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Fiat System Collapsing?


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I thought this was interesting. Intro below, much more at:

http://forum.richdad.com/forums/tm.asp?m=4...tmode=1&smode=1

(fourth entry down)

Any thoughts?

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Rediscovering Gold in the 21st Century

Craig R. Smith

Substance Over Symbolism: The Folding, Spindling & Mutilating of America's Money System

Imagine for a moment that you have the ability to create any amount of money, without ever having to produce anything.

Is there anyone or anything you couldn't buy? Probably not.

Sound impossible? It should be, but it isn't. Just ask your local Federal Reserve banker - they do it every day.

The folding, spindling and mutilating of America's monetary system became legitimized in 1913, when the Federal Reserve was formed. Long ago bankers discovered a nasty little secret referred to as "fractional-reserve banking" which is fueled by credit and debt creation out of thin air.

The modern American monetary system is the result of an incestuous relationship between the federal government and the private banking cartel, deceptively called The Federal Reserve System (a.k.a. "The Fed").

But don't expect the mainstream press or prominent political figures to ever discuss this relationship publicly. Sadly, few Americans understand the process, or even challenge the Fed's attempt to manipulate the money system.

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Guest consa
I thought this was interesting. Intro below, much more at:

http://forum.richdad.com/forums/tm.asp?m=4...tmode=1&smode=1

(fourth entry down)

Any thoughts?

 

--------------------------------------------------------------------------------

Rediscovering Gold in the 21st Century

Craig R. Smith

Substance Over Symbolism: The Folding, Spindling & Mutilating of America's Money System

Imagine for a moment that you have the ability to create any amount of money, without ever having to produce anything.

Is there anyone or anything you couldn't buy? Probably not.

Sound impossible? It should be, but it isn't. Just ask your local Federal Reserve banker - they do it every day.

The folding, spindling and mutilating of America's monetary system became legitimized in 1913, when the Federal Reserve was formed. Long ago bankers discovered a nasty little secret referred to as "fractional-reserve banking" which is fueled by credit and debt creation out of thin air.

The modern American monetary system is the result of an incestuous relationship between the federal government and the private banking cartel, deceptively called The Federal Reserve System (a.k.a. "The Fed").

But don't expect the mainstream press or prominent political figures to ever discuss this relationship publicly. Sadly, few Americans understand the process, or even challenge the Fed's attempt to manipulate the money system.

We have had long discussions about this in the past, It is very intrigueing to say the least and a catalyst about which the monetary system evolves globally!!

This will be the downfall of the global economy without a doubt!!

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Guest wrongmove
We have had long discussions about this in the past, It is very intrigueing to say the least and a catalyst about which the monetary system evolves globally!!

This will be the downfall of the global economy without a doubt!!

I'm inclined to agree that it will be blamed for any eventual downfall.

But imagine if we still had to pay for everything in gold !! Bit mediaeval ! Would that mean that countries lucky enough to have mines would be super-rich, and those without condemned to eternal poverty ? We wouldn't even have a global economy if it was still tied to the possession of a pretty, shiny metal, IMHO

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Guest consa
I'm inclined to agree that it will be blamed for any eventual downfall.

But imagine if we still had to pay for everything in gold !! Bit mediaeval ! Would that mean that countries lucky enough to have mines would be super-rich, and those without condemned to eternal poverty ? We wouldn't even have a global economy if it was still tied to the possession of a pretty, shiny metal, IMHO

Gold, ah that shiny money, that will be your only escape, BTW we don't have a global economy, it is ficticious!!

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But imagine if we still had to pay for everything in gold !! Bit mediaeval !

Why? The only difference would be that you could take the pieces of paper in your wallet to the bank of England and demand gold coins in exchange.

Just as was possible until the 1930s (1970s in America).

Would that mean that countries lucky enough to have mines would be super-rich

Richer, but the annual mine production is a fraction of the total amount of gold. And they'd spend it to buy items from other countries, who'd then find themselves rich.

and those without condemned to eternal poverty ?

Only if they didn't produce anything that anyone else wanted.

We wouldn't even have a global economy if it was still tied to the possession of a pretty, shiny metal, IMHO

So we didn't have a 'global economy' in the 70s? Certainly it wasn't as integrated as today, but a single global currency (i.e. gold) would surely make a 'global economy' _SIMPLER_?

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Sounds to me like it might be worth getting a little more than 5% of savings turned into gold then. 50% would seem a bit more sensible. If the economy goes tits up your gold is going to have to go up 20X to get your money back if you only have 5% in gold. Wouldnt it be better to have an overpriced house if things get really bad? That way at least you would end up with something worth perhaps 1/4 of what you paid for it?

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Sounds to me like it might be worth getting a little more than 5% of savings turned into gold then. 50% would seem a bit more sensible.

