey showed Monday. The average daily balance of M2 came to 766.5 trillion yen. Economists polled by Kyodo News had projected a 3.0 percent increase on average.)

http://www.breitbart.com/article.php?id=D9DNO8500&show_article=1

Brazil, China and India right now are lowering their money supply by raising their reserve requirement.

Brazilian Real M2 in their currency 35,855,505,000,000, China’s Yuan Renminbi M2 in their currency 30,878,521,000,000, I wonder if the four mention countries are going Lop their currency or implement other policies to control inflation and money supply? Like sell bonds, raise reserve requirements, and raise Central Banks discount rate, all can lower money supply.

Brazil starts to mop up $39bn; rate rise likely

February 25, 2010 10:10am

The central bank of Brazil has announced a rise in reserve requirements for larger banks, reversing the lower levels permitted during the crisis.

Two moves are intended to soak up 71bn reais ($39bn) from the Brazilian financial system: (1) reserve requirements for time deposits will be raised to 15 per cent from 13.5 per cent; (2) additional requirements for demand and time deposits will be raised to 8 per cent from 5 and 4, respectively. The moves will take place on March 22 and April 9.

Brazil joins China and India, which have already begun raising their reserve requirements. The move is expected to be followed by an increase in the central bank’s benchmark rate, currently at a record low of 8.75 per cent - perhaps as early as March (Reuters).

http://blogs.ft.com/money-supply/2010/02/25/brazil-starts-to-mop-up-39bn-rate-rise-likely/

Edited February 26, 2010 by chas32
left out part of the post

[Fi3ry_Ph03n1x]

Iran approves plan to lop three zeros off Rial

http://www.presstv.ir/detail.aspx?id=106378&sectionid=351020102

Read the article, Scott. Honestly, I'm not terribly concerned about Iran redenominating their money supply. As is the standard for all redenominations, I would expect their new currency to have neutral value in comparison to the old currency as was explained in the start of this thread. Plus, until the IMF recognizes Iran and 'welcomes them into its family of central banks' (read: Kicks their *** and steals control over an independent nations' economy), I don't think Iran has enough financial clout to cause significant waves in the int'l financial community.

Now their danger in the political and ideological realms of influence -- in Iraq and beyond -- is definitely another story. Notice that they are making more trouble than usual? Ahmadinajad is not stupid. He doesn't want the IMF puppets in his backyard with tremendous control and influence over the Middle East's black gold. This could get worse before it gets better.

FP

[Enorrste]

Thanks, FP, for some new questions!

Here are the questions and my response;

How exactly does a central bank use their monetary instruments to increase and decrease money supply?

There are two ways to increase or decrease a money supply. The first way is to print or destroy currency. We have seen that it is the intention of the CBI to destroy currency. I cannot imagine that there is anyone on the forum who will miss this point: destroying bills lowers the amount of currency in circulation, thereby lowering the total money supply. This is very basic.

The second way to affect money supply is through what is called monetary policy. This policy affects the deposits in the banks that FP was referring to. If the reserve bank (CBI) has a liberal monetary policy it makes it possible for the banks to lend against the deposits of its clients for a minimal cost (interest rate). Another way to affect the amount of depositors money that gets invested by banks is by placing higher “reserve requirements” on the banks. Both FP and I have already noted that most countries in the world use what is called a “fractional reserve requirement” system. This means that if, for example, a bank holds $1 million in deposits and has a 10% reserve requirement, they can lend out another $9 million on those deposits for investments. The affect of this is to increase the “electronic” component of a money supply. Currently Iraq has a very restrictive policy on this and requires either 100% reserves (thanks to Chaper 7) or nearly that amount. This has a severe dampening affect on investment lending.

In the case of Iraq, then, the money supply is controlled by the amount of actual currency, and the amount of electronic currency. We have seen that the intention of the reserve is to eliminate all large denominated notes. Since that consists of nearly ALL notes in existence, the reduction will approach 25 trillion dinars before the end of this year.

At the same time, however, the CBI will introduce smaller denominated notes to allow commerce to continue. Using the CBI’s own numbers we will expect them to produce 1/1000th the amount in small notes as existed in large noted. Therefore, by the end of the year the money supply of physical currency should be around 25 billion dinars (1/1000th of 25 trillion). This is consistent with what would occur in a LOP, as FP has so adroitly pointed out. Furthermore, this amount, according to his calculations, is consistent with a revalued value of the currency at $2.60 per dinar. I completely agree with FP on this matter.

As the economy completes the adjustment from a “physical currency” situation and enters into a more “electronic currency” situation through banking and investment by the banks in various projects we should see the “hidden” money supply increase. I am confident that the CBI is not only aware that this is necessary but that it also will welcome this growth in the money supply.

