ENORRSTE’S COMMENTS ON KAP’S THEORY PART 1
Because the KAP THEORY is becoming a long thread (5 pages now) I’ve decided to open a new thread called ENORRSTE COMMENTS ON KAP’s THEORY. I trust that you will be as evocative in responding to my views as you have to KAP”s.
I am certainly pleased to see that KAP has gotten the attention of many of our members. He and I have been bantering around various possibilities for a few weeks now. In fact, it was I who first broached this theory. I did so with this comment on my “Answers to Doug” post from a few days ago:
“This brings me to a new thought. Suppose that later this month the facilitator is named and that a "live" market for the dinar is created. Further suppose that the opening rate is .00086 which is the current rate, but that Shabibi does not interfere in this market at all.
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In THEORY, Shabibi could control the rate because he controls the supply. But if he does NOT interfere, then the supply is fixed, right? This means that is likely that there will be increasing pressure upward by those holding dinars outside Iraq. Those dinars, however, could only come from HOLDERS OUTSIDE IRAQ since Shabibi's goal within the country is to REDUCE THE MONEY SUPPLY.”
KAP has clearly moved the ball forward a good deal with this basic theory in that he explains how it will insulate the CBI and Iraq itself from potential negative affects of a higher RV.
Thank you, Rad Lady, for recognizing the familiar topic when you said, “I read similar posts and theories from The Professor.”
KAP and I have been on the same wavelength for some time now, thankfully. Therefore I’d like to add some new thoughts that might help to embolden and/or adjust his/our view.
First, I’d like to say to Joeg that you certainly have persistence, even if you are a bit repetitive. I think one way to change your thinking about Iraq’s potential for investment is to consider the “old West” in America at the end of the 1800s.
At that time there was little law, and the law that did exist was sometimes quite corrupt. Crime was rampant and yet people came in droves to the West to “make their fortune.” I believe that 140 years later that basic drive still exists among people who are willing to take a “measured risk.”
As Dr. Nan has shown above there are a number of MAJOR firms who are willing to take that risk. Add that to the fact that Iraq holds a commodity that all major countries MUST HAVE in order to survive. Therefore, like it or not, they will jump in, if for no other reason than to get there before their competitors do!
However, I personally believe that the RV or lack thereof is not dependent upon future investment, even though it will benefit from it. The simple fact is that the RV will benefit Iraq, regardless of the investment potential. This is clear from the fact that imports become less expensive as the value of a currency rises. That is just simple
economics. Therefore, as interesting as his rants are, Joeg is, in my opinion, off base, or at least skewed in his thinking. Investment in Iraq will be a “boon” to the country FROM making the IQD tradable internationally. This is true REGARDLESS of the rate.
I would now like to address how I believe it is definitely to the benefit of the CBI to open the currency at the current rate to the world. I still hold the HOPE that they will avoid the tortuous journey from .0086 to $1 for the IQD. I also believe that we may be premature in throwing out the many articles from the CBI itself that indicate clearly that it is their goal to have the dinar at parity with the dollar.
So I am going to “suspend” all of my following comments under the banner of “theory only.” In this sense I am with KAP as well.
Before I move on I must clarify for you all that KAP did NOT state that he felt the opening rate would be 10 cents. In fact he said he thought it might RISE to 10 cents quite rapidly. Therefore, our theories are joined at an opening at the CURRENT rate (again, as a starting point for a theory).
Before I go farther into the expansion of my original theory by KAP I’d like to restate what I believe is a key element of this theory (in addition to KAP’s key element, which I will discuss shortly).
In my opening salvo I speculated that upon opening the currency to the world (either directly through FOREX or, more likely, through an ECN as we have discussed previously), the CBI still remains in control of all currency within Iraq and within the CBI itself.
As I stated, UNLESS Shabibi agrees to issue more currency to the outside world, then, the supply of dinars outside Iraq is strictly limited to investors who already hold the dinar, and to dinar dealers. This is a very important point. KAP mentioned it twice, tangentially, but it is key to understand the IMPACT of a limited supply.
Remember, the CBI is on record that it wants the dinar to eventually reach a level that existed prior to the Saddam Hussein regime. We know that level was $3.33. We also know that the plan was recommended by the then Minister of Finance, Al-Zubaidi, and was accepted by Shabibi on behalf of the CBI.
Furthermore we know that this plan was initiated in early 2007 and that the time frame was to be 5 years for completion. We also know that in 2009 and again in 2010 it was stated that the plan was “progressing” according to the original plan. Then in 2011 the CBI began to talk about 3 phases leading to implementation of the RV.
During that year we heard that they were “ready” but wanted greater participation from the GOI and Parliament. Then this year the rhetoric increased until Shabibi finally announced, through Saleh, that the plan would go forward without the approval of the GOI. At that point the Parliament was already in his back pocket.
Now, I’d like you all to notice that in this review there has NEVER been a statement that the plan was being changed. In fact more and more details have been released, including that the “staging rate” would be “about $1” and that there would be an entire new currency issued as a part of the “removal of the three zeros” project.
We have most recently been told that the process would “begin” in some new sense in September, this month, and that the removal of the three zeros would begin in 2013 and run through 2014. We’ve heard that the new currency will be issued either early in 2013 or in July of 2013.
In any case, as I have stated before, this need not concern us because our main goal is cashing out at the RV, not getting our currency changed for a new one.
I know that I have taken some time here in review, but it is important that any theory that we advance must take into account the history that has led us up to this point.
This brings me to KAP’s advancement of the theory. I will start with KAP’s view that an opening rate of $1 will increase the liability of the CBI and Iraq. He makes a statement that “one wrong move, possible violence, and the dinar could plummet leaving these central banks holding the bag on a near worthless currency.”
I’d like to explore this for a moment with you all. In order to do so I have to refer, again, to the CBI and its own stated plans. The CBI has stated that it will reduce the money supply of Iraq from the current 32 trillion dinars to about 25 billion dinars after the “remove the three zeros” project is completed, or by the end of 2014.
Clearly, as I’ve shown in an earlier post, this cannot include the dinars being held in foreign central banks. At the same time, Saleh has stated that those dinars outside Iraq will become “foreign reserves for a long time.” This is an important statement.
If KAP’s view is correct, then Saleh’s statement could be held hostage to internal Iraqi violence. Therefore we must ask ourselves this question: Is it possible that Saleh’s statement could be correct IN SPITE of the potential problems in Iraq?
I submit to you that the answer to this question is “YES”. I say this because I believe that the REAL VALUE of the dinar is what will be driving this, even to the EXCLUSION of internal political issues. How can I say that? The answer is really simple: the world will not allow Iraq to fail. Why? The answer is again simple: oil.
I realize that my statement is placing me “on a limb,” especially with the current turmoil in the Middle East. But it is my firm belief that the WORLD will not allow this to devolve into chaos that would destroy the value of Iraq’s currency. I may be wrong on this, but I don’t think so.
The history of the Middle East shows that we are committed and have been for 50 years. Furthermore, France, Germany, England, Japan, and China are equally committed (as is Russian and India, incidentally). I cannot see a situation in which total chaos would overtake Iraq. Also, it would take total chaos to destroy the value of the currency.
However, having said that, I also don’t believe that the value of the dinar is determined by the political situation in any case. It is determined by the underlying wealth of the country, which is enormous.
Therefore, I respectfully disagree with KAP on this part of his expansion of our theory. Coming out at $1 with an RV is no more or less risky for foreign central banks than an opening to the international market at .0086 is.
CONTINUED PART 2 LINK