JRG's Rebuttal of TLAR

As I stated before, the readers of my blog are the smartest people in the dinar world.  This rebuttal by jrg is the latest example of that.  Just one little clarification.  Some of the paragraphs were actually written by somebody called Ponee (or somebody that Ponee took it from).  The rest is TLAR's response.  Enjoy!

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Debunking the latest IQD RV gibberish

I guess I just can’t help myself.  When I see something so stupid being heralded as making sense, I just have to respond.  Here is a post circulating on various Dinar pumper sites apparently written by someone calling himself or herself TLAR.  (e.g.
http://dinarvets.com/forums/index.php?/topic/172523-an-interesting-perspective/ )

With the dinar believer comments about how interesting it is and how it is such a good analysis I felt a need to show just how idiotic it really is.  Rarely have I seen such a concentration of manure.  My comments are in red.
   -jrg 2/17/2014

(Ponee?)
I have been operating on the belief that the PTB are interested in an RV, or at least a drastic increase in value of the currency, and stand to make a lot of money when it does. I no longer believe that to be true.

It looks to me like the PTB are happy to let it go along at its present rate. Consider that Maliki, who favors a weak policy, has managed to stay in office as long as he has, and appears likely to stay in power longer. Consider that, in spite my assumption that the Iraqi money supply has been reduced, it has not.

The speculation and opinion about what people think or want is irrelevant.  The fact that Iraq’s money supply has steadily increased, yes that is clear.

(I just spent some time on the CBI website, where it states that the Current M1 is 71 trillion dinar, and the M2 is 86 trillion, I believe it said). Unless the CBI is lying, the money supply is increasing- not decreasing.

Again correct, he starts off so good, but it won’t last.

(TLAR's Response)
First let me explain that what is important to us is the currency that is circulating in Iraq only. Bank accounts, loans and even the new smart card are not important to our investment.

This will become increasingly obvious nonsense as this tale progresses, but suffice it to say that all dinars must be treated in the same way.  Whether cash or checking accounts or bonds, it’s all dinars.

Saleh the deputy governor of the CBI stated there was 30 trillion dinars altogether released from the CBI since 2003 through Jan 2012 of which four trillion were circulating in Iraq.

I don’t recall this and of course no link is provided.  I have no idea what proportion of M0 is actually involved in cash flow (a lot is digital so that wold be part of M1), nor does it matter.

At the end of 2013 Dec the CBI reports that there is 35 trillion dinars. This number is stated in dinars on their website because it is the national currency. It encompasses all dinars ever released including dinars held by investors’ worldwide and including dinar held in central banks around the world.

Yes M0 is 35T.  No there is no evidence that any central bank outside of Iraq holds dinars (the FBI has testified in court that the Fed nor UST has anything other than enough IQD for the tiny exchanges done by travelers).  If they did, and it was physical cash, this would also be part of M0.  If it was digital it would be part of M1.

In this number is also included those dinars, 4 trillion that Saleh told us were circulating in Iraq in early 2012. The growth of paper money, dinars, is 5 trillion from early 2012 to early Dec 2013.

Let’s look inside this number. USD is also circulating in Iraq and today most transactions are done in USD. Every dollar sold at auction is bought with 1166 dinars retired of which some are retired.

Retired?  It makes no difference.  IQD at the Iraq Central Bank (the CBI) does not count towards the money supply.  The CBI can print or destroy whatever it wants.  There is no evidence that I have seen that says most transactions are done in USD (some most likely are).  If so where does the 50T or so IQD exchanged at auction each year for the past 10 years (less so earlier of course) come from when M1 is “only” 71T (actually I think the spreadsheet says 75T but close enough).

 In a 5 month period last year the CBI told us they had retired 15 trillion dinar. But money does not just disappear. Some of it changed form from dinars to USD. So as we look at the CBI website numbers we must understand that all paper monies out are shown in dinars even though we know Iraq has been dollarizing.

