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Update on the Iraqi Dinar Revaluation

Jan 01, 2011

I have no direct contacts that would give my views any special value. But from my research into what others have gleaned. . .

First, the Central Bank of Iraq is closed for the holidays from Dec. 23 to January 3. Revaluation of the dinar is unlikely while the bank is closed.

With the CBI closed, it has not sold any dinar since then, nor has it supplied the banks with any currency. This has created some shortage, while at the same time there has been an increased demand for dinar. Hence, the dinar price has gone up in some markets about 20%.

Second, the Obama administration was pushing for a tax hike on "the rich" in order to raise the tax level on all the new millionaires that this revaluation will create. This problably is another reason why the dinar would not be revalued prior to the first of the year while the "Bush tax cuts for the rich" were still in place. The Government wants to extract as much money as possible, since it has given away all of its money to the Bankers. (This intel was said to come from a US Senator about a month ago.)

Making money on this revaluation ought not to be taxable income, but in my opinion the IRS does not follow its own rules if they smell money in someone else's pocket. So be prepared to pay their pound of flesh, or set up a Trust or charitable organization to avoid taxes lawfully.

Third, as far as the Iraq government itself is concerned, they have been working on passing the new Budget Bill. The Central Bank is not the Government itself, but independent (as is the Fed), so from the standpoint of Iraq's constitution, there is no reason the CBI would have to wait for the Budget to pass before revaluing the currency.

However, it probably does matter more to the IMF, because the Budget affects the stability and responsibility of Government spending in the coming year. If reports are true, the CBI has already given the IMF a written formal request to revalue at a given rate, but the IMF has not yet responded. If this is true, their response could be awaiting the passage of the Budget Bill.

Since the Iraqi Parliament is recessed until January 10, and the third (and final) reading of the Budget Bill has not yet taken place, the Budget may not be passed until Parliament reconvenes--unless they return for an "emergency session." News reports indicated that the Kurds of Northern Iraq were dissatisfied with some of the Budget provisions and were demanding some changes. I do not know if those disagreements have been resolved or not.

Fourth, since a revaluation of the Iraqi dinar would directly affect the finances and economies of neighboring countries, they have all been allowed to have some input into the situation--particularly, Kuwait, since it was the nation that Iraq invaded back in 1990, which brought about the UN trade sanctions in the first place.

There are indications that Iraq's currency will be revalued somewhere around the level of the Kuwaiti dinar ($3.79). The most common figure being thrown around is $3.60, though no one knows for sure.

Recall that Kuwait's dinar plunged when Iraq invaded back in August 1990. It traded at 5 to 8 cents per dinar until the Iraqi army was driven out and their sovereignty was re-established. Then the dinar rose to $3.79, and anyone who had bought Kuwaiti dinar at a nickel apiece made a lot of money.

Iraq's situation is quite different from Kuwait, of course, since Iraq has had to deal with UN economic sanctions since Aug. 6, 1990. It was the sanctions that plunged the value of their dinars from $3.22 to as low as 1/4000 of a cent. It always remained a local currency, of course, but one could not spend it in any other country, since no bank would take it in exchange for another type of currency.

In 2004 their currency was redesigned (without Saddam's picture on it), and the new currency replaced the old on a one-to-one exchange. With the end of the war, the currency value rose and stabilized at 1/10 of a cent in the past few years, and now the sanctions are finally being lifted (as of last week).

Projections

With Western economies near default, the revaluation of the dinar is expected to infuse a fresh supply of cash into the starving system, allowing a new prosperity to occur--at least temporarily. Cashing in dinars means that people will be using a lot of dinars to buy a lot of US dollars, so this will strengthen the dollar, and, to some extent, the euro as well. It will help the dollar more, though, because Americans have bought more dinars than any other country.

The price of gold is expected to drop, relative to the US dollar. Silver, too, may drop temporarily. However, I suspect that because so many ordinary Americans are holding dinars, many of them will use their excess money to buy silver and gold, seeing these as good long-term investments. This will probably affect the silver price more than the price of gold, since there is far less physical silver available to buy.

At some point later, I expect to see the rug pulled out from the Iraqi government, possibly with the assassination of Prime Minister Maliki, who represents Belshazzar, "king" of Babylon. I believe this will inflame the whole country in civil unrest, and Iraq will divide into three pieces along its natural political fault lines (as per Revelation 16).

In such a scenario, it is likely that none of the three pieces will claim the old currency, causing the dinar to collapse entirely. The Fed will be left holding a very large bag of confederate dinars, and will then go into bankruptcy.

For this reason, I do not recommend that anyone hold Iraqi dinars for any length of time following the revaluation. And as for holding US dollars, I suggest that most be used to obtain things that are of long-term value. This is called "preparing for rough times ahead." Pray about it and do as you are led.

Meanwhile, the last time I talked to brother Vinnie, he is still able to obtain dinars, so he is still selling them. The price has gone up a bit, as I said, but if you are interested in purchasing dinars, call him at:

850-255-1000


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Dr. Stephen Jones


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