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lowrentyieldmakessense(honest!)

Fiat Money Must Come To An End

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are enough people starting to see the real cause of the financial disaster

can we throw some more salt on the central bankers to finish them off

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Henry Ford is alleged to have said that "it is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

The spirit of his words encourages us to put forward questions about the banking and monetary system — especially in view of the international credit-market crisis. Is it a good thing that central banks have cut interest rates essentially to zero and have increased the base-money supply dramatically to support the financial sector? Will depression be prevented if governments underwrite banks' balance sheets and run up huge deficits in an attempt to strengthen production and employment?

To answer these questions, a diagnosis of the root cause of the debacle is indispensible, and once the root cause has been identified, a proper remedy can be formulated.

The diagnosis provided by the Austrian School of economics can be distilled into one sentence: governments have caused the monetary and economic debacle by taking control of money production.

WondolowskiUnderPyramid.jpg

A circulation-credit-driven boom is economically unsustainable and must be followed by bust. If the injection of additional credit and money out of thin air was a one-off affair, it presumably wouldn't take long for the artificial boom to unwind. A recession would restore the economy back to equilibrium.

Unfortunately, however, the increase in credit and money out of thin air is not a one-off affair under today's monetary systems. As soon as recession approaches public opinion calls for countermeasures, and central bankers increase the credit-and-money supply even further, thereby bringing interest rates to even-lower levels. In other words, monetary policy fights the correction of the debacle by taking recourse to the very action that has caused the debacle in the first place.

Such a strategy may work occasionally. But as soon as credit expansion comes to a halt — that is, when commercial banks refrain from lending altogether — the inevitable adjustment will unfold. Borrowers will default, and firms will liquidate unsound investments and cut down jobs.

The longer an artificial boom is kept going, the greater the malinvestments are that have to be corrected, and the higher will be output and employment losses.

Under privatized money production, people would freely decide on the kind of money they wanted to use. Such a money would presumably be anchored by gold, but it could possibly be anchored by other media (for example, silver or platinum). The government and its central bank would be closed down and lose control over money production. From then on, the interest rate would be determined by free-market forces rather than government action

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The problem with fiat it trust, it's all too easy to print money based on economic productivity that doesn't exist.

Fiat can work but the temptation to abuse is it too great because those in power want to deliver "wealth" to remain in power.

Rules are pointless unless they are enforced.

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The problem with fiat it trust, it's all too easy to print money based on economic productivity that doesn't exist.

Fiat can work but the temptation to abuse is it too great because those in power want to deliver "wealth" to remain in power.

Rules are pointless unless they are enforced.

the problem with fiat is that it allows a certain group of people to obtain real assets and control without actually providing anything that is of real benefit to most

who makes the rules

the answer to the fiat problem is for enough to realise the game and then its over - I think we are close to the tipping point

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the problem with fiat is that it allows a certain group of people to obtain real assets and control without actually providing anything that is of real benefit to most

who makes the rules

the answer to the fiat problem is for enough to realise the game and then its over - I think we are close to the tipping point

The problem is that those who do provide real wealth see the benefit of fiat and will embrace it.

It's will always be the case.

Fiat is a double edged sword and has in the 20th century helped to provide great technical advancement, but it's all about trust and that trust has been abused for too long now. Leverage it would appear has gone past the point of no return.

The current fiat system seems likely it will implode.

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The problem is that those who do provide real wealth see the benefit of fiat and will embrace it.

It's will always be the case.

Fiat is a double edged sword and has in the 20th century helped to provide great technical advancement, but it's all about trust and that trust has been abused for too long now. Leverage it would appear has gone past the point of no return.

The current fiat system seems likely it will implode.

I dont see how it is that fiat is what has provided great technical advancement and those wealthy people yep Buffet etc embrace it because thats how he has become wealthy

Edited by lowrentyieldmakessense(honest!)

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How do you finish off the bankers you ask?

Well that's easy -

Possible Run on COMEX Silver Inventories May Already Be Underway

http://news.coinupdate.com/possible-run-on-comex-silver-inventories-may-already-be-underway-0337/

The main reason to worry about this run on COMEX silver inventories is that there are no significant quantities of physical silver held by governments, central banks, or in the private sector that could be mobilized to stem a panic. Equally important, any run on the COMEX silver market would certainly expand to a run on COMEX gold contracts. As physical demand for gold increased, that would inevitably lead to higher gold prices, thereby hurting the value of the US dollar.

