What is wrong with fiat currency?

[Hans Olo]

Alright, I stay arrogant, you stay ignorant, your loss, not mine.

Just one last thing, if you don't like the answers, don't ask the questions.

I'm done.

[Orwell]

Quote:I have already shown you that your question makes no sense (the one with "inherant value" I believe)

You did no such thing.

Quote:and you have admitted that your opinion about the gold standard is based on other people's ('its proponents') opinions (could you be a little more vague?) instead of facts. It's awful...

When looking at a proposed system, I try to see what its advocates say about it. My information about the gold standard comes largely from stuff I've read from the Mises Institute, and I've also read a few articles from mainstream economists discussing the gold standard.

Quote:Edit: look, the history of the gold standard, the federal reserve, fiat currency is discussed in that FOUR hour documentary. I can and will not summarize a massive work like that it in a forum post, just so you don't have to watch it. I have watched it three times already, it's THAT good.

Then I'll watch it and get back to you.

[---]

Quote:ive been listening in.....

Orwell can i ask.....what do you define as value? except what humans are willing to impart.

The reason gold is so valuable is because of its finite amount on the planet, its uses (jewelry/electronics) and that its a mode of currency like any other stock.

Fiat currency at present IS based on gold, just simply not much of a percent of it) It also keeps dropping all the time. At present the Euro has the greatest amount of gold backing it. Yes, there ARE vast amounts of gold sitting around doing nothing except backing up these currencies. The real trouble is, everyone keeps changing the goalposts and backing up our money with less and less gold, or if you like, diluting the money that this gold is backing up.

Inflation actually keeps the value of gold artificially up. Its the classic war stock. Start a war, buy some gold, end the war inflate the money to "cover the cost" and that gold becomes that much more than it really is. Its all speculation. for some people, something is only worth its use, for others its worth 10% less than they can sell it at. Both are right.

Its not really the system at fault here. I wouldn't like to have gold in my pocket as its very heavy, But the money i do have in my pocket SHOULD represent that gold, not what the issuer has decided. If interest is not above inflation then even if you keep the money in the bank, it just gets less and less every year. The terminology is "Real terms".

un codazo pequeño:)

[---]

Quote:Alright, I stay arrogant, you stay ignorant, your loss, not mine.

Just one last thing, if you don't like the answers, don't ask the questions.

I'm done.

ouch! Hans the eloquent and gruff 'in da houze' :fool:(@me, not you:))

Orwell, voiced concerns about being party to 'illegally distributed material' - we assured him both films are legally viewable.. He says he'll get back to you on them, after watching..

Don't fall out over it already, ffs - he did only just get here and is just becoming frequented with the board and it's manner:)

You can always spend the time on further sharpening your teeth whilst you're not using them:laughkick:

[hilly7]

There are a few countries that use gold, not but a few. Fiat currency is based not on the government, but on the Federal Reserve (a private banking cartel) that answers to who, the government who they fund the elections. Before gold and silver (useful because the metal was easy to work with) other things like tobacco or futher back, salt and pepper. The Romans fought wars over salt, the one element necessary for human survival. This the saying. "worth his weight in salt". Thing is, gold, salt, tobacco, all are tangible products that have uses. They are subject to speculation, but they have a purpose. Fiat currency is created from thin air and has no real worth other than speculation. That applies to any currency, anywhere.

[triplesix]

Quote:Thing is, gold, salt, tobacco, all are tangible products that have uses. They are subject to speculation, but they have a purpose. Fiat currency is created from thin air and has no real worth other than speculation. That applies to any currency, anywhere.

And this is the real point. Fiat currency is based on trusting in a gamble that it will always be worth what it was when you traded your actual valuables for it, even if that 'actual valuable' is only your labor.

Orwell has expressed that he has complete faith in his fiat currency.

Well, that's fine when the world is not in a time of crisis, but come food shortage, widespread rioting, or drought, or whatever, when everyone and their mother goes to trade in their valueless paper for real world commodities it ain't gonna happen.

With fiat currency in the Federal Reserve, you are even more at the mercy of the establishment. The Fed has expressed that they run the country, make decisions, and the entire nation is obligated to abide by those decisions. It has been expressed in so many words. Unfortunately you have faith that the Fed will operate in your best interest, regardless of what their track record has illustrated. Also unfortunately, you've expressed that a devaluation of your fiat currency by an order of magnitute since 1950 and around 20% since as recently as the year 2000, is not an issue, because this is supposedly balanced by an increase in overall wealth created over the same time period. I'm sure this works on a Federal balance sheet but when we see which populations are subject to the decrease in wealth and which are subject to the increase, we realize that the system isn't balancing out, it is flowing wealth from one direction to another.