No we don’t know this.  The CBI auctions off about a bit less than $50B USD a year and that  (plus what the GOI buys with dollars it does not exchange) matches Iraq’s imports

 There is no separate category displaying the number of US dollars so they state every dollar as 1166 in dinars. My dinars and your dinar are not considered circulating dinars and neither is any dinar held in any central bank outside of Iraq.

No.  The CBI’s numbers do not contain any dollar amounts in the Iraqi money supply, its all in Dinars as it IS in Dinars. Nowhere in any of the CBi’s financial statements does it say anything of along the gibberish TLAR is spreading.

 All of these dinars are dinars considered at rest. For our investment we are only interested in circulating dinar because this is the only thing Iraq has to cover to do an RV. Google will explain what reserves are required for and it is circulating dinar, not dinars at rest.

Of course “at rest” is not a financial term and the idea that only some portion of circulating physical currency has to be backed is nonsense.  Pretend that you are an Iraqi that gets paid 1M IQD per month, has saved 1M IQD under your mattress and has 1M IQD in the bank.  The CBI announces that they have raised the rate for the dinar you get paid in and use to buy stuff but not the dinar in your mattress or in the bank.  If you are managing to read this and breathe at the same time you must see TLAR's idea here as monumentally stupid.  Funds flow freely between M0 and M1 let alone just that portion of M0 that is in transactions.

Here is the CBI numbers for 2013: http://www.cbi.iq/documents/Annual_2012.pdf
 I find the spread sheets easier to read, the are in the statistics section at cbi.iq .

 

Here is a supporting article that was just published. As you read this realize it is written by a reporter who has no understanding of economic so he reference the 35 trillion out as if all of it was circulating.

No article was offered in the version of this I have seen, but of course 35T IS the right number for M0, though not M1 or M2.

(Also Ponee?)
I have also factored the value of oil into the (future) value of dinar. I now believe this is false reasoning. The oil is not a factor in the value of the dinar, because oil is traded in dollars, not dinar.

This is how Saudi Arabia has managed to do just fine with the Royal Family living it up with one currency, the dollar, while the currency of the peasants remains dismally low in value, not reflecting the value of their oil reserves. If you remove oil from the equation, there is little else.

Well the Saudis have a strong currency not due to its exchange rate (about 0.25 USD per Riyal), but the fact that they have 3x the reserves needed to back it.  The exchange rate alone is meaningless, just as the money supply alone is meaningless.

I'm not saying Iraq won't grow at a prodigious rate, or that it won't be a great investment, but I no longer believe it will give us the type of returns we have been dreaming of- not unless it really is part of a worldwide currency reset, in which case the US dollar will be the one worth toilet paper.
Of course the GCR is just as big of a myth as the dinar RV, but it doesn’t play a part in this authors fantasy so I’ll leave it.  You might make money investing in Iraqi stocks, though at very high risk.  You could have made money (maybe 50% or a bit more) if you bought IQD in March of 2004, but anyone buying in the last few years from dealers in the $1000 USD per million IQD range is going to lose money.  If Iraq decides to make exchanges from outside the country difficult when the redenominate you might lose it all.

(TLAR)
Oil is a factor in the equation of the value of the dinar. Oil this year is projected to be 93% of their budget. Over the next few years oil will grow from 3.5 million bpd being produced now, to 4.5 by the end of 2014 with the projection between 2017-2020 to be 8 mbpd at which time Iraq will level off to not flood the market.

But didn’t you just say “The oil is not a factor in the value of the dinar”?

 In addition oil will be used as a safety net in valuing the currency. It also can be considered in some part as part of the currency reserves. (ruling IMF when considering if resources can be used for currency backing) Oil is considered a liquid asset under the rules required by international standards because it easily converts to cash quickly. Some agreed upon % by the IMF can be used to back a currency reserve.

No link to an IMF document is offered (and the IMF site shows all its work, its very transparent) of course as this is a lie and the IMF has no power to specify what determines a currencies value anyway.  They are a service organization not some global currency regulator.

Iraq has introduced a new bill in parliament, not read or voted on yet, that provides Iraq ultimately to change from the Petro dollar to requiring all oil purchases to be done in dinars. This is a prelude to what they’re going to do with the currency.