In short, after the large denom notes are withdrawn, the money supply will fall precipitously to 25 billion from 25 trillion dinars. Then as fractional reserve banking begins it will rise in proportion to the growth of the economy through electronic banking.

Historically, how quickly can a money supply be expanded or reduced, while still maintaining a stable economy?

I am not familiar with the history of banking or revaluations enough to give other than one specific example on this issue. That example is Germany after WWI. The currency was so hyperinflated that people would cash their payroll check and then take a wheelbarrow of money to the market to buy groceries. The solution was to LOP the value dramatically while at the same time increase the ability of the reserve banking system to handle this. This was an extreme situation. The same has occurred in some African nations recently, where the money supply was dropped by up to 10 zeros in a matter of months in order to bring stability.

None of these situations, however, is similar to what we will see in Iraq. Iraq is in complete control of its money supply. Furthermore it has told the press exactly what it intends to do and how long it will take to do it (about 9 months, as of now). I see no reason, given the control that the CBI has had on the currency for the last 5 years, to believe that they will lose control for the next 9 months. In other words, I expect that they will do what they say they will do and have no reason to believe otherwise.

Steve

[Enorrste]

I neglected to make a very salient point and that is this: the higher the RV amount, the faster that the large denom notes will come into the CBI and be destroyed. This should definitely be taken into consideration when dealing with the "affordability" question for the IQD. I would not be surprised to see the money supply fall to less than $30 billion within only a few months of the RV.

Steve

[scottiraq04]

Read the article, Scott. Honestly, I'm not terribly concerned about Iran redenominating their money supply. As is the standard for all redenominations, I would expect their new currency to have neutral value in comparison to the old currency as was explained in the start of this thread. Plus, until the IMF recognizes Iran and 'welcomes them into its family of central banks' (read: Kicks their *** and steals control over an independent nations' economy), I don't think Iran has enough financial clout to cause significant waves in the int'l financial community.

Now their danger in the political and ideological realms of influence -- in Iraq and beyond -- is definitely another story. Notice that they are making more trouble than usual? Ahmadinajad is not stupid. He doesn't want the IMF puppets in his backyard with tremendous control and influence over the Middle East's black gold. This could get worse before it gets better.

FP

FP - I've read the article numerous times, I understand redenomination in its entirely and 100% agree any redenomination by them will result in a neutral value. My reply to Boonduck should have included a more opininated or relavant correlation...but since Boonduck did not reply about the link I can only hope he understood the reasoning of my post.

I see any news coming out of Iran as directly affecting Iraq (short term and long term). What most people in the States don't know is how deep seated Iran really is in Iraq. Yes, the media in Iraq and the West are doing a good job of reporting the issue, but it is still deeper than they are able to report. Back door information/Intel among the U.S. Military and PSC's in Iraq and Afghanistan are showing Iranian influences where you never thought they existed. During the violent years of 2004-2007, Syria was the main area of where insurgents were coming into Iraq (from Syria, Saudi Arabia and Iran)...but the Irainians had one thing the Syrians did not...a well establish Intelligence network, and operatives that were highly trained. When they saw that the insurgency was not going to work as they had hoped, they put their main focus on political developments and control...and this is where they remain. In a culture where perception is very much reality, until physically proven otherwise, anything Iran does or says can be felt in Iraq in some form or fashion. This relationship with Iran is not only dangerous to Iraq, but to us in the West as well.

At a minimum, and if Iran completes their redenomination before Iraq does, I can see the Iraqi Minister of Finance adding this to his justification in Iraq. He is already quoted as using the neighboring country of Turkey as an example of redenomination...it would not surprise me to see Iran added to this list; if they achieve redenomination before Iraq.

You are right, Ahmadinajad is not stupid...in fact, he's real close to geniusly (sp ?) insane; right up there with Hitler. I have a few profile reports on him done by some really good former military Intel guys...they're a good read.

I would also like to take a second and apologize to you directly for counter-bashing KKJK within your thread. It was unnecessary and out of line...we'll leave it at that.

[Fi3ry_Ph03n1x]

Steve,

In my original post, I pointed out that, even if a note is destroyed and therefore taken out of circulation, the value of that money remains in the bank account where the note was deposited. Everytime an Iraqi deposits a 25,000 IQD note, that paper may ultimately be destroyed by CBI, but the value of the note stays in the bank account, and electronic currency is still part of Iraq's M2 money supply. So electronic or paper, the money supply would still be at 43 trillion IQD no matter how many notes the CBI destroys. Reduction of the money supply has to happen some other way. I don't think it is as simple as you said it is.

