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Clueless_Academic

Fiat Money - A System Backed By Fresh Air -

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I have 'peaked' at this forum over the past few years -

I'm in my late 30's & no economist (lived through 1990's 'slump'!!) but believe the problems in the housing market (and society generally) are the result of our government (& western nations) embarking on a policy of 'money creation' via the 'FIAT Money' system - i.e. they have over inflated the amount of money in circulation in order to stimulate the economy -

A startling fact is that in a fiat monetary system, there is no restrain on the amount of money that can be created which allows unlimited credit creation - And as a fiat money system is not backed by a physical commodity (i.e.: gold). the only thing that gives the money value is its relative scarcity and the faith placed in it by the people that use it.

A good primer can be found at http://www.kwaves.com/fiat.htm

However, the article goes on to describe how, "Hyper-inflation is the terminal stage of any fiat currency", and "In hyper-inflation, money looses most of its value practically overnight. Hyper-inflation is often the result of increasing regular inflation to the point where all confidence in money is lost. In a fiat monetary system, the value of money is based on confidence, and once that confidence is gone, money irreversibly becomes worthless, regardless of its scarcity. Gold has replaced every fiat currency for the past 3000 years."

As I said, I'm not an economist but rather was 'schooled' in Marketing theory - like it or not we are not rational consumers - we do not always buy products on functional traits - we may be conspicuous, experiential, or hedonic consumers -

The lending institutions, Banks, policy makers, etc., know this interesting bit of consumer psychology and 'push' ever increasing bits of 'Fiat' currency onto us to consume cars, boats, houses, flat screen tv's, etc etc., - goods we don't rationally need !

Consumer society has got its nose so far in the trough it can't see the daylight !! I hate to say it, but people are suffering from every increasing 'social anxiety' due to their perception of not 'keeping up with the Joneses' -

The worrying fact is that all the perceived wealth is an illusion built of ever shifting foundations ! Our economy is becoming more and more public sector dominated and ever increasing manufacturing firms are owned by overseas interests.

Indeed, the UK has seen a marked shift away from manufacturing towards service sector employment, which on the whole is UK focused (e.g. home & motor insurance, domestic loans, etc.)

We are also running huge trade deficits for goods & services of £3.6 billion (!!) in April 2007 alone (!!) (DTI) - North Sea Oil production peaked in 1999 at 2.7 million barrels / day and is projected to be 1.5 million / day by 2010 (http://dieoff.org/page180.htm). Hence, we are now net oil importing nation - just think of all the tax revenues that we will lose over the next decade -

Foodstuffs are being diverted into 'Biofuel' production - do you believe food prices will remain low over the next decade ?? - we are entering a period of scarcity which will inflate prices further !!

So house price inflation is a result of money supply growth - nothing more nothing less -

Underlying fact is that consumerism is spreading to countries like China & India which will increase the demand for natural resources & fuel commodity inflation - cement, timber, oil, steel prices are exploding GLOBALLY -

Thus, HPI is GLOBAL result of scarcity derived from asset inflation in other sectors - sorry prices are 'pegged' now unless Global demand decreases !

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