Get PHYSICAL!

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Fiat can work but the temptation to abuse is it too great because those in power want to deliver "wealth" to remain in power.

sounds like communism when you put it like that!

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The problem with fiat it trust, it's all too easy to print money based on economic productivity that doesn't exist.

Fiat can work but the temptation to abuse is it too great because those in power want to deliver "wealth" to remain in power.

Rules are pointless unless they are enforced.

but the problem itself extends way beyond fiat money.

gold/silver coins were used within the supposedly efficient roman empire in ancient days,but the coins got clipped(and the value content within said coins debased)

..it's no different from inflation/fiat money.

with debasement of the currency comes debasement of the people.

what we need to tackle the problem is a bit of a shake-up in HOW our money is spent.

we didn't ask for mass immigration to bleed our coffers with benefit claimants,but our omnipotent leadership decided on it.

we didn't ask for our heavy industry to be outsourced

we didn't ask for wars with bogeymen to be foisted on us.

we didn't ask for the bread and circusses

..or excessive spending on quite frankly useless public works projects(it's quite possible to get a decent education in a protakabin..or a crap one in a shiny new school)

...it's textbook stuff,probably because the people really running the country are the very same ones who were responsible for the rise and fall of rome.

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but the problem itself extends way beyond fiat money.

gold/silver coins were used within the supposedly efficient roman empire in ancient days,but the coins got clipped(and the value content within said coins debased)

..it's no different from inflation/fiat money.

with debasement of the currency comes debasement of the people.

what we need to tackle the problem is a bit of a shake-up in HOW our money is spent.

we didn't ask for mass immigration to bleed our coffers with benefit claimants,but our omnipotent leadership decided on it.

we didn't ask for our heavy industry to be outsourced

we didn't ask for wars with bogeymen to be foisted on us.

we didn't ask for the bread and circusses

..or excessive spending on quite frankly useless public works projects(it's quite possible to get a decent education in a protakabin..or a crap one in a shiny new school)

...it's textbook stuff,probably because the people really running the country are the very same ones who were responsible for the rise and fall of rome.

immigration isnt the problem it is the welfare state - people should be able to live where they like

without paper money - how are they going to pay for their regime - other than more blatent theft which will be more easily noticed

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Fiat Currency is a slow drip drip of wealth being passed from those who work and save to those who own assets that increase with inflation.

We get the politicians we deserve, if people really wanted there to be an end to fiat currency, we would get someone who realised that and was elected on that ticket.

Debasing the currency didn't cause our industry to leave us (that would be higher labour costs that did that) or mass immigration.

The fact is that most people think the govt borrowing money to give to them now, is better than the promise of uncertain better living standards over the next decade. Politicians know this, and given that we can't vote to veto tax rises (which would be a good thing if we could) the state will keep expanding and spending more money on interest groups to buy favours to get them into office.

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Fiat Currency is a slow drip drip of wealth being passed from those who work and save to those who own assets that increase with inflation.

Couldn't the workers-come-savers simply get round this by putting their money into assets that increase with inflation though?

If they put it in the bank at 0.1% interest, or invest in fixed interest investments do they not partially have themselves to blame?

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"The reason governments resort to 'money' as a way of facilitating trade is for the simple reason that if they relied on gold or other precious metals very little trade would actually take place due to supply constraints associated with the physical limitations connected with mining, refining and market placement. Quite early in human history were primitive governments minting coins with base metals and ascribing value to them for the purposes of exchange for other goods. The gold standard was lost because trade was expanding faster than gold could be mined. We find ourselves in a position today where innovative financial products are, in effect, printing gold and silver in exactly the same way as a national mint prints paper currency. This is due to the same reasons primitive nations coined "money" to expand trade. The result is that we now have an emerging new "gold" standard that is largely based on the same criteria as to worth as currency."

I think I agree.......