I read in one of your chats that you complimented me on being smart and, although I appreciate it, you'd better take it back. I'm not yet smart enough to figure out how the electronic money supply is removed from Iraq's economy. You might have to break it down for me a little more, because I still don't see how the destruction of the paper reduces the money supply when that value of that money remains in the Iraqi's bank account.

Oh, and I had a follow up question too: Are there any examples of countries that have reduced their money supply by trillions of units in the course two to nine months? Historical evidence would help us better see how this could actually occur in Iraq without causing economic and financial turmoil.

There are lots of examples of redenomination that show how money supply can be instantly reduced without affecting the financial stability of the country, but I am also interested in understanding your view better, too. I think I've got the basic idea of what you say will happen, just wonder if there are any examples that show us how it could happen.

As always you have my respect and thanks,

FP

[Fi3ry_Ph03n1x]

You are right, Ahmadinajad is not stupid...in fact, he's real close to geniusly (sp ?) insane; right up there with Hitler. I have a few profile reports on him done by some really good former military Intel guys...they're a good read.

I would also like to take a second and apologize to you directly for counter-bashing KKJK within your thread. It was unnecessary and out of line...we'll leave it at that.

Thanks for expounding on your info pertaining to Iran. This isn't the first scuttlebutt I've heard on how they are quietly manipulating current events in Iraq. If you have more information than what you've shared here, I think it would be a very interesting thread, standing on its own merit. Thanks again.

And although your apology is appreciated, it is quite uneccesary to me. Starting a thread is not owning a thread. You made your peace with KKJK, and I appreciate your standing up for me, but I'm not in charge of anything here. Just one guy giving my thoughts, analysis of info, and opinions. Your opinions are your own, and you don't have to answer to me for them. Your a stand up guy for being able to acknowledge it, though.

FP

[Enorrste]

FP:

I think we might be better serving our listeners if we took this one piece at a time. If the CBI has stated that it intends to "remove the large notes from circulation" then we should be able to agree that 25 trillion dinars will disappear. Would you agree to that?

Now, admittedly, the introduction of smaller notes will add back to the money supply (still sticking only with "currency" here), but at a rate that is 1/1000th of that which is being removed.

So, I'd like you to agree with me that the "currency" in circulation will fall from 25 trillion dinars to 25 billion dinars. If so, then we can proceed.

This is, incidentally, obvious, and is based on your own statements. So I hope we are on the same playing field to this point.

Once we agree on this point then we can move into the "netherworld" of electronic money.

Steve

[Fi3ry_Ph03n1x]

That's the rub. If the large notes are removed from circulation, but the value of those notes stays in a person's bank account, the can still withdraw 25,000 1 dinar notes because they still own that money. So I guess I can't yet agree that they can reduce even the hard currency since there is no removal of value from the deposit. Dumb it down for me, please! Haha!

When I was talking about reducing from trillions to billions, it was based on using the principles of a redenomination to do so... not by RVing high and trying to contract the money supply.

FP

[boonduck]

As an aside, even though I have a rudimentary understanding of how the global currency mkts operate ( having earned my stripes trading on FOREX ), I'm concerned about the reserve status of the US Dollar..

We hear nothing about M3 anymore and don't have any idea if Bernanke plans to drain the swamp of excess liquidity, or not. Somewhere in there, between the need to raise rates and the out of control US Debt/deficits, chaos looms

It seems all these Fiat currencies may be in trouble ( some more than others ) and this is the real reason that precious metals have taken off .

[chas32]

Iraq does compare themselves to Germany

[boonduck]

Fiery Phoenix,

Thank you for this research and related commentary...

[chas32]

Article IV - Obligations Regarding Exchange Arrangements - IMF

This will explain how arrangements are made between countries on agreeing to a exchange rate and a currencies value.

http://www.imf.org/external/pubs/ft/aa/aa04.htm

http://www.imf.org/external/np/mfd/er/2004/eng/0604.htm

http://www.tpub.com/content/administration/14061/css/14061_89.htm

How Foreign Exchange works

Laura writes check number 7776 for $200 and brings it downtown to a foreign exchange bank teller at Credit Suisse to convert it to British Pounds. On this particular day, the exchange rate is exactly USD $2.00 = GBP

[kkjk]

I have to thank all those who participated in this post! When you get FP and Enorrste in the same thread there are some great ideas and views. Then add in responses from Scottiraq (yeah, my basher) and Chas and you get tons of info from both sides and good perception of both arguments!!

As I have stated before, I know nothing! However it is very apparent who is putting time and thought into their posts and any member can sense this and decide which camp to spend your dinartime!

