The Halloween Candy Dilemma!

My siblings and I would sit on the carpet and dump our pillow cases full of Halloween candy in piles in front of us. What happened next made the Lord of The Flies kids seem gentle... Kids trading candy is a serious event. After all, this was pretty much all there was till Easter... and that was mostly just jelly beans so we had to weigh our trade options heavily. I wanted Malted Milk Balls. My brothers wanted Three Musketeers, and we all tried to buy points with mom by saving her a few Snickers. Somehow dad got left out, but as a dad I can tell you he probably sneaked whatever he wanted! As focused as we were, it really boiled down to this: when my siblings were out of the candy I wanted... the trading was over for me. Why? Well its the same reason you don't go to a KIA dealer to buy a Ferrari. They won't have what you want, and no amount of trading is going to make you feel any better.

Iraq's budget discussions provide us a great deal of information. Basically, it is one of the easiest times to see what candy they have and learn what candy they want. But there are arguments about whether or not the figures lead to the RV rate. Look back and remember your Halloween stash and consider this: No matter what Iraq says that they want, they really only have one kind of candy to offer. Oil. They estimate how much they can produce, and they estimate the cost per barrel. When all of the oil is pumped out that year, it has already been sold. When you have traded away your good candy all that is left to trade with is popcorn balls from the old couple down the street. They can't just say, oh this year we will produce 30% more oil and the cost will be 30% higher per barrel! The good news for them is that everyone sitting around them likes their candy... a lot! They can get a lot of different kinds of candy this year if they get theirs cheap (they do) and trade it high (they do). But once all the barrels of oil available this year are accounted for, Iraq is out of candy.

So Iraq... what can you get for your oil. Can you get a welfare program for the elderly? Can you get free university education for every student? Can you get electricity in rural areas and internet and cars and televisions? Can you get someone to start ranching cattle or processing chickens? Can you get cell phones? Can you get someone to protect your pile of candy while you go to the bathroom? I ask this because the answers are YES. Iraq wants everything that represents growth and opportunity and wealth. The question is, so which of these things do you choose. We can read what you want and we are all willing to trade, but what are you going to do when you are out of candy?

This is critical to understand. They can't do ANYTHING when the goods are gone. Why? Well unlike the good old U.S.A. (and almost every other country on earth), they can't print more candy! When we need a little extra to keep things running smoothly we print USD. WE can budget anything. A trip to the moon if we want. Literally anything. Poor little Iraq though needs to make sure they get what is important first, and then get as much as they can extra, because when they are out of candy they can't go to the CBI and say, "Print us some more". To not take this into account is a huge oversight. The reality of a fixed rate economy really does determine everything... and possibly even the RV rate. I have read two different views regarding the estimated (budgeted) oil supplies and revenue compared to the budget they are arguing about right now.

Camp (A) says take estimates for oil value in Dinar and you will see the budget is asking for 20 trillion Dinar MORE then they estimate they can possibly get for the candy they plan on collecting this year! That means the current budget is about $17.1 Billion USD short. Oops. Iraq needs more candy! Since Iraq can't get more candy, Camp A believes Iraq has to Revalue their currency to adjust for the amount short. OK. lets see. Iraq needs 17.1 billion USD... that means EACH Dinar ever printed MUST increase in value by $.0005698 each. The good part of this scenario is that it accurately accounts for REVENUE VS Expenses, which after all is what a budget does.

Camp (A) also says that the budget shortfall of 17.1 Billion USD will be met using their reserves (Nearly 60 billion USD now). But the CBI keeps saying, "Get your own dang candy... leave mine alone! I don't think the CBI is going to cover the shortfall with reserves! (Furthermore, if they DO decide to use the Dinar in reserves, it just decreases the available dinar for next years budget... remember, they can't print more!) Somehow, in this scenario the 17.1 billion USD needed to meet the budget has to magically appear. (Don't say loans... remember they have to be repaid and we have already accounted for all 30 trillion dinar.)

Camp (B) says there is a 115 Trillion Dinar budget and currently they have only printed 30 Trillion Dinar. They are going to have to come up with 90 trillion Dinar! Then they say, "Divide the 115 T needed by the 30 trillion printed and you get 3.83... OK, everything looks good so far, but the problem comes when they say, "that means each dinar must be worth $3.83 USD for them to meet their budget! Yippeee!" Well actually it only means that each dinar ever printed must become worth 3.83 TIMES its current value. You can take the current rate 1170, and divide it by three and you get 390 Dinar/USD. Or you can take the dollar value of $.0008547 and multiply it by three to get $.0025641 USD/Dinar It works out to the same result... you get the value of Iraq's candy. It is $2,564 USD per million Dinar. Regardless, not all of the 30 trillion printed is available to use!

And that is actually a problem with both scenarios. Iraq has already traded most of its candy! They can't reach in some poor guys pile and take out a Snickers from the teacher, and a few M&M's from the cabby and some Licorice from the butcher. Are you going to give Iraq your 25,000 IQD note to help them cover their budget shortfalls? I didn't think so. Some people are assuming that Iraq will be able to pay its bills with the currency printed... but they fail to account for the candy that has already been traded! Yes, they collected it (printed it) but they don't own it anymore! They traded it for wheat, rice, combines, and telephone poles. somebody else owns that candy now so Camp (B)'s math is way off.