You also stated that you, and many economists who share your opinion (a good time to change your argument), believe that deflation is more dangerous than inflation. Ironic doublespeak from you Orwell,:LOL:, I have to say, since deflation is the increase in buying power of your assets. Only in 2009 could we fear becoming more wealthy. In what universe would that be bad? Well you answer the question yourself, in a world where people live lives leveraged on debt. Only those people foolish enough to leverage their lives should fear deflation.

What you seem to be experiencing, Orwell, is a difficulty understanding why mainstream economic thought is so contrary to the "antiquated" ideas of the gold standard. It is because the mainstream economic thought is centered around band-aid solutions to keep a fractured and doomed to fail economic system from imploding on itself. There is a lot to be said about the history of the Federal Reserve and why gold standard supporting politicians often end up catching lead with their skulls.

[---]

Quote:in a world where people live lives leveraged on debt. Only those people foolish enough to leverage their lives should fear deflation.

Massive debt is endemic; even where foolishness is not common place, People have been 'sold down the river'.


Consider the actions of the IMF if an ailing country decides to default on a repayment under the conditions of their 'structural adjustment' loan agreements..


At what juncture would monetising the debt become necessary? To curb rampant deflation?:rolleyes:

I'm still unclear as to whether I need to invest in a wheel barrow yet.

[rsol]

Quote:

Quote:

Quote:Fiat currency at present IS based on gold

I believe you are wrong. Can you tell me how you got to this conclusion?

I believe pretty much the whole world went off a true gold standard during the 30s and 40s, and the bastardized semi-gold-standard of the Bretton Woods system fell apart in 1971. As of the present, unless we are just being completely lied to by all existing sources, the US, Canada, UK, EU, Japan, China*, and all other countries that matter in international economics are operating off of a pure fiat money system. The government prints the money, passes laws saying that it is money, and for the most part people accept that it is money and use it in their daily transactions.

*If I am not mistaken, the Yuan is actually pegged to the dollar, though this may have changed recently. This would mean it was not truly a fiat currency in the sense of being based on nothing but the government's word, but being based on a fiat currency is pretty close to fiat, and I remember reading that China was beginning to allow a "dirty float" of the Yuan rather than keeping it strictly pegged to the US dollar.

At present the US and uk use a reserve banking system. Boiling it down, you can lend out say £100 of cash for about £5 effective gold. like you were saying this has changed somewhat. Id like to know the current set up myself. i believe the us and uk have dwindled their resources as far as this is concerned. I believe the Euro has yet to go through this process as it is still a relatively new currency. the whole thing stinks of artificial worth. Backed up by a system of banking that relies on noone cashing in their money.

[---]

Quote:The sale of more than half of the country's gold reserves between 1999 and 2002 has proved to be deeply controversial.Treasury minister Ian Pearson attempted to defend the gold sale. He said: "The gold sales between July 1999 and March 2002 reflected a prudent decision to reduce over-exposure to a single asset in the net reserves portfolio."

Quote:Recently, the price of gold has been under pressure because of a decision by the IMF to sell off much of its gold reserves. While I believe that most other factors support the bullish case for gold, I also recognize that the bullish scenario is threatened by decisions by the IMF and certain central banks to sell gold.

Now the price of gold increased somewhat on the news that the Chinese seems to have a different attitude towards gold than Western central bankers, as they have announced that they are buying gold. If China and other emerging economies starts to buy a lot of gold, then this will cancel out much of the effect of the gold sales of other central banks, and so improve the odds of future gold price increases. 24/04/09

"Ever feel like you've been cheated?" Johnny Rotten, New York 1979

Quote:So why is it reluctant to worsen the U.S. trade imbalance by letting the yuan fall? Given that the United States is China's second-largest market, Beijing also "doesn't want the U.S. to be weaker than necessary," Fishwick noted.

There are other possibitilies: Beijing wanted the "security blanket" of dollar pegging during last year's financial crisis, or its officials had actually expected the dollar to fall since the crisis started in the United States, Frankel noted.

For now, with dollar depreciation on the horizon as a consequence of Washington's profligate spending though, Beijing again faces two currency options. It could let the yuan continue to shadow the dollar and thus depreciate against the rest of the world, "easing domestic monetary conditions," according to Morgan Stanley. Or it could shift the yuan away from the dollar, avoiding a further U.S. outcry. China currency watchers are keeping an eye out.

http://www.forbes.com/2009/03/31/china-yua...egging-g20.html

[Orwell]

Quote:At present the US and uk use a reserve banking system. Boiling it down, you can lend out say £100 of cash for about £5 effective gold. like you were saying this has changed somewhat. Id like to know the current set up myself. i believe the us and uk have dwindled their resources as far as this is concerned. I believe the Euro has yet to go through this process as it is still a relatively new currency. the whole thing stinks of artificial worth. Backed up by a system of banking that relies on noone cashing in their money.

