Enorrste, Math, and the RV (12/13/11)

Recently a discussion about the likelihood of a lop or an RV was held including dinar personalities like Tenmillion, JayP, Kaperoni, and Enorrste.  During this discussion Enorrste, the biggest windbag in the dinar world in my opinion, broke down the math for Iraq’s projected oil income.  He was explaining that when Iraq reaches 5 million barrels a day in production their oil revenues are going to skyrocket to the point that they will easily be able to cover a $3 RV, and in fact could very well see their currency float on up to $5, $6, $7 or more as their economy grows.  Here’s how he broke it down.

“Let’s just say it cost a dollar instead of a buck and a half … to make it simple … a dollar to create a barrel of oil. And they’re gonna double from two and a half to five million barrels.  Take that times a hundred dollars per barrel today, that’s five hundred million dollars a day. Take that times 365 … you’re looking at 1.825 trillion dollars a year in income, and now you have to take off five million dollars a day for your cost … of a dollar a barrel. So what you’re gonna end up with is about a million … I mean a trillion eight NET! Net money per year.  You think they can’t afford a three dollar currency?”

Currently Iraq is producing about 2.5 million barrels a day for a total of $80 billion a year in oil revenues (averaging about $87/bl) which is roughly 2/3 of their GDP.  Steve (Enorrste) anticipates that after the RV their production will double to 5 million barrels a day and their oil will sell for about $100/bl.  According to his calculations their revenues will therefore increase from $80 billion a year to $1.825 trillion a year.  

Now if you have a calculator handy you might want to run through these numbers with me to check what he’s saying.  I can assure you that a GDP approaching $2 trillion a year would change my opinion about this investment drastically, and I doubt that I’m alone on that.  So what numbers do you come up with?  Here’s what I get.

 5 million barrels a day

x $100/bl

= $500 million a day

x 365 days

= $182.5 billion/year

That’s right.  $182.5 billion a year, not $1.825 trillion a year.  It seems that Enorrste accidentally added a zero into his calculation.  Now I understand that anybody can make a mistake.  I make them all the time, and so do you.  But when you are presenting yourself as somewhat of an authority on the dinar and using numbers to support your premise, I think it’s pretty important to check your math first.  And this wasn’t a typo or a written error.  This was an emphatic statement that he made in a discussion, and he said the word “trillion” twice.  Yeah, it’s just one zero off, but that zero throws the total off by over $1.6 trillion a year.  That’s a damn big zero, wouldn’t you say? 

This isn’t the first time that Steve has produced some incredibly fuzzy RV math.  Last year he presented a case for the RV that prompted a dinarian named expat to respond:

As Enorrste points out, the CBI has $53 Billion in foreign currency reserves, which as he states is 700% (7 times) the value of the IQD in circulation (7.5 trillion according to him). Then he points out that the US only has 15% in reserves to back up the dollar it has out, Now, he points this out as if it is the proof in the pudding.

If all that is true and the CBI RVs to a rate of 1:1 to the USD…then they will have $53 billion to back up $7.5 trillion. That is less than 1% (0.7% to be precise) compared to our 15%. At $3.33 you can triple the difference, which makes it even more unlikely. These are his numbers, not mine.

Here is my question: Enorrste points out that the Iraqis all say they want a stronger currency– a point with which I agree — however, how is this accomplished by setting a rate that reduces the percentage of foreign currency reserves they have to back up the Dinar from 700% to 0.0021%, which is what will happen if they RV to $3.33 as Enorrste states they will? 

I don’t post these things to ridicule Steve but to establish a very important point.  Many people are swayed by guys like Frank Villa, Checkmate, and Enorrste because they are gifted in the art of elocution.  They have a smooth speaking style that gives the unsuspecting a false sense of security about the information they’re receiving.  But when you break down the actual content of the information the substance is sadly lacking.  I would be delighted to find out that the new IQD lower denoms are in fact already loaded into the ATMs in Iraq as Checkmate says.  I would love to believe that Frank’s Arabic translator Delta has the lowdown on the impending $.86 RV.  And of course I would love to believe that Iraq’s oil revenues will soar to $1.82 trillion a year when they double their production, but the facts just aren’t lining up behind these statements folks.  It’s time we stopped listening to these guys and started doing some honest due diligence for ourselves.  After all, it’s our hard earned money we’re talking about.  Do we really want to entrust it to the expertise of these internet armchair currency experts who most of us will never meet face to face?