9-10-2012 Enorrste: First, the staging rate is not a precursor to the RV. It IS the RV, after which the rate will rise on either a managed float or a free float until it reaches equilibrium. The CBI is on record that it will come out at "around a dollar." But it is also on record that it wants the value of the dinar to be at least what it was prior to Saddam' s regime, or $3.50.
A lot of the "gurus" make claims that China and the US have been exerting influence on the process leading to the RV. Unfortunately in every single case they have been shown to be incorrect when the RV fails to come about in spite of some supposed action by the US or China, such as a visit by Biden, signing some new oil contracts, etc.
I have consistently held the view that Iraq is a sovereign country and that they alone are in control of the timing and the rate of the RV. I have never found any credible evidence to the contrary.
Having said that, however, I will say that Shabibi is in regular contact with the IMF, having worked for them 20 years ago, and he keeps them informed of his plans. I do not believe, though, that the IMF dictates to Shabibi in any way in terms of timing or the rate.
At one time we heard that up to 130 countries would revalue their currencies at the same time. For a short period I bought into this, until I thought it through. The simple fact is that many world currencies are already in a free floating mode.
Russell was good enough to explain this to me, and others, one night on a call, and I got clarity on the issue from him. This means that they are already at their correct values. We see this daily as the pound, dollar, Euro, yen, and Canadian and Australian dollars fluctuate on the FOREX.
Many other currencies do the same. Therefore we would have to ask this question: If they are already at equilibrium among themselves, how would a "world reset of currencies" improve things? The answer is that it would not improve things. Having said that, however, there are other currencies, such as the dinar, that are not free floating.
Therefore it would not surprise me to see several currencies revalue at the same time. It is my opinion, in spite of what Russell may opine, that the Iraqi dinar will be held as a world reserve currency after the RV. I am confident in this view because it was expressed directly by Saleh himself.
Therefore I believe that I have a better foundation in holding that opinion than does Russell. I can certainly understand Russell's hesitation on the matter, given his knowledge of world currencies.
However the CBI, through Saleh, has clearly expressed that it is their intention to make the dinar one of the strongest currencies in the world. They clearly have the resources, both in terms of reserves and in terms of underlying wealth, to achieve that goal, IMO (LOL).
You make a conclusion that because China, US, England, and France hold a lot of dinars as governments, "then they learly have a say in the timing and the rate." I do not believe that this conclusion is justifiable. China holds over $1 trillion of our money but can't force us to raise or lower our rate on any timetable that they set.
Similarly, even though we are one of China's largest traders, involving hundreds of billions of dollars per year, we have not been successful in getting them to raise their rates, in spite of several attempts to do so.
Therefore I do not believe that it follows that just because a group holds a lot of dinars that they are in a position to tell Iraq what to do or when to do it.
The role of the FED and the UST is not that complicated. The FED has the authority, granted by Congress, to issue money, to change the rate, and to change interest rates to affect the growth of the economy. The UST is simply the holding place for the government's money.
Our dollars go in there, and the government pays its bills from there. Since we borrow $.40 of our budget to pay our bills, the government borrows the money from the FED to do so, thereby increasing the money supply (since the FED just prints the money) and weakening our dollar.
The UST is not a currency speculator. It is a repository only of tax receipts, and issuer of checks to pay bills. The FED, on the other hand, is involved in "currency speculation" on a daily basis. It is in fact the single greatest currency speculator in the world. Unfortunately it has so much power that it can actually control the value of the dollar through its actions.
In that sense it is even BEYOND speculation. However, it is now hamstrung because it has created a situation in which there is too much money in the world (dollars) and it is no longer able to exert its influence as it has in the past.
This brings us to the role of the RV of the dinar in world affairs. If, as stated by the CBI, they raise the value of the dinar to about $1 then there will be about $7 trillion worth of dinars outside Iraq, give or take a few trillion (!) that must be accounted for. KAP and I have stated, based on CBI articles, that the intention of Iraq is to make its currency a world reserve currency "for a long time" as Saleh has stated. How will this happen?
When we cash in, either through a facilitator or directly at our bank, we are credited with funds in dollars in deposits. Because of this action the effective money supply of the US will increase by that amount of deposits.
Furthermore, it is possible that the money supply could increase up to 8 times more as the banks use the deposits to lend even more money, thereby creating more money through the "fractional reserve" system. Our dinars go to the central banks around the country and eventually to the FED's control (although probably to the UST).
In addition, the taxes we pay on the gain will go directly to the UST. In either case, the funds ultimately go under the control of the FED, which is the last resort for foreign currency in America. Once it arrives there it becomes part of our foreign reserves, as Saleh has stated it would.
This will strengthen our foreign reserve position dramatically. At the same time the taxes that go to the UST will directly strengthen the holdings of the government. In theory the taxes could be used to reduce the debt.
However, as I said in the call last night (and I am changing my position in this email/post), that is not going to happen because by reducing the debt the UST is also reducing the money supply.
After thinking this through last night I've come to a conclusion that the TAX revenues might be used to reduce the debt without having a significant affect on the money supply. The tax revenues are only about 15% of the total of the cashing in process, presumably. The remainder goes directly to the FED as foreign reserves, thereby directly strengthening the backing of the dollar.