When we look at the projected budget we can see that Iraq is committing to an unheard of increase in GDP. No country ever just randomly tells the world that even though we don't have the currency to cover it, and our GDP will not currently cover it, we are still going to present a budget nearly 4 times larger than our estimated GDP! It isn't a very well hid secret then that Iraqi politicians believe as we do. The artificial rate is too low, Iraq needs to buy more stuff and right now, we can easily see that Iraq is missing some candy. Since they can't just print more, their options are limited. We are hoping the RV option is the one they choose.

So which camp is right? What is the rate based on the budget?

Well, actually they are both wrong. Well as you can see, each "accounting method" lacks something. The most important fact is that Iraq is going to have to start (soon) setting a budget based upon expected GDP revenues and staying within the budget. The value of the dinar is going to have to be set to represent the estimated value of GDP, and the open market will adjust it higher if they produce more, and will drop it if they fail to meet production goals. Developing agriculture here is like hiring a kid to trick or treat with you so you can get more candy. But it is true with almost any non-oil related business development projects they push forward. Every time you read a story about Iraq finding additional sources of income, that is worth celebrating!

We can be pretty confident that right now Iraq is not planning on using the IQD to meet budget! That means RV. (By the way it also means no LOP. You aren't going to get away with cutting your candy bars in three and telling your sister that each piece is now worth 1 whole candy bar! We aren't talking about accounting here, we are talking about their inability to meet the budget without something increasing the value of their candy pile. To say LOP focuses on the importance of easier accounting, (which they need) but totally ignores the fact that post LOP they STILL WON'T HAVE ENOUGH CANDY!)

They are planning on telling the world that "now that mom left the room, all bets are off. My Snickers bars represent three of your Baby Ruth Bars." But they can still only make deals with the candy they have in their pile (reserves) or make deals based upon the candy they hope to get next year. (Or they can just adjust the budget down!) But trying to guess the rate based on the estimated USD value required to cover the budget shortfall is inaccurate.

Unfortunately though neither scenario allows us to accurately determine the rate. We know they are short. We know what they have. We know what they want, and right now we even know what they think they will have next year. The answer is going to be that Iraq RV's to increase the value of their candy pile. They are going to meet the budget. They are going to remove old and hard to account for notes, and they are going to protect the price of oil by holding US Dollars in reserve. When oil goes down, Iraq sells more. When oil goes up, Iraq makes more but sells less. They can't undersell the world and they can't overcharge anyone. They will correct the accounting nightmare and will add new bills, but neither of these actions determine the rate.

And finally don't forget... once the initial rate is determined, the worldwide market will correct it instantly! FOREX will show demand and the rate will increase or they will notice little demand and the price will drop. That means it will be highly unlikely that the rate stated is the rate we get. Personally I think it is going higher, but do not go by what I am saying, I am just throwing a wild guess out there! Smarter people have touched on this subject, see what they recommend and do what is best for you!

Be blessed

Space Cowboy

Thanks, now I have a sweet tooth...

Great story! Why didn't you finish it? You seemed to tell us all the ways that you can't come up with a rate but you didn't tell us how they are going to come up with a rate nor what you think the rate will be.

This was sorta like going to a movie and the movie is very entertaining and the story is going very well and then the movie ends abruptly. I always ask myself, "did they just run out of money and quit filming"? It appears you ran out of energy and just quit...or is it just me?

Don't get me wrong. I have read several posts by SpaceCowboy. When I see his name, I drop everything else and read what he has to say. I like his writing a LOT. This one just left me wanting.

SpaceCowboy wrote: You aren't going to get away with cutting your candy bars in three and telling your sister that each piece is now worth 1 whole candy bar! We aren't talking about accounting here, we are talking about their inability to meet the budget without something increasing the value of their candy pile. To say LOP focuses on the importance of easier accounting, (which they need) but totally ignores the fact that post LOP they STILL WON'T HAVE ENOUGH CANDY!)

The proper analogy would be taking your sisters 1.9 oz 100,000 grand candy bar and giving her in return a 1.9 oz 100 grand candy bar... And yes it is all about accounting...

CJ

hey! i like popcorn balls GREAT writing!

Wow its crazy how things can be simplified using parables..
I heard of another wise teacher once that used this technique
And he became a great leader people.. Great post

Hey Space Cowboy -- I am an Annie oakley / Sigourney Weaver Mix - want to go off into the sunset? Just kidding --

I love reading your posts -- please continue to educate and entertain at the same time and I will continue to read / listen / learn / appreciate and smile the whole time !!!!!!!!!

For Who You Are - and ALL of the SINCERE INTENT with ALL that you do !

PS -- I make my own candy -- and it is the best anywhere - I guarantee it !! -- Just ask Miskebam in a few days !!

Hooooo Raaaaahhh! SpaceCowboy! Thank you!
I love Halloween candy and steal it from my kids! I don't have enough money to make any candy on my own. And I can't afford to buy it anymore! (IRAQ) All I have is what my kids took from the neighbors who wanted to be nice and give it away (USA).
We might even keep what they didn't eat and give it away next year to make us look good!

Good post. The good news however is that unlike most ME countries they are not a one pony show. They are not limited to just Oil, (second highest proven reserves after the Saudi's) but include also natural gas, sulfur, potash, gold, coal, and gypsum. In addition they have some relatively fertile land, and with proper farming techniques could greatly increase their agricultural output.

There may be other resources as well. Some have stated so, but I have been unable to prove it. Keep in mind, that Iraq is still a small country relatively speaking, about twice the size of Idaho. Yet in that small area are enormous resources. Their potential is huge, will they achieve that potential? The jury is still out on that one, but there is hope.