Ah, no, you are confusing fiat currency with fractional reserve banking. The two are not the same. Fiat currency (which the US, UK, and EU have) means that the money is not backed by gold or anything else. It is not possible to redeem Federal Reserve notes for gold.

Now, you example of lending out more money than they have, that is correct. I don't remember the current reserve requirement, but it's pretty low. Since banks assume that not everyone will withdraw all their money at once (bank rushes pretty much being a thing of the past) they can loan out money and not keep all of your bank account sitting in a vault somewhere. I don't have my econ book available at the moment, but it has a somewhat better description of fractional reserve. I remember quite disliking the idea when I first read about it.

There's a lot more in this thread to respond to, but I don't have time right now. I'll post again as soon as I can.

[rsol]

Quote:

Quote:At present the US and uk use a reserve banking system. Boiling it down, you can lend out say £100 of cash for about £5 effective gold. like you were saying this has changed somewhat. Id like to know the current set up myself. i believe the us and uk have dwindled their resources as far as this is concerned. I believe the Euro has yet to go through this process as it is still a relatively new currency. the whole thing stinks of artificial worth. Backed up by a system of banking that relies on noone cashing in their money.

Ah, no, you are confusing fiat currency with fractional reserve banking. The two are not the same. Fiat currency (which the US, UK, and EU have) means that the money is not backed by gold or anything else. It is not possible to redeem Federal Reserve notes for gold.

Now, you example of lending out more money than they have, that is correct. I don't remember the current reserve requirement, but it's pretty low. Since banks assume that not everyone will withdraw all their money at once (bank rushes pretty much being a thing of the past) they can loan out money and not keep all of your bank account sitting in a vault somewhere. I don't have my econ book available at the moment, but it has a somewhat better description of fractional reserve. I remember quite disliking the idea when I first read about it.

There's a lot more in this thread to respond to, but I don't have time right now. I'll post again as soon as I can.

http://en.wikipedia.org/wiki/Fiat_currency

Quote:Fiat money is money declared by a government to be legal tender.[1] The term derives from the Latin fiat, meaning "let it be done". Fiat money achieves value because a government accepts it in payment of taxes and says it can be used within the country as a "tender" (offering) to pay all debts. In effect, this allows it to be used to buy goods and services and to pay tax. Where fiat money is used as currency, the term fiat currency is used. The most widely-held reserve currency, the US dollar, is a fiat currency.

they are one and the same. fiat currency could be beans with little symbols on if you liked. It doesn't matter.

[Orwell]

Quote:they are one and the same.

No. Fiat refers to currency, fractional reserve to banking. It is possible to have fractional reserve banking and a gold standard. It is also possible to have fiat currency in the absence of fractional reserve banking.

I'm wondering, did you bother to read the wikipedia excerpt you posted? It doesn't support your claims in the slightest.

[rsol]

i agree i think we are spinning around the same bush here:) we seem to be stuck on the symantics. You need some sort of banking system to issue a fiat currency. Reserve banking is one.

The problem as i said, is that the current system slides all the time and the whole trust issue is being stretched to the hilt. Every time we "borrow" from the bank they are effectively diluting every £ and $ that is already in circulation. and "inflation" is set so that this doesn't just POP up out of nowhere and scare the shit out of everyone who then storm the whole place, heads on pikes, revolution etc.

theres the rub. we are being screwed. Im having a mile taken away from me an inch at a time.

[---]

http://www.youtube.com/watch?v=6MeMwwn81LI ;)

[hilly7]

Good video, however TPTB are debating 2 standards for gold, Pagan Gold and Federal Reserve Gold, which will only be a difference due to a holographic image placed on the Fed Gold, not to mention illegial to own. It would be like owning a Picasso, would it fetch a discount price if it is known illegial. Iceland hard a hard smack on owning gold.

Gold was first held in value because of it's ease in working with. These day we have mostly electronics and speculation. I'm not a big fan of gold, but it is at least tanigible and has uses, fiat currency does not. Thing is, it only takes a small group of people to say what you have in your hand or digital account is worthless, and it is then worthless. Something tangible however isn't so easily done, be it gold, silver, salt, tobacco, etc. It then takes many people to decide it's worth.

Orwell, I think should you actually watch Money Masters you would find the answer to Fractional Reserve Banking. While it can work with anything, it works best with Fiat Currency which is created from thin air and mostly digital, so it isn't even tangible. Most fractional reserve banking isn't done on deposits or gold, but on debt. Whenever you sign a piece of paper borrowing money they can loan out based upon what you borrow. Now that is speculation.