Therefore, IF the government took a portion of the tax revenue at the UST to retire some of the bond debt I doubt that it would have a significant enough affect on the total money supply to cause harm.
I can say this with confidence because the OPPOSITE AFFECT, namely of increasing the money supply, will be happening simultaneously at the banks who will lend out money based on their new higher reserve portfolios from the cashing in process.
The money supply INCREASE that will occur at the banks could be up to 8 times the total cashing in value, whereas the total of the tax revenues will be only about 15% (or 1/8th) of the cashing in value. In other words, if ALL of the tax revenues were used to reduce the debt, the reduction of the money supply would be only 1/64th of the INCREASE in money supply from bank lending.
Therefore, we may safely state that paying down the debt by the UST will NOT have a negative affect on the overall money supply (in spite of my comments last night, which are now shown to be incorrect, IMNO [i.e. "in my NEW opinion"!) (LOL)
Furthermore, I can now conclude that the FED could also issue an order to the UST to reduce more of the debt of our country because of the large holdings of dinars that will come into the FED from cashing in.
The FED would, of course, do this on a very controlled basis, monitoring the overall affect on the money supply (as it REDUCES the money supply at the same time the banks around the country are INCREASING the money supply).
Since the influence of the FED's reduction would be 1/8 of the potential increase from the banks it seems clear to me now that a significant reduction in America's debt could be made.
However, here is where Russell is absolutely correct. Much of the US debt is not something that can be simply "paid off" since it is a debt that is owed to the future in terms of pensions. He is more adept at explaining this than I am, but I have no doubt that he is correct on this matter.
We are now better able to understand the process after the RV due to this analysis. It is clear from what I have stated that there will be a significant increase in the value of the dinar due to the higher foreign reserves from the cashing in process.
This will cause gold and silver prices to fall, possibly significantly, in the short to medium term. In addition, to the extent that the FED and UST use the new funds to retire debt of the US (such as buying back bonds from China) this will also improve the value of the dollar.
The negative aspect of reducing the money supply by retiring the debt will be more than offset by the increase in money supply from NEW LENDING at the local banking institutions.
In the medium to long term, then, the increase in lending will have a significant positive affect on our economy. Similar positive affects will be seen in England, France, and China as well as other countries who have dinar holdings.
This will lead to a world-wide strengthening of the economy. Because we are in a "lean and mean" position at this point worldwide it will not have a deleterious affect on pricing in the short to medium terms. Wherever there is excess inventory, it will dry up (such as housing, motor homes, cars, etc.).
At the same time the flooding of new lending, as well as our own purchases, will lead to greater employment as more and more people are re-hired. Factories that have been mothballed will be re-opened. The entire world will benefit.
The question we have to ask is this: How long will this boom last? This is a tough question to answer, because the world has never had a stimulus as large as this, or even anywhere near this large.
The fact that it will occur at the same time that WE will be increasing our purchasing (something that is direct and not under government influence) AND that the government might be reducing debt and actually begin "living within its means" will lead to greater confidence among small business owners. Add to that the fact that banks will have tremendous amounts of money to lend out (through fractional banking) and we can see that the boom will grow, and grow, and grow, possibly for many years.
However, as with all good things, this will again come to an end. Over the last 50 years we have had 4 boom-to-bust cycles and they have averaged from 9 to 11 years each, roughly. The stimulative affect of this new boom will be enormous, if I am correct, which means that the boom will rise faster than before and, ultimately, the fall will be even greater.
My recommendation to all dinar holders is to have you closely watch the price of gold during this next phase. Gold is the ultimate reserve currency. You may ask yourself this simple question: How many ounces of gold will it cost me to buy this item? In this manner you will get a clear understanding of what is happening in terms of inflation, regardless what the numbers from the FED are saying!
For instance, let's look at buying a house. In 1950 a house cost, say, $10,000. Gold was $35 per ounce. Therefore the house cost you roughly 286 ounces of gold. Now, suppose you want to buy a house today. The price of the house is, say, $150,000. The price of gold is $1500 per ounce.
Therefore today you can buy the same house with only 100 ounces of gold, right? So, which is better, gaining 15 times in the value of your house, or paying almost 1/3 the money in gold for the same house 50 years later? Clearly you can see that while the value of the house went UP 15 times, but in terms of gold, THE REAL RESERVE, you will pay only 1/3 what you did 50 years ago.
In summary, by watching what GOLD WILL BUY as we move forward you will get a true gage of the VALUE of your money, whether it is in dollars, savings, housing, or something else. To conclude, then, I would caution you all that our "blessing" will not last forever.
Do not be surprised to find that the value of your home increases 10 times in the next upward cycle. However, while you get excited about that rise in the value of your home, measure the cost in terms of GOLD and you will get the REAL change in value, as opposed to the change due to inflation, which is whittling away the value of the dollar in the future.
In short, while it is important to have nice "stuff" after the RV, I strongly recommend that you NOT keep your new wealth in dollars for long. The short term will see the dollar rise in value, but the longer term (5 to 7 years) will see that value erode dramatically.