Originally Posted by prettyctk
adster, mike, cigarman....what are your thoughts on this post..i found on another forum?
A discussion about decreasing wages in Iraq. The “purchasing power” argument.
What HUGE drop in wages are you talking about????
Here’s a little background on Iraqi income.
Back around 1980, Iraq was considered one of the most advanced societies in the Arab world, even with that they had an average income of only about $3000 dollars a year. Iraq then went to war with Iran and that’s when their economy went in the crapper, and along with the help of the first gulf war the average income was down to about $800 dollars a year prior to the invasion 2002/2003. Latest estimates I’ve seen it’s currently about $1000 dollars a year. So that’s up a little from pre-war and yes… that’s a significant decrease from 1980 (26 years ago), but it’s no where near the .31 to .00068 decrease that you are portraying it to be.
When did Iraqis ever have this “purchasing power” that everyone speaks of????
You seem to trying to say that just because the exchange rate was higher, they made more money.
I’ve done the research… Iraqis have never made much money. The fact is that in 1980 the average Iraqi made the equivalence of 3000 US dollars a year. That is a fact. I don’t know what the exchange rate was in 1980 and I really don’t care. If it was 3:1, three dinars for every dollar, then the average Iraqi made 1000 dinar a year. If the exchange rate was .33 dinar for 1 dollar then the average Iraqi made about 9000 dinar a year. Just like now the Average Iraqi makes the equivalence of 1000 US dollars a year. That’s 1,475,000 dinars a year. Is there anyone here that really believes that they will revalue to 1:1 and suddenly the average Iraqi will start making 1.5 million dollars a year… or even .33:1, that would be .5 million dollars a year...
Anyone???
The “Iraq should be equal to Kuwait” argument.
Dinars in circulation.
Iraq.....9,000,000,000,000
Kuwait..........500,000,000
So Iraq has 18 thousand times more Dinar in circulation.
How about M2, that takes care of the “Kuwait is electronic” argument.
Iraq........15,000,000,000,000
Kuwait..........10,000,000,000
That’s 1 thousand five hundred times more M2.
So if you take Kuwait’s 3.10 exchange rate and divide it by 1500... That’s .00206
The “they have to walk around with wheelbarrows full of money” argument.
25K Dinar = $17
10K Dinar = $6.8
5K Dinar = $3.4
1K Dinar = $0.68
500 Dinar = $0.34
Seems to me that they have bills out that are pretty much equal to the bills that we carry around every day. I’m not sure why we keep hearing that their money is worthless.
They’ll revalue at 1:1, but they would never print new currency.
I always hear the argument that they wont issue new currency because of the cost. If they revalue to 1:1 they have to print all new currency anyway.
“Iraq has all that Oil and Natural Gas.”
For anyone that thinks that the Iraqi Dinar is going to revalue anywhere near 1:1, please tell me of another country that has 9 trillion units of currency in circulation and has a value near 1:1. It should be very easy to find. Google the name of any country along with currency and M1 and you should get the figure. Please don’t tell me that Iraq is different because of all the oil. None of the other big oil producers come close to a 1:1 value with the same amount of currency. Iraq has about a 50 billion dollar GDP, even if they get up to full throttle, double, triple, even quadruple their GDP to 200 billion, that would still leave them 60X short of the US GDP of 12 trillion. If we based it just on GDP, and give them the quadrupled figure of 200 billion, that would mean a value of .016. But that doesn’t take into account the fact that they have 9 or 10 times more currency in circulation than the US. That reduces it to .0016. How can you possibly ignore those numbers. It’s a known fact that they don’t have the reserves to revalue, it should also be pretty obvious that even with all that oil, they still don’t have any way to revalue anywhere near 1:1.
“Their companies will be bought up for penuts” argument.
This has been talked about in conjunction with a revalue of the currency. The way I see it, if a company in Iraq making widgets is worth 10 billion dinar or 10 million dollars prior to a 1:1 revalue, that company is still only worth 10 million dollars after a revalue. The change would be that instead of being worth 10 billion dinar, they’re now worth 10 million dinar.
Widgets prices/profits didn’t go up 1000 times.
This goes back to the Pepsi salesman thought. His salary cannot increase 1000 times, because they can’t increase the price of a Pepsi 1000 times.
Banks will somehow be worth more after a revalue.
Banks are just like any other company, they make money by providing a service/product. Banks take our money (deposits) and loan it out to others who pay interest on the loan. The money/reserves sitting in banks is not the banks money.
The logic that needs to be extracted is that there will be no large revalue of the dinar and that it’s not necessary to revalue to somehow save Iraqi companies from being bought out. A countries exchange rate has practically nothing to do with the value of a company.
More comparisons, this time… “Why Isn’t Iraq equal or better than Jordan”?
I’ve posted numbers and facts to explain this in the past, I’ll use the company/stocks example since we’ve been hashing that out.
Think of Iraq as a company, think of Jordan or any other country you’d like as a company also. Just like a company has a value, a country has a value (reserves/GDP). Companies go public and sell shares. Countries have units of currency.
Company A and Company B let’s say are both worth 1 million dollars.
Company A sells 10,000 shares at a price of $100 a share.
Company B sells 100,000 shares at a price of $10 a share.
A=$100 B=$10… heck A has to be worth more…. Wronge… they are the same because you have to take into account the number of shares.
It’s the same thing with a comparison between Iraq and any other country. You have to take more into account than just the end number of .00068 or .1.4.
Iraq is much more like company B in the example. They have 9 TRILLION units/shares floating around out there. I just did a quick search and as of July 2004 Jordan had about 3 Billion units/shares out there. So Iraq has 3000x more currency/shares.
Jordan exchange rate 1.4 divided by 3000 = .00046. Guess what… that’s less than Iraq at .00068.
The “It just has to be higher” argument.
Where does this belief that the numbers have to be the same come from??
It’s just a number… what difference does it make whether it’s a small number or a big number… it’s all relative. I’ll ask you, like others to explain Japan. They have an exchange rate of 100 yen to the dollar… how do they ever afford anything???
A better example… ITALY!!! Before they went to the Euro they used the Lira…
The exchange rate for the Lira was $1 = 1535 Lira or 1 Lira = $.00065…. that’s almost exactly what the Iraqi dinar is today. How did the country survive?? How did they have purchasing power?? How did they buy foreign goods?? Also… imagine this… they managed to convert over to the Euro (think GCC here) without having a massive revalue. Their companies didn’t get bought up by foreign investors. How did Italy do all of this????? Answer… it’s just a number… it doesn’t mean JACK