The problem with that is that gold is highly manipulated. You might convert 50% of your savings into gold and then the BoE sells off all its remaining stocks and suddenly you've lost 20% of your savings. Or the government confiscates it from the bullion banks and gives you worthless paper in return.

When the whole system is corrupt to the core, there's no 'safe' way out.

Wouldnt it be better to have an overpriced house if things get really bad?

That depends. If it's paid off and the country continues to function, possibly... but if an economic collapse is followed by riots and general social disruption, it's much easier to run away with a load of gold coins than to run away with a house.

Also, if it's not paid off, and there aren't riots and social disruption, the bank manager may turn up on your doorstep demanding you pay the rest of the mortgage in gold :).

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Guest wrongmove
it's much easier to run away with a load of gold coins than to run away with a house.

Yeah, like I can live in my gold bar !!

Gold has no yield whatsoever, just capital appreciation. If things go well in the economy, you are knackered ! If you believe that the economy is that f**ked, then I suggest guns and fuel would be a better option.

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Guest wrongmove
So we didn't have a 'global economy' in the 70s?

Er no, we didn't. Gloabalisation as we call it now is a 90's phenomenon.

If you have gold, but no other form of power, then someone will simply take it from you. They cannot steal your skills.

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Gold has no yield whatsoever, just capital appreciation.

Gold doesn't 'appreciate', it just is.

That's the whole point: you don't need 'capital appreciation' when you have a stable currency. Prices go _DOWN_, as they generally did for centuries before the introduction of fiat currencies... you get richer by simply sticking gold under your mattress, there's no need for a financial industry to suck up a large fraction of the economic activity in the country for just shifting bits of paper around.

The whole 'capital appreciation' thing is a huge scam which does little but funnel vast sums of money to the banks in a vain attempt to maintain the purchasing power of fiat currency. Why not just eliminate the fiat currency which causes the whole problem of rampant inflation in the first place?

Er no, we didn't.

So there was no global trade in the 70s?

Edited by MarkG
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Guest wrongmove
you get richer by simply sticking gold under your mattress, there's no need for a financial industry to suck up a large fraction of the economic activity in the country for just shifting bits of paper around.

Are you saying there was no financial industry before the 70's ? As I understood it, gold based economies still use paper money. Are you suggesting we return to a barter economy ?

I don't understand how economies work either, but I do know that I would rather live now than in the 30's, when the pound was gold based. Gold is a finite resource that is distributed by geological accidents. Human ingenuity is not. I just don't see any reason to tie one to the other. We are not Aztecs, thank goodness.

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Of course, the conundrum is that gold just "is" - that it has no intrinsic value whatsoever (not even an income stream)

Which is why it became reference item. Rare, inert, very few practical uses (unlike, say, silver, copper or platinum).

So everyone deciding to use gold as a currency is just as much "fiat" as paper money (i.e. we are all still subscribing to the notion that gold, or x amount in an internet bank account, has "value")

Always amuses me that goldbugs quote price of gold in dollars. Surely should be other way round, that you price dollars in gold? (if you believe that gold is currency, not the dollar/ pound/ yen)

Globalisation is far far older than we think. E.g. there were 8,000 Japanese living and working in Bangkok in in 1620's. Java is full of ruins showing thriving links with China and India. Bhuddism spread from India to Japan, Christianity from ME to India and Ireland, Arabic numerals everywhere, etc.

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Of course, the conundrum is that gold just "is" - that it has no intrinsic value whatsoever (not even an income stream)

Which is why it became reference item.  Rare, inert, very few practical uses (unlike, say, silver, copper or platinum). 

So everyone deciding to use gold as a currency is just as much "fiat" as paper money (i.e. we are all still subscribing to the notion that gold, or x amount in an internet bank account, has "value")

Just as much "fiat" as paper? If you could make gold out of lead then a convertible currency may be akin to a fiat currency but as you say gold is rare, inert and has very few practical uses - so it really doesn't equate to paper, does it? That is the intrinsic value of gold - it doesn't grow on trees. Sure digging gold out of the ground so you can store it back underground somewhere else protected by armed guards and then credit it with lots of value doesn't make a whole lot of sense, but creating money out of thin air by printing paper notes doesn't make a whole lot of sense either. Without some checks and balances fiat paper really is an experiment in faith and past experience shows that fiat currencies tend to get abused. At least with converible currencies its pretty obvious when they are being debased and the books are being cooked. Currently we seem to be experiencing a huge asset bubble fueled by debt and a corresponding huge increase in the supply of fiat dollars. What are the checks and balances in this system? I guess the future will show as most every economist seems to have a different opinion, but by all accounts the current trajectory is unsustainable.

