Iraqi Dinar Discussion Board

[Panhead]

the following was posted ‘elsewhere’ by a friend of mine. He has a good bit of time on his hands and is studying (perhaps to the level of obsession) the potential rate for RI/RV. Knowing your background, I submit this to you for appraisal and evaluation. Your insight would be greatly appreciated when you have the time…

(…the names have been changed to protect the innocent.)

DarkKnight

FRED’s Law of Energy/Currency Economics

Post FRED Today at 1:55 pm
FRED’s Law and Energy/Currency Economics

The last 3 months, I have been running numerous possible and viable mathematics calculations, on IMF REER and Exchange Rate Methodologies, use by International Banking and the IMF for valuations of currencies.

I want you to understand, that all methodologies are based on economics ‘Theory’. That is a fact, and is stated in the IMF document entitled “Real Estimated Exchange Rates” at the IMF.
Anyway, using numerous sources, including the IMF, CBI, CIA and GOI Ministry of Finance and Planning documents, and reports given by these agencies, I have ran many possible calculations on economics models, and have come up with some interesting data.

The estimates I have are consistent with and ERM at about $.20 to .36 as an initial rate, and can easily be driven to about 1.50 or higher, over the course of about a year or more, just as has been suggested in some recent articles, an opinions of some of the Ministers and MPs in Iraq.

I would say, further, that it is entirely possible, IF the IMF does not ‘Freeze’ the rate, it could go much much higher than 3.22, but would be temporary and very unstable at rates higher than that, unless they withdraw and reduce the currency supply back to significantly less than 6 Trillion IQD in circulation, which I believe is part of the ‘Plan of Action’, in the ‘Post DFI and agreement with the UN per Article VII and with the IMF per Article VIII agreements.

WILMA and I were up late last night and calculated a potential, and viable strategy, that I believe Iraq plans to use, in the ‘Process’ over the entirety of 2010 and part of 2011 to increase the value to the ‘Planned Rate’. {I do not know that rate, but could be post Saddam or Post War rates, ranging from 2.50 to 3.50, but could also be a plan to settle into ranges of the MOP feasability study and contract models, ranging from 1.13 to about the average of the British Pound, which was the traditional value, since about 1917.}

The methodology we discovered last night shows a potential starting value of this ‘Process’, at as much as .36 and would progress it’s way up, on a “1/2 to 2 1/2% banded Peg”, which if allowed to go unchecked or regulated or frozen…. could be driven as high as rates even over $10.

At this point, I want to ‘Bust’ a couple of 100% ‘Myths’, concerning the free market and low rates initially.

Many have said, often, “If Iraq comes in too low, the speculators would bankrupt the country, because they would drive the prices and value through the roof and Iraq could not recover from that.”

It is probably true that the Market and Foreign exchange, forex and other markets, would indeed, drive the value exponentially, if they come in low. However, it is 100% false, that Iraq would suffer from that. The fact is, that Iraq would profit greatly from that, just as would any other trader profits on the spreads, the more it moves, the more times that spread is made, by CBI and the GOI, just as would it be also true of the Forex marketers and brokers, (Exchange Bankers). The fact is this….. those values are not paid for by Iraq, but by the people using the currency, and they as well benefit from the values being driven up, with purchasing power given. The companies and other markets, benefit as well, because real value of labor and commodity is increased as the purchasing power is increased.

I would like to share with you some lessons in Economics, that is a bit more advanced, than Econ 101, Supply and Demand. It is a concept used by the power drivers of the world banking cartels and even the infamous Kabals, dating back to Mayor Amschel Rothchild, in Energy Economics, as shown in “Silent Weapons for Quiet Wars”

http://www.lawfulpath.com/ref/sw4qw/index.shtml

Now, if you dare to follow the theory of Energy Currency Economics and to understand the concept that Currency is Energy and Power, just as is Voltage and Amperage, I will tell you a mystery…..

FRED’s Rule: Money is Energy. Currency = Power.

FRED’s Law: “Energy produced into a state of oversupply, reduces the cost of power, because the cost of the power it takes to produce energy, is also reduced.”

What I am saying here is more simple than you may think. It basically proves, that an increase of money supply and purchasing strength,is not inflationary. It simply increases the production of more power at a lesser cost of the labor it requires to produce it.

In other words, it reduces the cost of the labor it takes to produce more money, by increasing the amount of things of value produced by that labor, meaning, the worker enjoys greater purchasing strength, per hour of labor, requiring more money= energy to be in circulation.

Here is what I am driving at concerning Iraq.

*In 1984, there was about 25 Billion IQD in circulation at the rate of $3.22 per Dinar…. about $80 Billion in purchasing strength.
Oil was about $15 per barrel.

**In 2010, there is about 23 Trillion IQD in circulation at .000865 per Dinar…. about $20 Billion in purchasing strength.
Oil is over $85 per barrel.

Here is where it gets really good…. (stay with me on this and you will understand why it is good that Iraq starts at a lower rate and progresses higher, than starting high and freezing the rate.)

OK…. we need to consider the following:
1. Assuming that the population of Iraq is the same as in 1984, which I imagine it is significantly higher, (which would increase demand for additional liquidity, that was $80 Billion);
2. Assuming oil production then was about the same as today, (which the estimated projections are significantly higher, and would also increase the projected purchasing strength of the M0, M1 and M2s);
3. Assuming the world demand and per capita income and volume of GDP is the same as 1984, (which is projected to be way over those rates, maybe as much as by 10 times and would also increase the demand for additional liquidity in the market);
4. Assuming World Demand for Iraqi commerce and money is the same as 1984, (which is absurd, it would increase exponentially and there will be additional demand for additional liquidity and increase the value if more is not added to circulation):

Now we can get to the good part.

Assuming 1-4 above without factoring in additional demand for more liquidity, all things in 1984 being equal to today, the current value of IQD in circulation is a minimum of 4 times undervalued. Todays rate = 1170/.000865. Multiply that by 4 = 292/.00346 (3.5/10ths of a cent.) Stay with me now…. lol

Oil is 85% of the Iraq economy, so it is safe to estimate, that the price of oil is a good determining factor of inflation by world economics compared to Iraq. Oil is currently projected at about 6 times that of prices in 1984. Multiply 292/.00346 x 6 = 49/.02 (2 cents)…. whippy! lol

Now, you can start considering those missing factors in items 1 – 4 above, and take a reasonable estimate of increasing the per capita income by a minimum of double, and redouble, that by the GDP, Reserves etc. and create a demand to liquidity ration, without yet factoring the outside world demand and arrive at $.04 and .08 per IQD.

Then factor in additional external market demands outside of Iraq by a minimum of double, and you now have a basis for $.16 per IQD.

Any reasonable economist, would predict, that those demands and market forces would easily create more than double that this year, and does not yet include the aspect of removing IQD from circulation. That would set a 2010 basis for and ERM at about $.32 or .33.

Now…. I would imagine, that the market forces are going to be significantly higher than these estimates, and they can remove currency from circulation, by up to 90% which would over the course of time, increase the buying power both of the overall supply but the individual IQD by 10 times. $3.20 to $3.30, but would take a series of increases over the coming months, in and ERM with a Banded Peg Mechanism, as was told by BARNEY’s friend, who also has the IMF contact who gave that intel last week!