So, in reality, the thing that must come to an end is the expansion, not of money or "fiat" gold but CREDIT. The printing of money and gold (via ETFs etc) is merging the two systems of determining value to the point where they are identical in function. Bottom line: the traditional gold standard has been undermined by the printing of gold via ETFs etc.

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Sure, fiat can be abused with a dodgy government, but abuse is positively encouraged with fractional reserve banking in place. When else is money printing suggested as a solution, other than when the banking system is collapsing under dodgy FRB practices?

Without risk being allocated to individuals*, rather than being pushed onto all of us via the government, we can't be free of moral hazard, nor the temptation for governments to print/bail. If we restrict banking/investment risk to only the individuals involved, the weak governments wouldn't have an excuse/need to inject money into the system.

I'm not against fiat, as such, as it's a very low cost way of accounting transactions. However, it has its flaws. You can't use it effectively for savings (the money needs to keep moving, one person't savings is another's debt etc) and weak governments can cave to pressure to 'do something' (print). I'm not convinced that fiat is any more nasty than taxes though - if you are going to create demand for a currency by charging taxes, then you may as well use the money for other stuff. You just have to make sure that weak governments aren't put under pressure to print. Discouraging FRB would be a big step towards this, IMO.

EDIT: *To be clear, if there is no moral hazard, bailouts etc, then you don't have to pay for other peoples'/companies' mistakes, so you can hold alternatives without being penalised regardless. If you think fiat will be abused, you can load up on your asset class of choice, knowing you aren't going to be tapped by inflation or higher taxes.

Edited by Traktion

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Sure, fiat can be abused with a dodgy government, but abuse is positively encouraged with fractional reserve banking in place. When else is money printing suggested as a solution, other than when the banking system is collapsing under dodgy FRB practices?

Without risk being allocated to individuals, rather than being pushed onto all of us via the government, we can't be free of moral hazard, nor the temptation for governments to print/bail. If we restrict banking/investment risk to only the individuals involved, the weak governments wouldn't have an excuse/need to inject money into the system.

I'm not against fiat, as such, as it's a very low cost way of accounting transactions. However, it has its flaws. You can't use it effectively for savings (the money needs to keep moving, one person't savings is another's debt etc) and weak governments can cave to pressure to 'do something' (print). I'm not convinced that fiat is any more nasty than taxes though - if you are going to create demand for a currency by charging taxes, then you may as well use the money for other stuff. You just have to make sure that weak governments aren't put under pressure to print. Discouraging FRB would be a big step towards this, IMO.

It is my view that fractional reserve banking has culminated in the structural collapse we are experiencing today. IIRC FR banking began after the South Sea Bubble to restore credit to a world that was deflating from the fall out of the bubble bursting. Banks began lending more than they had on deposit and the pace continued to pick up until we hit the Brown years when it went into overdrive and achieved a 300 year burn-out.

That said--FR banking is necessary but it was the abuse of the system that caused the collapse. Excessive credit in relation to production occurred. No more so than during the Brown boom. Everything got out of control due to lax oversight and the belief, fostered by Brown, that there would only be boom years. Never ending HPI was to be the vehicle for this economic miracle. The fatal flaw was that such a system would require exponential expansion of credit which we saw in the various wealth creation vehicles that looked like alphabet soup (CDOs, ETFs, Hedge Funds etc). It became a classic Ponzi and in the end the system imploded due to mistrust and the fact that the vehicle of all this expanding credit and consequential debt started to go off the tracks (housing crashes worldwide--we are next).

Bottom line: Nothing wrong with FR banking or paper money. Its all about production levels that are needed to back the fiat on any given currency. It was clear that the enormous growth in our wealth was based on the PONZI and expansion of credit well beyond what we were producing.

Edited by Realistbear

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"The reason governments resort to 'money' as a way of facilitating trade is for the simple reason that if they relied on gold or other precious metals very little trade would actually take place due to supply constraints associated with the physical limitations connected with mining, refining and market placement. Quite early in human history were primitive governments minting coins with base metals and ascribing value to them for the purposes of exchange for other goods. The gold standard was lost because trade was expanding faster than gold could be mined. We find ourselves in a position today where innovative financial products are, in effect, printing gold and silver in exactly the same way as a national mint prints paper currency. This is due to the same reasons primitive nations coined "money" to expand trade. The result is that we now have an emerging new "gold" standard that is largely based on the same criteria as to worth as currency."