Another lie, but it would not matter anyway.  Now the flow is

oil sales in USD are paid to GOI who exchanges (most) for IQD with the CBI to fund its budget. Banks buy USD at auctions from CBI to service importers who spend it out of Iraq.  If oil is purchased in IQD, it only changes the first part.  Then Oil purchasers exchange USD for IQD with banks down stream from the CBI (they are the only ones that have dinar), then pay the GOI with IQD, the GOI pays out its budget in Iraq, importers get USD from banks (the same USD that the oil purchases exchanged) and buy stuff out of country.  Note that the only difference is that the CBI (that is not a retail bank even for corporations) is out of the picture in this case so its reserves will never go up as it uses a small spread to make money on the dollars that flow through it.  So this will never be done.

Gold is also considered a liquid asset and can also be considered as part of currency reserves. The CBI announced Iraq's gold reserves are now equal to their cash reserves about two months ago.

Gold certainly can be part of currency reserves but Iraq has nowhere near $85B USD worth of Gold (that would be around 2,000 tonnes whle the total mined per year for the entire world is only about 2,500 tonnes).

Iraq is now producing 5 tons of gold a month having hit a major gold producing area just outside of Bagdad. I you watched to you tube interview I sent you above you will know this is right.

The story of gold discoveries in Iraq is yet another pumper myth.  No documentation of this has ever been offered that I have seen.  Five tons is not that much (about $46M at $1300 per metric tonne which is about 35,000 oz ).  So half a billion dollars a year is a nice haul, but it would not go into the CBI reserves even if it existed (which it does not) and is less than 1% of oil revenue so it makes no difference.

Iraq is staging itself to challenge Dubai for controlling the gold markets in the ME. They have so much gold that the CBI contracted with a metals stamping company to make gold coins and the CBI just recently announced that they will be selling gold coins for DINARS only.

The CBI said nothing about using gold mined in Iraq (which would not be owned by the CBI anyway) to make coins, they are just looking (or maybe even planning) to buy gold and mint some coins.  Even if this is true, it changes little.  It might help remove dollars, but maybe not.  In any case the IQD that come in will be exactly matched by the reduction in reserves so the ratio of reserves to the money supply is unchanged and it is that ratio that constrains the exchange rate for a pegged currency like the IQD.

 This will serve two purposes. One it will continue to suck up what dinars are left "circulating" and this move will create a NEW necessary tool to support the dinar and inflation for the CBI whose ultimate goal is to stop the auction this year.

Stop the auctions?  Then no importers can get dollars to buy stuff in foreign markets so the auctions will never stop.   Any sort of exchange dollars for dinars or even gold for dinars keeps the reserves to the money supply ratio the same, and that is the limit for the exchange rate.  So this has no impact on the exchange rate.

Remember a bank only must cover the currency that is considered circulating which means it does not have to cover dinar outside of Iraq held by investors and held by central banks, nor does it have to cover numbers of dinar that is held electronically in banks in Iraq, just the cash circulating.

Again our poor author is overcome with a wave of stupidity.  There is no possibility of distinguishing one pile of physical or electronic dinar from another.  As far as the exchange rate is concerned its all the same.  The CBI has to cover it all NOT due to fears that all of it will be exchanged, but to prevent that from happening.  If they were to announce a new rate, but that it only applied to physical currency (the idea that it only applies to some part of physical currency is just to ridiculous to consider) then there will of course be a massive run on banks to convert everything to cash and the CBI would be insolvent in minutes.

 If you Google currency reserve requirements as I have done then you will see what reserves are required to back a currency.  If you check the CBI website you will see the total dinars out by Dec 2013 and that number is 35 trillion.

The 35T figure is for M0.  Iraq backs M2, which is 85T IQD.  If that part of M2 that is not on-demand deposits (CDs for example) is exotic enough with large enough early withdrawal penalties a central bank can get away with only backing M1 and part of M2 (as Kuwait does) but for Iraq it isn’t that complex and even M1 is 75T. 

