Iraq is broke so they say

"BAGHDAD — Some Iraqi officials refer to it as “the gap,” and it is becoming as pressing a concern as the fight against the Islamic State.

Each month, Iraq’s government pays out nearly $4 billion in salaries and pensions to the military and a bloated array of public sector workers. But with more than 90 percent of government revenue coming from oil, it is bringing in only about half that as crude prices plunge.

The United States is stepping in to try to make sure the country can continue military spending while it seeks international loans and embarks on an austerity plan. Still, some Iraqi officials and analysts say the government might struggle later this year to pay the 7 million people on the public payroll, which could trigger mass unrest." (The Washington Post↱)


So why don't they just print more money as America has done giving them the extra billions that they need?


(Mod Note: Post has been edited to add reference hyperlink against plagiarism. ―Tiassa)

 

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Mod Hat ― Citation note

We really, really do need members to guard against the appearance of plagiarism. Hyperlinks when available, sure, but some manner of source data (author? publication?) is absolutely necessary.

Thank you.

 

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First of all I did put quotation marks around the whole paragraph. Then I posted who wrote the story, The Washington Post, if that's not enough to show that I did not write this paragraph then there's a problem with you not accepting this type of post. I did not realize that who the exact author was because they never put, in the quote, who did write it so just how can I put who wrote this other than the source that I did use ? You seem to be rather finicky about this post why is that?

 

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Yes you did and there is a little bent arrow at the end of "Washington Post" in your post. I clicked on the WP reference and here is the link you quoted:
https://www.washingtonpost.com/worl...f42594-d4af-11e5-a65b-587e721fb231_story.html
That article is By Loveday Morris, March 5 at 10:00 AM.

I'm not a fan of cosmictraveler, but he/she did nothing wrong, IMHO. While here, I offer my answer to his final question: So why don't they just print more money as America has done giving them the extra billions that they need?

People and institutions would not just hold that newly created currence as they do most of the newly created dollars - they would try to buy something with it and rapid run-a-way inflation would result as in Zimbabwe. Same could happen to US, under a president Trump or if the great Yellowstone volcano lets go. (1/3 of US killed or useless ash covered land.)

Zimbabwe does not have its own currencry. In practice uses dollar, the Euro, and to small but increasing extent, the Yuan. The last and largest note Zimbabwe printed was for a 100 trillion Zimbabwe dollars. They are now collector's items worth a few dollars, if in good conditions.

 

Mod Hat ― Response

No, actually you did not. I did. Would you like me to open the unedited copy retained for the record? A screenshot of the report record?

• • •​

Yes, and I put that there. Attend the Mod Note at the end of the topic post.

• • •​

General Note: This is the problem with trying to be helpful. Very well. All future failures to cite won't even be asked to catch up; infractions will be issued. The upshot is that it's actually easier that way.

We now return this thread to its originally-scheduled topic.

 

I'm not either. On another science forum, CT has been suspended for doing this very thing multiple times. He was warned several times before suspension was given. At least this time he used quotes (but no source given). Most times he doesn't even use quotes so the reader is fooled into thinking that CT wrote the text -- which he didn't.

 

That's fair. Plagiarism is rife on the internet but you'd think that members of a SCIENCE forum would be smarter than that and do the right thing.

 

So then why didn't the US dollar start a run up and people start buying everything? Perhaps the money printed only went into the banking industry and not to the citizens that needed it most.

 

Well, a couple of things, first, Iraq doesn't pay its salaries and pensions in US Dollars. It pays those pensions in Iraqi Dinars. So it could very well print new money to pay salaries. But that isn't without consequences. Iraq, like Mother Russia, has a one horse economy. It's an oil dependent economy. It can't produce all the goods it needs. It must import those goods, and to do that it needs foreign currency. If Iraq prints more money, it creates more domestic demand for foreign goods and services - especially foreign goods. It debases its currency. Because Iraq is a small economy and dependent upon one commodity, it's very susceptible to inflation.

So the issue is more complicated than represented. Iraq needs to develop its economy. It needs sources of revenue other than oil. It's oil producing neighbors long ago saw the writing on the wall and have diversified their economies. Iraqi has been embroiled in political unrest and hasn't. Iraq has but one source of foreign currency.