I dont think that gold is a panacea and convertible currencies necessarily a great thing - in fact they seem to have caused economic recessions/depressions in the 19th century - but having a reserve currency that is lorded over by a fed that takes the politically expedient path of inflate, inflate, inflate doesn't sound like such a good idea either. Would it have been possible for the money supply to have been inflated so much if the reserve banks hadn't started with such large amounts of gold in their safes? By dishoarding their gold they really have made it impossible to use gold as a reasonable measuring stick. Remember it was only a few short decades ago that the US$ was convertible.

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CSK - true, it doesn't grow on trees. But in that case, why not land as currency? Last time I checked they weren't making any more of it, apart from Dubai & Holland.

Having a currency "backed by gold" is fiat because it only works if people believe gold is worth something. You could back the currency with rare stamps, land, or a promise (by a bank/ government/ company) - it all comes down to illusion/ faith and choosing some common reference.

E.g in HK the currency isn't even issued by the central bank, but by banks (HSBC mostly) I trust HSBC more than most governments, so I'm cool with it. The company I work for issued it's own currency for a while in the 1800's, and wasn't even a bank (is a trading house)

There are advantages/ disadvantages to a fixed money supply (which gold almost is - but note velocity of money can still vary) But I still maintain that gold is as arbitary and faith based a choice of currency as the promise (say) of the Bank of Japan. If you don't believe the Bank of Japan, you are able to not hold yen, and (say) hold GE short term paper instead.

And remember, much of the creation of debt would occur with or without a gold standard. If I own an office building, and issue securitised bonds against it, I have created debt without any central bank. The amount of bonds I can sell depends on peoples' perception of the value of the building

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Guest consa
So everyone deciding to use gold as a currency is just as much "fiat" as paper money (i.e. we are all still subscribing to the notion that gold, or x amount in an internet bank account, has "value")

I don't think you can class Gold as "fiat" money, you cannot create it or duplicate it, When people lose trust in paper money they usually turn to gold.

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Not from what I have seen. Indonesia during the crisis in 1998, they turned mostly to other currencies (esp USD, but also Singapore dollar). Yes, some turned to buying gold and birdsnest, but that was as a proxy for USD (people bought jewellry and birdsnest as no dollar notes left to buy, hand carried it to Singapore or HK, sold it for dollars (Singapore/ HK/ US)) Birdsnest costs around 1500 USD a kilo, so you can carry a fair amount of value.

At no point did I hear of people using gold as a medium of exchange in its own right, (e.g. I will sell you this car for 33 ounces of gold). This was in a situation of riots on the streets, a pogrom against Chinese, 500% devaluation of rupiah, and banks going bankrupt. It was an interesting time!

Luckily my parents in law had coffee plantations at the time, and the coffee could be sold for export & hard currency, so they weathered the storm

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Guest consa
Not from what I have seen.  Indonesia during the crisis in 1998, they turned mostly to other currencies (esp USD, but also Singapore dollar).  Yes, some turned to buying gold and birdsnest, but that was as a proxy for USD (people bought jewellry and birdsnest as no dollar notes left to buy, hand carried it to Singapore or HK, sold it for dollars (Singapore/ HK/ US))  Birdsnest costs around 1500 USD a kilo, so you can carry a fair amount of value.

At no point did I hear of people using gold as a medium of exchange in its own right, (e.g. I will sell you this car for 33 ounces of gold).  This was in a situation of riots on the streets, a pogrom against Chinese, 500% devaluation of rupiah, and banks going bankrupt.  It was an interesting time!

Luckily my parents in law had coffee plantations at the time, and the coffee could be sold for export & hard currency, so they weathered the storm

You are talking about a blip in the economy, I am talking about full scale worthless paper around the globe that no-one wants due to it's declining value!! you can't print more gold.

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Overthrow of Suharto (in power since 1966), 10,000 dead in rioting, widespread looting, 500% devaluation of the currency, the entire banking system essentially bankrupt. More than a blip!

People were driving to the airport, then selling their car for cash and a ticket out.

The fact that you can't print more gold is neither here nor there. In times of hyper-inflation anything that isn't paper money has that property - e.g. the price of whisky goes up as fast as the price of gold, but if you want whisky, still likely that you will need to transfer that gold to a currency, and then to whisky. Equally you could sell your whisky and buy gold

You can't trust governments in the final analysis anyway (my parents lost plenty in Uganda when Idi Amin decided to kick out all English & Asians, and before that my grandparents lost plenty in Shanghai due to WW2 - unlucky family eh?) Not sure that in either case a gold backed currency would have made the slightest difference to the losses

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I'm inclined to agree that it will be blamed for any eventual downfall.