The question is how much of that is circulating and how much of that is considered at rest. Again as a beginning reference Saleh told us in early 2012 that Iraq had 4 trillion dinars circulating in Iraq out of a total at that time 30 trillion that were "out" of the CBI. About July of 2012 the CBI became a net seller of physical dollars retiring physical circulating dinars.

Just crack pipe delusions.  A dinar is a dinar is a dinar whether used in a transaction or in the cookie jar or in your checking account.

As I referenced above, last year the CBI admitted to having retired 15 trillion dinars. But again some were retired by being replaced by USD which on the CBI's website is listed as part of the 35 trillion dinars out but in dinar equivalency.

Again M0, M1, and M2 are all in dinars as they are dinars.

They have continued with the auctions through today selling exclusively dollars for dinars (check CBI website, section auctions). Dollar sales have gone from a high of 350 million USD sold at auction in one day and averaging in the 100's of millions every day at the end of 2012, running through most of 2013.

Today the auctions are averaging from a low of 16 million to as hig as 66 million per day. The trend though continues down indicating there are less and less dinars in Iraq. Iraq has been dollarizing beginning at the end of 2012 retiring dinars. Iraq today is operating mostly on dollars. What does all this mean?

I don’t know what “this” means as its mostly gibberish.  Today (Feb 14^th, 2014) the auction was for 126M USD. There is no evidence that they are getting smaller and as Iraq’s economy grows they are very likely to get bigger.

The CBI has 90 billion in cash in currency reserves, not the 80 billion you mention above. They published that they had 89 billion in currency reserves a few months ago and by now they have to have increased some. So the 90 billion may be an understatment.

The numbers say $85B actually, and they don’t grow that fast.  The number does fluctuate as the money flowing USD -> IQD from the GOI exchanging oil revenues does not always match month to month the IQD -> USD going out via the auctions.

The CBI stated two months ago that their gold holdings were equal to their cash reserves. Months ago the CBI announced that frozen funds were being released to Iraq of approx. 82 billion and that money when released would be part of the reserves.

Then such a statement should be easy to find at cib.iq, but of course its not there, as this is just another lie.  I don’t know who this TLAR person is, but they are not well acquainted with the truth.  The final DFI statement was released in 2011 and it shows only 7.5B USD remaining in the account.  All the rest as been paid out. http://www.iraq-businessnews.com/wp-content/uploads/2011/07/IAMB-Final_Report_revised_2011__English_re-DFI.pdf

I think what the CBI recently did in Jan 2014 with these released funds as money deposited with the BIS for reasons to lengthy to explain here. What was published in the news in Dec 2013 was that the BIS (The Bank of International Settlements) would accept dinars on deposit with their bank starting in January of this year.

The BIS does transactions with central banks all the time, but not very big ones.  About 4% of central bank reserves are managed by the BIS according to their intro doc on bis.org .

Then an article from the CBI stating that the monies received from frozen funds would be converted to dinars as they are deposited with BIS. I took this to mean any currency be it Euro's, dollars, yen etc. that were released, would be converted by BIS to dinars at the request of the CBI.

How could the BIS convert anything to dinars for the CBI, only the CBI has dinars unless they deposit them with the BIS.

The BIS is the bank serving Central banks around the world which converts currencies for those central banks in world trade. (Google BIS for better understanding) The fact that BIS has account in dinars tells me it is in preparation to use dinars in world trade.

If only TLAR would follow their own advice and use Google.  While the BIS can provide exchange for central banks this is not for world trade, which is done through the various global currency trading exchanges (e.g. the FOREX) at major banks.

The only way this will happen is if the currency is international. The question must be asked, why would BIS open an account in dinars, a non tradable/non convertible IMF Article XIV exotic currency?

Transactions with the BIS are nothing new and if the IQD were internationally traded any banks could engage in such and exchange.  The whole point of exchange via the BIS for central banks is to help conduct business when other channels do not exist.  International currency trade only exists where there is international trade in that currency and that will not exist for Iraq for a very long time, even if they were to require oil payments in IQD, which of course they will not.  The whole notion of “internationally tradable” is just another pumper myth.  The IQD is not traded on international exchanges as no one wants IQD as there is nothing to by in IQD.

