What is wrong with fiat currency?

[---]

surely Gold is finite.

[Orwell]

Quote:surely Gold is finite.

Of course it is, but don't call me Shirley.

The main difference is, of course, that with fiat currency the supply of money can increase, whereas with gold the supply remains fairly static (except for new mining). Most economists today (outside of the Austrian school thinkers) believe that a steady increase in the money supply is necessary to keep pace with a growing economy, and I would tend to agree with that analysis. As the economy grows, the money supply must also grow or we could risk a deflationary spiral and economic depression, as seen numerous times in the volatile economy of the late 19th century. Because of this, a gold standard is very risky. Probably better is Milton Friedman's idea of a "monetary rule" whereby the supply of fiat currency would be steadily and gradually increased at a fixed rate, keeping inflation mostly in check while allowing the money supply to grow in order to accommodate the growing economy.

For the record I used to consider myself an adherent of Austrian School thought, and still admire a number of their ideas. I just don't think there is much reason to favor a gold standard.

[Hans Olo]

Quote:Yes, that is exactly where I'm going. A subjectivist theory of value is the best one put forward thus far- things are valuable because people regard them as valuable. This is why $100 bills are more valuable than $1 bills, despite having roughly equivalent material content. And if you disagree on that count, I'd gladly trade you two $1 bills for one $100 bill.

I can count, thank you.

Quote:Exactly. Of course, some might argue that a cow has more practical value than gold, since you can eat a cow and gold has very few practical uses.

It depends on the situation. If I have plenty of food but need something durable to seal a bad and aching tooth, I'd rather have the gold than the cow meat. Let's remember this for later: "it depends on the situation".

Quote:I think notions of "inherent value" are mostly bullshit.

Then why did ya bring it up like they ment something, bubba? Had me fooled there...

I think you're making a faulty conclusion. Yes, the value of gold, of anything, is what people might trade it for, or related to how badly you need it. Value is something that depends on the situation, I hope you're with me so far. But that doesn't mean that there is no inherent value. That's a non-follower.. It only means, that

Nothing has absolute value, there's only relative value.

Depending on the situation. Right now we have a situation of MONEY INFLATION... I'm trying to say, in relative terms, money is becoming plenty, gold is becoming scarce. You need to live, breathe, eat, drink, crap and sleep first. If after all that you still have 50.000 on the bank, go get gold and silver before your notes become worthless paper.

[---]

Quote:

Quote:surely Gold is finite.

Of course it is, but don't call me Shirley.

The main difference is, of course, that with fiat currency the supply of money can increase, whereas with gold the supply remains fairly static (except for new mining). Most economists today (outside of the Austrian school thinkers) believe that a steady increase in the money supply is necessary to keep pace with a growing economy, and I would tend to agree with that analysis. As the economy grows, the money supply must also grow or we could risk a deflationary spiral and economic depression, as seen numerous times in the volatile economy of the late 19th century. Because of this, a gold standard is very risky. Probably better is Milton Friedman's idea of a "monetary rule" whereby the supply of fiat currency would be steadily and gradually increased at a fixed rate, keeping inflation mostly in check while allowing the money supply to grow in order to accommodate the growing economy.

For the record I used to consider myself an adherent of Austrian School thought, and still admire a number of their ideas. I just don't think there is much reason to favor a gold standard.

I guessing you didn't read those Rothbard excerpts then because you consider yourself as being familiar with whatever it is they might have said? They are absolutely pertinent in a historical and formulaic context , in terms of the viewpoint you've just espoused and original question of the thread.

[SiLVa]

Most economists today?
:signs065:

[Hans Olo]

Quote:The main difference is, of course, that with fiat currency the supply of money can increase, whereas with gold the supply remains fairly static (except for new mining). Most economists today (outside of the Austrian school thinkers) believe that a steady increase in the money supply is necessary to keep pace with a growing economy

Absolutely, but there's a minute detail: the money supply has to grow relatively to the growing market, not exponentially.