I think I agree.......

So, in reality, the thing that must come to an end is the expansion, not of money or "fiat" gold but CREDIT. The printing of money and gold (via ETFs etc) is merging the two systems of determining value to the point where they are identical in function. Bottom line: the traditional gold standard has been undermined by the printing of gold via ETFs etc.

I think I made a similar point above - FRB, whether using gold (ETFs, gold backing etc) or pure fiat, can still cause chaos. It's the extension of too much credit, then the famine of credit, which prompts the government to step in and "fix" things with the printer. We need risk allocated in a way where this can never happen (which is why I'm a fan of limited purpose banking).

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I think I made a similar point above - FRB, whether using gold (ETFs, gold backing etc) or pure fiat, can still cause chaos. It's the extension of too much credit, then the famine of credit, which prompts the government to step in and "fix" things with the printer. We need risk allocated in a way where this can never happen (which is why I'm a fan of limited purpose banking).

And what really caused the system to break down was the fact that credit was expanded to facilitate growth in a non-productive asset: houses.

Credit with commensurate levels of production avoids the problem. The Brown years promised too much for too little in return.

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It is my view that fractional reserve banking has culminated in the structural collapse we are experiencing today. IIRC FR banking began after the South Sea Bubble to restore credit to a world that was deflating from the fall out of the bubble bursting. Banks began lending more than they had on deposit and the pace continued to pick up until we hit the Brown years when it went into overdrive and achieved a 300 year burn-out.

That said--FR banking is necessary but it was the abuse of the system that caused the collapse. Excessive credit in relation to production occurred. No more so than during the Brown boom. Everything got out of control due to lax oversight and the belief, fostered by Brown, that there would only be boom years. Never ending HPI was to be the vehicle for this economic miracle. The fatal flaw was that such a system would require exponential expansion of credit which we saw in the various wealth creation vehicles that looked like alphabet soup (CDOs, ETFs, Hedge Funds etc). It became a classic Ponzi and in the end the system imploded due to mistrust and the fact that the vehicle of all this expanding credit and consequential debt started to go off the tracks (housing crashes worldwide--we are next).

Bottom line: Nothing wrong with FR banking or paper money. Its all about production levels that are needed to back the fiat on any given currency. It was clear that the enormous growth in our wealth was based on the PONZI and expansion of credit well beyond what we were producing.

I agree with your first statement, but not your bottom line - even in free banking, the odd FRB bank run and collapse will happen (albeit smaller and more frequent collapses, IMO). While I could argue that regulation wasn't tight enough, that the rules were wrong, that CPI and not RPI was used, that no price index should be used (it couldn't last - see the thread I posted last week), that the central bank was wrong footed, it wouldn't solve the problem; IMO, it is just impossible to regulate FRB in a stable way - it is inherently unstable.

You say that FRB is necessary, but I disagree. With technology and communications as they now are, there is no reason why investment has to be a black art, the preserve of only the banking fraternity. We just need to know what the rough risks are and act accordingly. As long as it's as easy to trade timed investments as anything else, I see no reason why all money needs to be instant access ("soon" is probably good enough). As all FRB does is pretend all money is instant access, when it isn't, the only difference is that people would know where they stand and appreciate the risks involved.

EDIT: typos/reworded

Edited by Traktion

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And what really caused the system to break down was the fact that credit was expanded to facilitate growth in a non-productive asset: houses.

Credit with commensurate levels of production avoids the problem. The Brown years promised too much for too little in return.

How do you decide what is a productive asset? What is a commensurate level of production? Who has the balls to take away the punch bowl, when everyone is enjoying the boom?

Allocate the risk to those who dare to invest/speculate and you limit the damage they can inflict on everyone else. If we let a few big companies invest/speculate, with government backing, then we will all pay for their poor judgement.

Edited by Traktion

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We get the politicians we deserve, if people really wanted there to be an end to fiat currency, we would get someone who realised that and was elected on that ticket.

  • and what if this politician then broke the promises on his election ticket?

  • how would this politician's salary be funded?

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  • 149 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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