But imagine if we still had to pay for everything in gold !! Bit mediaeval ! Would that mean that countries lucky enough to have mines would be super-rich, and those without condemned to eternal poverty ? We wouldn't even have a global economy if it was still tied to the possession of a pretty, shiny metal, IMHO

It would cause a balance of trade between soveriegn states. You could spend your gold into another countrie's economy (for product) until it physically ran out, you would then be forced to earn it back by selling product out and you could not create a deficit (negative gold). Home made goods would be more atractive than spending outside the nations economy, prefering to use the gold to purchase raw materials.

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Guest wrongmove
It would cause a balance of trade between soveriegn states.  You could spend your gold into another countrie's economy (for product) until it physically ran out, you would then be forced to earn it back by selling product out and you could not create a deficit (negative gold).  Home made goods would be more atractive than spending outside the nations economy, prefering to use the gold to purchase raw materials.

I still think the choice of gold is totally arbitrary.

Why gold ? Because it is soft and easily worked into pretty jewelry, and it is non-reactive, so it stays shiny, even when you bury it in the ground. Mediaeval thinking, IMHO.

I agree that the Fiat system looks very dodgy, but I think it is because it has been mismanaged. It is far more sophisticated than "getting rich by putting gold under the mattress". How is owning a very heavy mattress improving my standard of living ? Gold is inert and has no yield. It only makes sense if you are very pessimistic about the future, and even then, "guns and gas" look more attractive than me. People with guns and gas will soon mop up all the gold, should times get really bad. I have a young child, and so I feel obliged to choose optimism. Should I tell my child "the future lies in robbing jewelers", or in gaining skills to tackle the modern situation.

Edited by wrongmove
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I still think the choice of gold is totally arbitrary.

Why gold ? Because it is soft and easily worked into pretty jewelry, and it is non-reactive, so it stays shiny, even when you bury it in the ground. Mediaeval thinking, IMHO.

I agree that the Fiat system looks very dodgy, but I think it is because it has been mismanaged. It is far more sophisticated than "getting rich by putting gold under the mattress". How is owning a very heavy mattress improving my standard of living ? Gold is inert and has no yield. It only makes sense if you are very pessimistic about the future, and even then, "guns and gas" look more attractive than me. People with guns and gas will soon mop up all the gold, should times get really bad. I have a young child, and so I feel obliged to choose optimism. Should I tell my child "the future lies in robbing jewelers", or in gaining skills to tackle the modern situation.

Oh I agree it is arbitrary. We could simply agree with other countrie's to run a balance of trade in currency, the gold isn't needed.

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This used to happen with Roman Empire & China - but with silver (Chinese historically, at least until end 19th C, preferred silver to gold, and exchange rate gold/ silver in China was different to rest of the world)

Basically, Romans bought silk from China with silver, as there was nothing the Romans made the Chinese wanted... Led to an acute shortage of money in Rome, and various attempts to solve (debasing currency with lead, using copper) Arguably Europe was then short of bullion until conquest of S America

Between UK and USA in 19th C - yes, officially gold should have been shipped. But mostly, the central banks just shifted gold from one part of their warehouse to another, rather than actually move the stuff transatlantic, trusting the other bank to be honest... (i.e, if their was a deficit with US, BofE would designate chunk of gold as now belonging to US, and vice versa)

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We could simply agree with other countrie's to run a balance of trade in currency

You mean like the Euro nations agreeing not to run excessive deficits? I think we've seen just how valuable such 'agreements' are.

the gold isn't needed.

Yes it is, because it's an objective enforcer of such 'agreements'. You don't have the gold, you don't get the exports.

The reason for using gold over other commodities is pretty simple: there's not much of it, it's hard to create, hard to forge, there's not much use for it other than money and jewelery, and hot chicks dig it. That's why it's maintained its value for most of the last thousands of years, while so many fiat currencies have collapsed (and the remainder lost most of their value over a few decades).

I agree that the Fiat system looks very dodgy, but I think it is because it has been mismanaged.

EVERY FIAT CURRENCY EVER CREATED HAS BEEN 'MISMANAGED'!!!! How can you honestly believe that if you give the government the ability to print money at will, they won't choose to do so? Every fiat currency that's lasted a few decades has lost most of its value for that very reason... governments just love to create new 'wealth' from nothing.

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Are you saying there was no financial industry before the 70's ?

We had NOTHING like the current parasitic financial industry up to the 30s when, most countries used gold-backed money. There was no need to worry about 'pension funds' and 'stock market yields' when your money wasn't being routinely devalued by inflation. The current financial industry puts a massive drain on the economy solely in order to try to maintain the value of savings against the inflation that's an inevitable result of government-run fiat currency... 90% or more of the financial industry would vanish if we had hard money, it serves no sane purpose.

Are you suggesting we return to a barter economy ?

Where did I ever say any such thing? You'd have thought that my comments about turning in pieces of paper for gold would have been, like, good enough for you to understand what I was saying, if you'd bothered to read it.

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