Quote:Because of this, a gold standard is very risky.

Faulty assumption. You're assuming that with a gold standard there can be no growing money supply. I'm not following that assumption.

Quote:Probably better is Milton Friedman's idea of a "monetary rule" whereby the supply of fiat currency would be steadily and gradually increased at a fixed rate, keeping inflation mostly in check while allowing the money supply to grow in order to accommodate the growing economy.

You can do that and abide a gold standard at the same time. The problem is fractional reserve banking. Always has been.

Quick question, have you seen 'the money masters' film?

[triplesix]

The simple answer I haven't seen yet in regards to gold and fiat currency, at least not concisely, is:

The value of fiat money can be instantly destroyed by the banking establishment by flooding the market with hundreds of times as many dollar bills as is in circulation. They just need to print them off of a press and inflation will instantly bankrupt those whose entire savings are in currency not exchangable with real value.

The value of gold can not instantly plummet because there is not likely, at this point in history, an unknown, vast storage of gold equal to many times the value of a nation's economy.

What you are looking at simply is whether or not two different mediums have more or less flexibility for manipulation by those behind them.

Bankers can do all sorts of ridiculous things with fiat currency because, let's face it, it's faker than Sarah Palin. However, currency backed by real gold cannot be as easily manipulated. Furthermore, the wealth of a nation backed by gold can only be increased by the production of genuine value, which is then exchanged with other nations for other objects of genuine value. What appreciates in society is what each nation can contribute in exchange back and forth for genuine value. There is competition to innovate and so on. Fiat currency, on the other hand, allows nations to profit solely on money games and predatory lending. Market manipulation allows America to appear as one of the wealthiest nations in the world, when in reality it is a nation of plutocrats and debtors. The remarkable thing is how extreme the disparity between the Wall Street plutocracy is and the minimum wage of $6.00/hr.

There was a time, when the minimum wage was still around $4.00, when the thought of winning $1,000,000 sounded like life on easy street.

Now, the minimum wage is around $6.00, and the idea of winning $1,000,000 means you can buy a modestly extravagant house, and depending on location, forget about the Ferarri to go with it.

The currency has been manipulated and the value of money depreciated. But now the ultrawealthy measure their wealth in the billions. What's different isn't that the elite are now a thousand times richer than they were before. What's different is that the value of US currency has depreciated by some orders of magnitute since the bankers introduced centralized banking around the turn of the century.

It is quite juvenile to argue metaphysics, about what value is, when we are discussing two very real and very complex systems of commerce. Commerce, of course, is at the very center of freedom, particularly when a power structure exists that employs debtor prison. The question isn't whether or not paper money or gold have legitimate value in some observer-less, objective reality. It is how that value exists in the real, present day reality and how best it can be employed on a fair and level playing field.

Historically, rare and precious metals, gems, and all sorts of other relatively small and light but broadly desired materials have presented themselves as consistent alternatives to stockpiles of lesser valuables. Copper, gold, silver, and others, became the logical choice because finely measured partitions, what we call coins, could be manufactured in various denominations to make trading easier. What we have here then is a nearly simulatenous-with-human-evolution system of commerce with a pan-historical 7,000 year tradition.

Fiat money, on the other hand, is the diabolical invention of greedy 20th century predator capitalists, and is concerned with primarily creating a system of wealth centered on debt. When you 'acquire wealth' through the loan process, the banking institution never gives you anything of value from their own pocket, but rather logs a debt for you in their records, with a promise in the form of a contract from you that you will repay the debt. At some point in the process, the banking institution needs 10% of your loan in fiat currency somewhere in their vaults, but since centralized banking makes lending zero-risk from the branch bank perspective*, the bank is never really going to be asked to produce the loan in true value. You however, as debtor, risk a great deal of real wealth, and 100% plus interest of the loan must be produced by you and thus given to the bank to 'pay them back.'

It is a grand illusion and you are right that it works because everyone agrees it works. However, it is all based on nothing.