I certainly accept your apology, scottiraq! I totally get your spirit and opinion and respect you for it, as I respect FP for his and Enorrste for his! I hope you realize I was not questioning FP's info or opinion. I was merely stating that his view often has this negative tone, and that was not fair to beckon "Newbies" and then state his opinion as fact.

thanks for the spirited convo

Good luck to all

GO RV!!!

[boonduck]

FP,

I did understand reasoning behind post, and thank you immensely for your research and this illumination..

Since you guys on this thread seem to be some of the brightest bulbs in the pack...please help me understand this..

Why did the Iraqi CBI do the Texas two-step and create all these trillions of paper Dinars, with their extraordinary world-class security features, if they are simply going to turn around and call them all back in before 2010 ends ?

I was kicked out of the 4th grade for not shaving, so I'm pretty certain I'm missing something here...

[DIDI]

Thanks. That helps clarify some things.

[boonduck]

Actually, my previous comment was to thank Scott for his initial response ( ADD, I guess )....but FP's research, links etc. are very much appreciated, as well...

All you guys are quite educational and, I might add, quite entertaining...

[NotReallyTex]

FP,

I did understand reasoning behind post, and thank you immensely for your research and this illumination..

Since you guys on this thread seem to be some of the brightest bulbs in the pack...please help me understand this..

Why did the Iraqi CBI do the Texas two-step and create all these trillions of paper Dinars, with their extraordinary world-class security features, if they are simply going to turn around and call them all back in before 2010 ends ?

I was kicked out of the 4th grade for not shaving, so I'm pretty certain I'm missing something here...

I have actually wondered this too. They are really pretty and it took a lot of time and money to produce them. Why waste them now?

[chas32]

http://www.cpa-iraq.org/pressreleases/20040115_exchange_end.htm

Iraq

[Fi3ry_Ph03n1x]

Why did the Iraqi CBI do the Texas two-step and create all these trillions of paper Dinars, with their extraordinary world-class security features, if they are simply going to turn around and call them all back in before 2010 ends ?

My opinion only... It's like this:

If you have a weapon, you have some power because you can force your will on others.

If you have intelligence, you have some power because you can outsmart those would force their will on you.

If you have technology, you have some power because you have more advanced equipment than your adversaries.

If you have leadership, you have some power because you can manipulate all of these people to operate in your service (and usually without them knowing it wasn't their idea)

If you are a government agency, you have some power because you can control those who would lead renegade factions.

If you are a politician, you have some power because you regulate and legislate those who control the population.

If you are the central bank, you have ultimate power because you control all of it with money that all of them need.

The hand that gives is over the hand that receives.

Now, that was a long setup to answer the question. Why print money that you know will be reprinted in only a matter of a few years? Well, you have to think of money as if it were handcuffs. Money is nothing but a system to control and regulate an economy, a government, a people, and ultimately, the world. Printing money is a central bank's means of being in control of you. Do you know that the government doesn't issue our money? It is issued by the Federal Reserve, a private bank with a secret list of investors (no real secret... old money from Europe and the wealthiest families from early in US history. Think Rothschilds, Carnegies, et. al.). Our government buys money from them with bonds, and has to repay it. This is where our national debt comes from. If the governmnet printed its own money as Lincoln did (the real reason he was assasinated), we wouldn't be enslaved to the Federal Reserve.

If the central bank has the money, and you need the money to live, they now own you with the money that they print. If they have to print more money or change to a new kind of currency, it doesn't matter because they control the people who will pay for the cost of printing the money. The money controls you, you as a citizen support the economy that pays for the printing of money, and the money then continues to control you. A circular means of government controlling your life. So for those who create the money, it is an obvious choice.

FP

[boonduck]

Incredible answer...

Perhaps on a macro scale, this is the very old "owing your soul to the company store" scenario..

Although a Texan by choice, I was born in Applalachia....and the old saying of " money talks and Bull**** walks" , is applicable here....

Thanks for the insight...

[chas32]

In the article, How Money is Created, there is this to ponder,

[BEADSHAMAN]

Thanks for the post...it is all a bit confusing with all the speculation, information and misinformation...who do you believe???

[Jigga]

Central no longer delete zeros currency policy of "progressive" and an adviser to Maliki sees "in vain"

نقادها حدة وهو مستشار رئيس الوزراء الأقتصادي

[boonduck]

FP..

Since we're ultimately "bought and paid for" by these Globalist money-masters...is our only possible escape, a system that would allow us to barter for goods and services-and absent barter, purchase those same goods and services with Gold & Silver coins/ Bullion ?

Sounds rather apocalyptic, but inquiring minds want to know..