Adam's Official Chat 1/11/12

[Adam Montana]

"What is the dollar backed by?"

I'm thinking the US has a lot more cred than Iraq. lol

Serious question, Adam. Are you saying you believe Iraq doesn't have to back their currency with anything?

It will be backed with oil, but also with credit.

That's exactly why the dinar dropped so far - due to the situation there, Iraq's "credit" dropped to abysmal levels. Now that they are taking control, moving forward, I consider an RV kind of like reapplying for a credit card.

Sure, they were denied credit 7 years ago.... but they have came a long way and their currency should reflect that.

[lotsofdinar]

So you are saying the U.S. is going to give Iraq a several trillion dollar line of credit to back their currency with? I've never heard of that. I guess I'm not understanding.

Edited January 12, 2012 by lotsofdinar

[MrFnHappy]

The USD is backed by a GDP of nearly 15 Trillion dollars, and faith while Iraq has a GDP of less than 90 Billion dollars, and no faith, which is why they back the currency with foreign reserves at 100%+.

Saudi Arabia has roughly $500B USD in reserves (highest in the region) with a M2 of 1.1T Rials which has a current value of roughly $408B USD. Each Rial is approx $.27 USD. SA backs their M2 at more than 100% with hard reserves.

You'll find similar situations throughout the middle east region.

Since at least the 1940's (except during Saddam's reign), Iraq has maintained hard reserves equal to or greater than their respective M2.

[Adam Montana]

However you look at it, Iraq doesn't have to have enough cash to cover the dinar in circulation. They have oil, and lots of it. They are also much more credit worthy than they were 7 years ago, and I think any reasonable person will agree with that.

Whether you've "heard of it" (or not) is irrelevant.

[jmw]

Oil revenue makes up 90% of their budget that they use to run the country...which is about 100 billion in revenue a year...that is going to have to be one very big line of credit with no way to ever pay it back...are we loaning them to money to do that?....even if it is electronic funds that get deposited, it still has to come from somewhere...I'm pretty sure your bank isn't just going to give you a bunch of "electronic" money to go spend.