Austrian Economist Ludwig von Mises Wrote:"What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The credit boom is built on the sands of banknotes and deposits. It must collapse."

*(This is slightly off-topic, and elaborates on my zero risk comment, which might be misunderstood without clarification)*
Note the importance of what I am saying here. Centralized banking exists, or it posits and rationalizes itself as so, to prevent the Great Depression. The Central Bank is supposed to prevent a systemic recall of debt from a specific institution causing the collapse of that institution. When one area of the banking sector needs money, the Central Bank is supposed to lend to that area and prevent a collapse. When we see banking institutions collapse in Western, Centralized Banking economies it is because the Central Bank withheld its obligation to assist, and 'engineered' the collapse by allowing the institution to be over-whelmed with the burden of debt.

Centralized Banking is supposed to exist to form a more stable economy, but the result has been a cyclical boom and bust, and no where can anyone rationalize these two contradictions co-existing. The answer? The Central Bank is manipulating the economy on purpose because systemic bankruptcy allows a centralization of national wealth.

It is interesting to note that Mad Money host Jim Cramer is supposedly 'disgraced' now, and Jon Stewart decided to rake him over the coals because he believed Jim Cramer to be part of the problem. Jim Cramer has been honestly telling people what to do in the stock market if it wasn't manipulated. If anything he is dishonest in encouraging 'the little guy' to get involved in this very, high-learning curve gambling game. However, Jim Cramer's advice in the stock market has consistently lost people money because he has encouraged people to invest in institutions within the United States that should under no reason in a Centralized Banking system ever collapse such as Bear Stearns and Freddie Mac.

If anyone knows the truth about the Federal Reserve, you would believe as I do that Jim Cramer has had his career destroyed quite simply for the following interview.

Peace.
666

Also, here's another video casting true light on the character of Jim Cramer for those brainwashed by Jon Stewart et al. I sincerely believe Jim Cramer has just been trying to help. People believe that him being wrong again and again means he is a hack. I, though, observing from the outside, see again and again him accidently uncovering market manipulation after manipulation, as the sure bets he recommends are repeatedly, beyond logic, collapsed within months. Something which should not be possible, barring internal corruption. This is mostly a personal attempt to clear Jim Cramer's name as that Jon Stewart interview pissed me off some, I'll admit.

[Orwell]

Quote:I think you're making a faulty conclusion. Yes, the value of gold, of anything, is what people might trade it for, or related to how badly you need it. Value is something that depends on the situation, I hope you're with me so far. But that doesn't mean that there is no inherent value. That's a non-follower.. It only means, that

Nothing has absolute value, there's only relative value.

No, items have no economic value except that which humans impart on them. If you have something that could be tremendously useful, but no one wants it, guess how much it's worth? $0. The market value of goods is determined by supply (how much there is) and demand (how much people want it).

Quote:Depending on the situation. Right now we have a situation of MONEY INFLATION... I'm trying to say, in relative terms, money is becoming plenty, gold is becoming scarce. You need to live, breathe, eat, drink, crap and sleep first. If after all that you still have 50.000 on the bank, go get gold and silver before your notes become worthless paper.

We were seeing significant price deflation for a while, and deflation can be very dangerous to the economy.* The Keynesian response would definitely be to try to counteract that with inflationary policies. Of course, you can contest Keynesian theory, but we still have yet to see really horrible inflation and I think our Fed has checked over the history books enough not to be as dumb as Mugabe.

*I know, I know, "inflation is everywhere and always a monetary phenomenon" but when wages and business costs are inflexible in the short-term, price inflation/deflation is what matters.

[Orwell]

Quote:Absolutely, but there's a minute detail: the money supply has to grow relatively to the growing market, not exponentially.

Well, the economy grows exponentially. 2% annual growth (to make up a random number) is exponential. The idea is for the money supply to grow at roughly the same rate as the economy.

Quote:Faulty assumption. You're assuming that with a gold standard there can be no growing money supply. I'm not following that assumption.