 The short answer is they must know something about the dinar that has not yet been publically announced. The dinar will be convertible soon.

Oh and here I was hoping for a hardtop.  Oh well.

Let's now go back and see what this means. The CBI has approximately 90 billion in cash reserves. They have about 90 billion in gold. They have approximately 82 billion that has been or very shortly will be completed in released funds because they no longer are on Chapter VII sanctions.

Only if you are smoking crack since those numbers are nonsense.  The CBI has $85B in reserves, that about it.  Maybe another $1.5B in gold. 

 Adding these up, the CBI has at its disposal as potential 250 billion dollars to cover what. Saleh told us 4 trillion dinars in early 2012. That number has to have been reduced by now due to continued dollarization of Iraq. But let's assume it is 4 trillion dinars still out.

Except of course its $85B in reserves needed to cover 85T in IQD so they could boost the rate by about 15%, but that’s it.

That is the equivalent of about 2,5 billion USD round about. Consider this, today the CBI has 250 billion USD value today to back its circulating currency or there about. The currency they are backing is about 2.5 billion in USD value.

Well actually 4T IQD is about 3.5 billion USD but the numbers are nonsense to start with so why quibble about TLAR’s arithmetic impairment.

No matter how you cut even using the 4 trillion number circulating number told to us by Saleh in 2012 when we know they have and are continuing to dollarize, the CBI has approximately 100 USD to back each USD equivalent dollar circulating in Iraq.

Just step back from the crack pipe.  Repeating made up numbers over and over does not make them real.

That's a unheard of number for any central bank. Why? I will answer this question as I think it is. The CBI is building a massive reserve (number 12 if I remember correctly, in the world of currency reserves held by any country) as it prepairs to delete the zeros. From .00086 to .86.

Actually 27^th in the world, which is not bad.  http://data.worldbank.org/indicator/FI.RES.TOTL.CD?cid=DEC_SS_WBGDataEmail_EXT

Are they there yet? I believe the CBI answered that question when they met with the EC and FC in Dec 2013, holding confidential meetings with each of these groups, to announce their plan to delete the zeros and introduce the new currency in January.

Deleting the zeros and a new currency of course refer to a redenomination.

This information was leaked to the press by a loose lipped member of the FC within a day of these what were suppose to be confidential meetings. What issued when the press announced they had been told of the CBI plan was a run on the banks with Iraqi's asking to close their accounts and wanting to be paid in dinars.

From Basra to Bagdad to Kurdistan, there was a run on the banks. Immediately the CBI had to stop this run, or run the risk of a banking disaster. The day after the release in the press, the CBI began a campaign of denial which lasted the rest of Dec and well into January.

A total of three weeks of an article a day making denials and acusations. They announced they were not going to delete the zeros in January followed immediately be the FC and the EC and the COM all chiming in, all denying that article. As late as the middle of January, Kurdistan still had people trying to close their accounts converting to cash dinars. Iraqi's aren't stupid.

Right because when the mythical RV hits only physical dinars will be worth more and your checking account will not increase in value.  I’m sure the Iraqi’s will be fine with that, and its not like there are lots of guns and explosives around for them to vent their anger of getting screwed while westerner’s get rich… oh wait, make that instant civil war.

For years now the CBI has been educating them on the deletion of the zeros and how it will affect them. The CBI even hired Dr. Bakri to hold seminars and tour universities to explain this project to the people.

Iraqi's know that the project will adjust everything in Iraq including loans, contracts etc. and yes it will also adjust their electronic bank accounts meaning, if they have 25,000 dinars in the bank today, they will have 25 dinars tomorrow but the value will not have changed. A physical dinar will not change.

No actually nothing is adjusted, except which currency is used to express amounts.  A contract in IQD remains the same.  A new contract in IQI (what the new currency code might be) will be 1000x less than what it would have been in IQD since IQI will have a 1000x higher exchange rate.  The GOI has no authority to rewrite contracts, which of course is why both currencies will exist side by side for a time.

