SOME MATH ON A $23 RATE (HOW IT COULD WORK).. A THEORY...
Here's a quick way to figure out how the U.S. can exchange dinar for us at $23.00 and over the next 8 years still end up making a profit of over $10 trillion dollars in the process.
First of all there are three ways the U.S. can and will make money through the dinar: TAXES, OIL REVENUES, and RESERVE CURRENCY SALES.
STEP ONE - TAXES
Let's assume that the UST holds 7 trillion dinar and we Americans hold another 1 trillion. If the UST exchanges our 1 trillion dinar at $23 each, that would be a payout to us of $23 trillion. However, remember that we are (Rumored) going to hand right back to them $11.5 trillion in taxes (at a 50% tax rate) between now and April 2014. So in effect, the UST realizes they are not really paying out $23 per dinar because they know they will get half of their money back within a year!
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STEP TWO - OIL CREDITS/REVENUES
This is the more complex step in the process because we have to make several assumptions over time to get to a logical answer as to how much can be made over a period of time. I am going to use a time frame of eight years for steps TWO and THREE, which coincides with the length of time that the U.S. deficit disappeared after the Kuwait rate reinstatement back in 1991 (the U.S. had a budget surplus by 1998).
For the purpose of this explanation, let's assume the U.S. has 7 trillion dinar of its own in foreign exchange reserves, in addition to the 1 trillion it purchased from us in STEP ONE at $23 each. What price did the U.S. pay for their dinar? More than likely 1166 (or better!). Soooo.....if this is true, what is the weighted average rate paid?
[($7 trilllion x $0.00857) + ($1 trillion x $23 )] / 8 trillion dinar = $2.88 per dinar
(.....that's right! Even after paying us $23, they still only paid $2.88 per dinar!)
So now the UST has 8 trillion dinar that they paid an average rate of $2.88 each, and they can use all of this to purchase oil from Iraq at $32.50 per barrel. But first, they have to exchange the dinar back to USD to pay for the oil since oil is still priced in USD (petrodollars). So what exchange rate do we use?
If you said $3.44 you get a prize!
Remember....the $23 rate is only for us and likely will only last 30 days (per Tony). After that, the "true" international rate of exchange will be set, which from all indications should be $3.44. SO the UST will have to exchange dinar to USD in order to pay for a barrel of oil at $32.50. So how much does a barrel of oil really cost them when taking into consderation the exchange rate of $3.44?
$32.50 per barrel / 3.44 exchange rate = 9.4476744 dinar per barrel
9.447644 dinar per barrel x $2.88 average cost per dinar = $27.17 per barrel
(Yep.....the U.S. is actually paying even LESS that $32.50 per barrel when you factor in the average cost they paid per dinar and the international exchange rate!)
So how much money will the U.S. make per barrel of oil? Well, as of today, the price of a barrel is around $108. Therefore: $108 - 27.17 = $80.83 per barrel of profit. NICE ISN't IT!
But there's a catch here.....Iraq can only produce but so much oil in any given year. And they are not selling only to the USA. At peak, estimates are that Iraq qil produce about 2.6 billion barrels of oil per year, of which (for our example) the US get 40% of all production. Over seven years (remember I am sticking to a 7-year plan here), this would bring in profits to the U.S. of:
(2.6 billion barrels per year) x (7 years) x (40% exports to U.S) x ($80.83 profit per barrel) = $588.448 billion in oil profits
(NOTE: Over the seven year period, the US would purchase 7.28 billion barrels of oil from Iraq, and have to exchange 68.8 billion dinar to USD to make the purchases. This assuming all things being equal, of course.)
STEP THREE - RESERVE CURRENCY SALES
As I said before, I am assuming that the U.S. has 7 trillion of dinar and exchanges 1 trillion from Americans for a total of 8 trillion dinar. Thery will use 68.8 billion of this dinar to use for oil credits, leaving well over 7.9 trillion dinar for foreign currency reserves. But the U.S. will, over many years, use this currency to sell to other countries, use for import/export, trade agreements, or even to help Iraq's Fed manage it's monetary supply. For our purposes, let's assume the goals is that the U.S. wants to sell 1 trillion dinar per year over the next seven years, to reduce their dinar reserve balance to 900 billion dinar. How much revenue would this bring in?:
7,000,000,000,000 x 3.44 dollars per dinar = $24.08 trillion dollars over seven years
CONCLUSION - SO WHERE IS THE USA SEVEN YEARS FROM NOW?
well, to get to the answer let's add up everything we've calculated so far:
+ $11.500 trillion tax revenue
+ $588.45 billion in oil credit revenues
+ $24.080 trillion in foreign currency exchanges
- $23.000 trillion in currency exchanges for U.S. citizens
= $13.17 TRILLION IN PROFIT TO UST BY 2020
So, based on these simple assumptions, the USA could eliminate the current budget deficit, and all budget deficits, going forward, and pay down (but not off) the U.S. debt over the next seven years. I don't presume that we'll see the U.S. debt eliminated right away. Remember, the U.S. has never been out of debt! We always sell Treasury bonds and notes to the world, and I don't see that stopping even with an RV. However, in due time, if we manage ourselves accordingly, spend what we have, and invest in our future, I do think we COULD be debt free at some point in the future.
Well, I know this was a long post, but I hope this helps give an idea of how the numbers could work. You can make your own assumptions and change the numbers to see how it would change the results. For example, if the dinar exchange rate were to rise to $4.20 from $3.44, the profit jumps from $13.17 trillion to over 18 trillion!
Take care, God Bless, and c'mon RV!