Comparing the US to Iraq is like comparing an ant to an elephant. They are two very different animals. The US doesn't need foreign currencies to purchase goods and services, because when the US purchases goods and services, it uses US Dollars. It doesn't need foreign currency. So that's you answer in a nutshell. The demand for US Dollars is huge, the demand for Iraqi Dinars just doesn't exist outside Iraq.

 

That's nonsense for all the reasons previously and repeatedly given to you over the years. We have had this discussion many times over the years and you still do not understand the drivers of inflation.

 

Better informed, I retract my defense of CT.

Probably I did not notice the small mod correction note. It is slightly possible that I read the original {without your "bent arrow" added} as I usually copy my typed text and send it to Word before posting, to help with spelling, and my mild dyslexia problem (b for p etc. and adding initial letter of next word to end of prior word as well as start of next word*) and then recopy the corrected version into sciforum's reply box. This takes time, especially if process is interrupted for other things, like eating a meal. If that happend, the 2 hour 1 minute difference could be explained.

* I'm not sure this is a form of dyslexia, but believe it do to mind already working on next word before finishing typing of the prior word

 

I assume you are referencing the increase in US money supply. It went to the holders of debt, including banks, but not limited to banks. It allowed banks to pay their bills and prevent the economy from imploding and effect a modest recovery. It went to the investor class.

The problem we have is the investor class is sitting on the money. It's what they have always done in times like these. That's why interest rates are so low. We have an over abundance of saving. What we don't have is an abundance of spending. Spending creates demand. Demand incents investors to invest. That creates jobs. That puts money into the hands of people who will spend more money, causing more demand. It's called a virtuous circle.

What the Great Depression should have taught us, is the only reliable remedy for what ails us is government spending. There is no better time for government spending than now. Interest rates are low, 30 years interest rates are 3%. Prices are low. Now is the prefect time for government to invest in technology and our aging infrastructure. There is no better time. But ideology and demagoguery and in particular, so called conservative ideology, have made that an impossibility.

 

Not only did I like post 12, it was what I planned to write after I returned from my daily 50/50 slow run / fast walk 20 minutes. (I had to go immediately as rain clouds were closing in.) After that I am sweating and tired, so I recover in front of TV, CNN usually. GPS this time, with Nobel in Economics Paul Krugman saying exactly the same. He also noted that many in the construction industry are out of work, could be earning and paying taxes, spending more with a job, making others earn more and pay more taxes. This in addition to the extrodinary low (really negative or mostly so) interest rates would help with the debt to GDP ratio.

 

So why can't Iraq do the same by only releasing any new printed money into the banks and investors? Since we can do it to save our economy I really don't see why they can't do the same . As you know many Americans are still in Iraq and could monitor the new printed money. I still believe that we will eventually start a inflationary period because of the new money. Thank you for your response.

 

As I wrote before, it could. But that doesn't solve anything for Iraq. In fact, it makes things worse. There are big differences between Iraq and the US. The problems which vex the Iraqi economy are much different from those affecting the US economy. As I wrote before, no one other than Iraqi citizens and those living in Iraq want Iraqi Dinars. Iraqi government debt is denominated in foreign currencies. So Iraq cannot print its way out of trouble.

Iraq needs foreign currencies to pay is bills. The US doesn't. The US is facing a liquidity trap. Iraq isn't. Iraq has a fundamental leadership problem. If you want remedies to have a chance of succeeding, the remedies employed must be appropriate for the malady. The Iraqi government needs to weed out corruption. It needs to master the art of basic blocking and tackling (e.g. protecting its citizens). It needs to be a better government. When it has done those things, it can think about creating a fiscal stimulus plan to diversify its economy, building an infrastructure, educating the young, and building industry. Until it has fixed its government and rooted out corruption, nothing will fix what ails Iraq.

It takes more than just printing money to create inflation as evidenced by the last 8 years. Fire needs oxygen, fuel, and heat in order to ignite. Inflation just needs a limited supply of goods and services - too much money chasing too few goods and services. The US currently has plenty of goods and services. It doesn't have much demand for those goods and services. That's why all that new money isn't causing inflation.

Two, the US central bank is perfectly capable of reversing everything it has done. Just as it expanded the money supply, it can contract the money supply. The US central bank expanded the money supply by buying debt. It can just as easily sell that debt and remove the money it previously injected into the economy. There is no reason to expect the US central bank's current leadership is incompetent or that it will abandon its charter (e.g. refuse to maintain pricing stability).

