There was a popular song in Indonesia which told of the Prophet Muhammad going to the market with eight dirhams, or silver coins.
Along the way, he gives away six dirhams to the needy and uses the last two to buy new clothes.
Fifteen hundred years ago, the price for some new cloths was two dirhams — or about $15...
Today you can still buy clothes for that price.
At some point in the near or far future, the value of paper money will fall to zero.
I've received packages from my buddies in Iraq during the height of the war. They mailed me knickknacks wrapped in Iraqi dinars instead of newspaper.
They told me the dinars were laying all over the place, stacked on pallets and blowing in the wind down the alleys.
The old Iraqi dinar has been demonetized and a new dinar issued. It is currently trading at 1,170 per dollar.
And despite what the mainstream media would tell you, the dinar has gone up over the past five years. This is mostly due to the fact that the U.S. dollar has fallen. You would have beaten the S&P500 over the same time period.
This is because Iraq is booming. GDP grew at more than 12 percent last year.
They still have 115 billion barrels of proven oil reserves, which puts them third behind Saudi Arabia and Canada. Oil production is at 2.9 million barrels a day with the dream of producing 12 million bbd by 2017...
Iraq has a modest fiscal deficit of just 8% of GDP.
This is why I've been buying small oil companies that will benefit from the Iraqi growth story.
And while we are on the subject of Mohamed and his silver coins, it looks like Iraq will be putting out its first coins since 2004.
Alsumaria, Iraqi satellite television, reported on September 3: “Iraq Central Bank said that it won’t only delete the zeros, but it will also change Iraq monetary structure in order to provide bigger currencies.”
According to the new legislation working its way through the government, coins will reappear again in the Iraqi currency.
There will also be new banknotes, which will be printed in Kurdish as well as two other languages — and they will carry pictures of Iraqi civilization, not Saddam.
Three zeros will fall off the end, which will make for easier math without changing the purchasing power.
These are the second set of new coins. In 2004, the Coalition Provisional Authority that followed the overthrow of Saddam authorized new coins and bank notes. Twenty-five, fifty, and hundred-dinar coins were introduced, however they proved to be unpopular and were quickly pulled.
Don't look for the reissue of the dinar this quarter. It will take three years for the currency to reform to be a reality...
They still haven't figured out which bribe will win the printing license.
Part of the Iraq dinar buying frenzy of the last few years has to do with the idea that dinars will switch over and be worth a lot. This happened in Germany in 1948 when rationing ended, price controls were abolished, and the money supply contracted when the then-new deutschemark was put in place. It lead to the post-war German economic miracle.
Out of Iraq
It's a big stretch to say Iraq is the same as 1948 Germany...
But there is massive opportunity.
Today President Obama said the nearly complete withdrawal of American military forces from Iraq will happen by the end of the year.
This is good news.
Editor, Wealth Daily