The money supply would grow extremely slowly, too slowly, and its rate of growth would depend on the mining industry rather than on the economy.

Quote:You can do that and abide a gold standard at the same time. The problem is fractional reserve banking. Always has been.

I think the Friedmanite monetary rule assumes a fiat currency, and probably would not work well with a gold standard. Even if it would still work in the same manner, then we end up with little substantive difference and just having extremely high costs for switching to a gold standard. Fractional reserve banking is an entirely different subject, and not necessarily tied to fiat currency, but I don't see a huge problem with fractional reserve, to be honest.

Quote:Quick question, have you seen 'the money masters' film?

Nope.

[Orwell]

Apologies for the triple post.

Quote:The value of fiat money can be instantly destroyed by the banking establishment by flooding the market with hundreds of times as many dollar bills as is in circulation. They just need to print them off of a press and inflation will instantly bankrupt those whose entire savings are in currency not exchangable with real value.

But doing that is not in the interests of the banking establishment, so they would not do it deliberately. The banking establishments are run by (and employ) intelligent, educated people who have read about Hungary, the Weimar Republic, and Zimbabwe in their history and economics classes, so they are unlikely to do it out of incompetence. Besides that, "hard" currencies can just easily be debased anytime the government decides it needs more money. All through monetary history, you can find countless examples of gold- and silver-backed currencies being debased in value. Really, you end up with exactly the same results as with fiat currency if the government is going to be dishonest. Using gold as currency is no security against inflation.

Quote:The value of gold can not instantly plummet because there is not likely, at this point in history, an unknown, vast storage of gold equal to many times the value of a nation's economy.

And this lack of flexibility is, to me, a problem. In the late 19th century, the economy grew extremely rapidly, but the money supply was relatively unchanged, leading to all sorts of problems and deflationary spirals.

Quote:What you are looking at simply is whether or not two different mediums have more or less flexibility for manipulation by those behind them.

Either of them *can* be manipulated if the government is dishonest, but a gold currency makes it harder to respond to changing conditions in an appropriate manner

Quote:The currency has been manipulated and the value of money depreciated. But now the ultrawealthy measure their wealth in the billions. What's different isn't that the elite are now a thousand times richer than they were before. What's different is that the value of US currency has depreciated by some orders of magnitute since the bankers introduced centralized banking around the turn of the century.

"Orders of magnitude" is a gross exaggeration. I believe the value of $1USD is about 1/25 what it was a century ago. And there's nothing really wrong with that, as long as the change in value of the dollar was fairly steady. It doesn't matter much if the value of some nominal amount of money changes over the course of a century as long as it is more or less stable in the short term, because people act in the present.

Quote:Historically, rare and precious metals, gems, and all sorts of other relatively small and light but broadly desired materials have presented themselves as consistent alternatives to stockpiles of lesser valuables. Copper, gold, silver, and others, became the logical choice because finely measured partitions, what we call coins, could be manufactured in various denominations to make trading easier. What we have here then is a nearly simulatenous-with-human-evolution system of commerce with a pan-historical 7,000 year tradition.

And historically people travelled in crude animal-drawn vehicles and the vast majority of the population was engaged in subsistence farming. Sometimes a break with historical precedent is an improvement.

Quote:It is a grand illusion and you are right that it works because everyone agrees it works.

And as long as people agree that it works, it will continue to work.

Quote:Centralized Banking is supposed to exist to form a more stable economy, but the result has been a cyclical boom and bust, and no where can anyone rationalize these two contradictions co-existing. The answer? The Central Bank is manipulating the economy on purpose because systemic bankruptcy allows a centralization of national wealth.

You need to check your history books, is all I can say here. The boom-bust cycle was much more pronounced before the Fed's existence. The economy has been relatively stable since the end of WWII, with occasional recessions but nothing really catastrophic.