 

So you don't think that the sale of that amount of debt would have rather a dramatic and disruptive effect on the economy? And do you imagine that the expansion of the money supply (across all categories of money) is entirely down to purchases of debt?

 

Why would it? A couple of things, the only reason the US central bank would sell the debt it holds on its balance sheet is to take money out of the economy. And why would the US central bank want to do that? It would do that to reduce aggregate demand for goods and services (i.e. control inflation). Additionally, it is highly unlikely the US central bank would sell all or even significant portions of the debt it holds at one time. The US Fed (i.e. central bank) closely monitors economic and monetary conditions. They meet several times every year. So it is very unlikely the Fed would do anything suddenly and without notice. Further, the Fed has other tools it can use to slow the economy and prevent inflation (e.g. raising interest rates and reserve requirements) which it would likely do before selling debt on its balance sheet. I doubt the Fed will actually sell any debt it holds, because I don't think economic conditions would warrant such actions any time in the foreseeable future. I don't see excess aggregate demand in the near or distant future.

So no I don't think it would have a "disruptive" effect on the economy.

Do you know of any other entity which can legally print (i.e. create) money? Additionally, there are no "categories" of money. There are different definitions of money. But at the core of all those definitions is the actual currency in circulation (i.e. M1 which is physical money and demand deposits).

 

Apart from the fact that you didn't actually answer my question . . .
You ask if I know “of any other entity” beside the Fed “which can legally … create money.” Well obviously I do, don’t you?
Why you should object to the word “category” in relation to money supply is beyond me. Do you object to “type” and “classification”?
I fail to see the point of your reference to M1. It suggests that you are under the misapprehension that Fed purchasing of bonds (since that was the topic under reference) creates M1.

 

Apparently you don't know what M1 is. As I explained before it is physical money and demand deposit money.

What is 'M1'
M1 is a measure of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts and Negotiable Order of Withdrawal (NOW) accounts. M1 measures the most liquid components of the money supply, as it contains cash and assets that can quickly be converted to currency. It does not contain "near money" or "near, near money" as M2 and M3 do. http://www.investopedia.com/terms/m/m1.asp

When the Federal Reserve purchases or sells debt, it does so with a digital transaction. No physical exchange of currency occurs. It's numbers on a computer (e.g. demand deposits). That shouldn't be that difficult to understand. It really isn't that complicated.

Read more: M1 Definition | Investopedia http://www.investopedia.com/terms/m/m1.asp#ixzz443eDGuBs
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Oh, I thought I was quite succinct when I answered your question, "So you don't think that the sale of that amount of debt would have rather a dramatic and disruptive effect on the economy?" with, "So no I don't think it would have a "disruptive" effect on the economy." I don't know how I could be more succinct or direct. What don't you understand about the word "no"?

By the way, I noticed you haven't answered the question I posed to you.

Well do you care to explain? I think I know where you are trying to go with this. I think you are referring to the multiplier effect. It happens throughout the economy every time a unit of currency is exchanged. In this case as an example, John deposits money in a bank and the bank loans a portion of that deposit to Jane. Jane then deposits or spends that money, and the money is once again deposited in a bank by Jane or the folks who sold Jane the goods or services she purchased. That's the multiplier effect. It doesn't create new money, it makes efficient use of the existing money supply and it can have the effect of expanding the money supply - depending on how the money supply is defined. The multiplier effect doesn't expand or affect the M0 and MB (i.e. narrowly defined) measures of money supply.

http://www.investopedia.com/terms/m/multipliereffect.asp

This is one reason why we have different definitions of the money supply. The money supply is constantly measured and reported monthly. As previously pointed out to you, the Federal Reserve has powerful tools it can use to control the money supply. Increasing interest rates or increasing bank reserve requirements restricts the ability of banks to make loans. It reduces the multiplier effect.

But in the US only the Federal Reserve can create currency. It is a crime for anyone other than the Federal Reserve to create currency. It's called counterfeiting.

I asked you a question, to help you clarify your question and help you think through your question - things you have not done.

Because the word "category" isn't appropriate. "Category" is a word to define things that are similar but different. Money is money. It's identical once it is defined. It isn't similar. What is different is how money is defined. There are multiple definitions of what is and what isn't money. That's why the word "category" isn't used to describe money or appropriate to a discussion about money. Look up the two words. The words "definition" and "category" are not synonyms. Money must be first defined before it can be categorized.