Tuesday, May 16, 2006

Power Line's Dinar Flimflam

Surf on over to Power Line and you'll see an interesting business opportunity tucked in among the sidebar blogads. BetonIraq.com offers the savvy investor a once-in-a-lifetime opportunity to purchase the Iraqi Dinar (IQD) at rock-bottom prices and invest in the future of a free and democratic Iraq at the same time.

Sounds like a pretty cool deal, no? Even liberals might be interested, seeing as how it bypasses Rumsfeld's gang and goes right to the struggling nascent democracy itself. The blogad pitch seems convincing, too:
With yet another successful election, time may be running out to buy the New Iraqi Dinar before it hits the open market. It's now unbelievably affordable. The same amount that was once equal to over $82,000 can now be purchased for around $45. But, what happens when the oil really starts to flow?
Hot dog! Click on the BetonIraq link and you get even more information, interspersed with photos of voting Iraqis, Iraqis waving American flags, Iraqis hugging American soldiers—you get the idea.

Before the Gulf War (part one), goes the pitch, the IQD was valued at over $3. Now it has fallen to a fraction of a penny. "Can Iraq's economy achieve, in a free market, what it once achieved under a brutal dictatorship?" Think that's questionable? You need go no further than the right sidebar to a set of "Beyond the Headlines" links. "Is anything good happening in Iraq? Much! Follow these links to see beyond the headlines, and discover the true Iraqi spirit of progress."

The problem? BetonIraq.com is, if not a total scam, at least an incredibly dubious investment. The pre-Gulf War dinar was "worth" $3.22 because that's what Saddam Hussein set its value at in 1982. Like the ruble of Soviet days, the IQD was not traded in free markets, so this previous "value" had no bearing in reality and was never tested on the open market.

XE.com, one of the biggest currency exchange websites, has an entire section devoted to IQD scams, and warns investors that "buying the Iraq Dinar is a high risk investment with a poor outlook."

According to XE, the current value of the IQD is tightly controlled by the Central Bank of Iraq, and for good reason.
They evidently fear that open trading of the IQD would lead to a rout in which the value of the IQD would sink to practically nothing. Consider the situation. Why tightly control the trading of the IQD if it is likely to appreciate in value? If the value of the IQD were to surge, this could be held out as evidence of a surge of confidence in Iraq's economy. So why not open the IQD to free trading? Why would this be done unless the Iraqi Central Bank itself feels that the IQD would decline in value in a free market?
They go on to detail how the oil argument is a canard. Using the example of Venezuela, they show how it's perfectly plausible for the currency of a country rich in oil to plummet, just like the Venezuelan Bolivar has in the past 6 years (it's worth 1/3 of its US Dollar value from 2000). They also show how the Iraqi economy is in no way comparable to that of their Kuwaiti neighbors. XE concludes their examination of the Iraq Dinar scam with this bleak warning:
Ask yourself one question: if the Iraq Dinar is such a hot commodity, why would anyone in the know be willing to sell it to you? If you thought that the IQD was going to multiply in worth by hundreds of thousands of percent, would you sell it? Of course not — you'd be too busy buying as much of it as you could. But if you thought that the IQD was going to go down in value over time, well, then you might start trying to convince people that it was a "great deal" so that you could get rid of all of yours before it nose dives.
So the question remains, what are John Hinderaker and Co. doing pimping a currency scam on their website? I'm aware that blogads are automated to a degree, but the gentlemen at Power Line are ultimately responsible for what they're hawking. The fact that this investment "deal" is clearly designed to take advantage of the kind of "patriotic" Americans who read Power Line only makes it worse.

They say a fool and his money are soon parted. I guess they're counting on the fact that a lot of fools read Power Line.

(Thanks: Jim)

Update: I have posted a response to the Blogcritics.org fallout, for what it's worth.
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