[humbug]

Quote:But doing that is not in the interests of the banking establishment, so they would not do it deliberately. The banking establishments are run by (and employ) intelligent, educated people who have read about Hungary, the Weimar Republic, and Zimbabwe in their history and economics classes, so they are unlikely to do it out of incompetence

:rofl:

Quote:

Quote:Quick question, have you seen 'the money masters' film?

Nope.

Please do.

[Orwell]

Quote:

Quote:But doing that is not in the interests of the banking establishment, so they would not do it deliberately. The banking establishments are run by (and employ) intelligent, educated people who have read about Hungary, the Weimar Republic, and Zimbabwe in their history and economics classes, so they are unlikely to do it out of incompetence

:rofl:

A stunning refutation. :rolleyes:

Quote:

Quote:

Quote:Quick question, have you seen 'the money masters' film?

Nope.

Please do.

Where can I get a free, legal copy?

[humbug]

excuse cynical me for having a great laugh, you just seemed too good to be true. trust as much as you wish.
IMO all has been refuted up top, time to open up a bit.
forgive me for i could never find the time and energy to deliver such detailed posts that have been diligently produced for (y)our benefit by the members above.

crashing the economy can be very profitable and a neat way to spur depopulation.

try google video or the concen tracker, good flick.

[hilly7]

Gold and Silver actually do have value. That spaceship probably uses sensitive electronics, made of gold. Fiat paper money has it's value too. At any given moment someone says "script change" as was done in previous wars and it become valuable as something to wipe with, or start a fire. Given the uses of gold and silver vs paper money, which would you chose? Supply and demand are but only two factors, need being the first.

[---]

It's that intrinsic moment after the Angel Gabriel has bestowed their gifts and no one yet realises that the value has not actually increased just the amount...that's when 'people' like, hmm say - banking cartels or speculators like Soros, for instance buy into product, land or resources like mineral reserves eg Gold and Silver..or even Coltan, I dare say..before the perceived 'value' denigrates.

Leaving everyone in the same (or worse) position, economically, amidst further incremental inflation, whilst the few have capitalised and accordingly grown far wealthier. Now, all it takes is for the banks to play the role of Gabriel and for the big players to get the tip each and every time - and you see the problem..essentially a crooked game.

works every time, by all accounts.

Quote:In the late 19th century, the economy grew extremely rapidly, but the money supply was relatively unchanged, leading to all sorts of problems and deflationary spirals.

Quote:In contrast to the English banking system, the Scottish, in its
120 years of freedom from regulation, never evolved into a central
banking structure marked by a pyramiding of commercial
banks on top of a single repository of cash and bank reserves. On
the contrary, each bank maintained its own specie reserves, and
was responsible for its own solvency. The English “one-reserve
system,” in contrast, was not the product of natural market evolution.
On the contrary, it was the result, as Bagehot put it, “of an
accumulation of legal privileges on a single bank.” Bagehot concluded
that “the natural system—that which would have sprung
up if Government had left banking alone—is that of many banks
of equal or not altogether unequal size.” Bagehot, writing in the
mid-nineteenth century, cited Scotland as an example of freedom
of banking where there was “no single bank with any sort of predominance.”
10
Moreover, Scottish banking, in contrast to English, was
notably freer of bank failures, and performed much better and
more stably during bank crises and economic contractions. Thus,
while English banks failed widely during the panic of 1837, a contemporary
writer noted the difference in the Scottish picture:
186 The Mystery of Banking
“While England, during the past year, has suffered in almost every
branch of her national industry, Scotland has passed comparatively
uninjured through the late monetary crisis.”

Centralised Cartels are ultimately bad for business, unless it's their own, of course. In the hypothetical scenario where the proverbial rug is inevitably going to be pulled from under peoples' feet, the system the 'wise and educated' economists you speak of, have propounded; essentially a 1 choice scenario, has led to absolute reliance on the 'informed' decisions of a financial oligarchy - a very vulnerable position should your imputation that they have economic stability as primary motivation and not a quest to further and further increase and consolidate power, ultimately prove to stand false.