A dinar is a dinar being their national currency. What will change for those holding the currency in Iraq and you and I is the exchange rate. Dr. Bakri said it best and I will paraphrase his teaching, “a coke that cost a thousand dinars today will cost 1 dinar after this change”. He followed that with this statement.

The “exchange” is to introduce a NEW currency.  So indeed 1000 IQD is equal to 1 IQI.  This has been done 50 or more times in various countries in the last few decades as anyone with Google access can easily verify.  It’s the standard way to shrink the money supply after a long period of hyperinflation.  The value of the old currency remains unchanged and a new currency with fewer zeros on each note is issued and that new currency, and only that new currency, gets a new exchange rate.

Those thousand dinars you paid for that coke yesterday, if used the day after the change will buy 1000 cokes. Contracts, budgets, loans, the prices on all items they buy, and all electronic numbers in bank accounts on all sides of the accounting sheets, will all be adjusted all at once to reflect the new reality and exchange rate.

More bald faced lies.  Can you imagine the chaos if the 1M IQD you used to buy say a used car (worth about $860 USD) yesterday is now worth 1000 times as much, but the car you have now will only fetch 1,000 IQD?  Again this would be instant war with those buying before the RV wanting their money back.  Its insane.

Everything in Iraq will be adjusted all at once with one exception, the physical currency itself. The CBI announced that the new dinar and the old dinar will both be circulating in Iraq for two years after the change.

No nothing changes except the currency in which amounts are expressed.  “Old dinar” and “new dinar” is correct, two different currencies.  Just like in all the other redenominations that the articles about the “delete the zeros” have all mentioned.

The CBI told us numerous times what will change is the nominal value which is defined as the exchange rate. The FC told us that they will delete the LEADING zeros. LEADING zeros are not found on the currency, they are only found on the exchange rate.

“Deleting the zeros” has been explained thousands of times as a redenomination, so new currency with denominations 1000 times less and an exchange rate (for the new currency only) 1000 times more.   One machine-translated article has “leading” in it, and TLAR and his pumpermates all go nuts claiming that must be correct mean that Iraq will make them instant millionaires.

The FC in three articles told us they wrote the 2014, and estimated the 2015 and 2016 budgets based on 1.16 dinars equal one US Dollar. Doing the math that's 86 cents per each dinar or deleting the zeros.

Yes .86 for the NEW dinar, not the current IQD.  

If this is truth then they can't open the 2014 budget without changing the value of a dinar to 86 cents.

Sure they can as its only the NEW dianr that is .86 USD and IQD and IQI will be easily exchanged (the whole point of course is to let the new ones replace the old ones over a year or two).

For instance, a budgeted program or project that is earmarked to get 1 million dinars at 1.16, value is earmarked to receive 860,000 USD equivalence in dinars.

And with 75T IQD in M1 that would make Iraq’s money supply worth $65T USD while the entire rest of the world combined has an M1 of only about $50T.

If the currency is still at 1166 per dollar, that project will still get the same1 million dinars, but the USD equivalency would be 860 dollars instead of the budgeted 860,000 USD. They can't open the budget written at 1.16, if the currency is at 1166. The currency must match the budget.

A 150T IQD budget or a 150B IQI budget makes no difference.  Each currency has its own exchange rate and the two rates are in a ration of 1000:1 .

 This why I've been saying for 2 months watch the budget. I think it is the key to our investment. If the budget is written at 1.16 as told to us by the guys who wrote the budget, I believe we will see a .86 dinar, or the budget cannot be opened when it is passed. I hope this helps.

It might be helpful in proceedings to have TLAR committed to a mental health facility, but in aiding anyone’s understanding of Iraq’s currency, not so much.

The RV of the IQD is a myth created to make money for dealers and those selling the idea of the RV.  If you own Iraqi Dianrs, the faster you unload them the less money you will lose.

DropDownDeals

http://toasterfish.blogspot.com/2014/02/i-guess-i-just-cant-help-myself.html?view=sidebar

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So put that in your pipe and smoke it, TLAR!

 

-Sam I Am