[Tradewinds]

Fiat Money is not backed by anything except faith in the entity that minted the money. Let's consider what the opposite of fiat-money would be: Let's say that you have a $10 dollar bill, and theoretically, you could go to the government that printed that $10 dollar bill, and they would give you something of real value in exchange. For example, you could go to the government that printed that $10 dollar bill, and exchange it for a piece of gold. Having the printed money "backed" by gold might give the holder of the $10 bill confidence in the value of the printed money.

Realistically, it would be very impractical to take your $10 dollar bill and go to the government and ask for a piece of gold in exchange. If the economy collapsed, and paper money became worthless, theoretically you could go to the government, and get your share of gold in exchange. Again, that would be quite impractical. Imagine if all the people in the entire country had to travel to a place to get their share of the gold that was backing the currency. Either that, or the gold would need to be transported and distributed. Then everyone would need to be carrying gold around with them everywhere to buy and sell things. You could get robbed and have your gold taken from you. Gold and silver is heavy, it's grade would need to be determined, and it would need to be weighed at every business transaction. It would be an inefficient way to transact business.

Metal coins made from real silver or gold would eliminate the need of being backed, but they are heavy, and might be considered impracticable to use for anything other than small purchases.

In 1971 something happened that got named the Nixon Shock. Foreign countries began asking for gold in exchange for U.S. paper money. Switzerland redeemed $50 million U.S. paper money for gold. In order to deal with this issue, and other problems, the gold standard of U.S. dollars was ended.

Fiat money is backed only by trust. Specie-backed money is different than fiat money. Specie-backed money is money backed by something like gold or silver.

Would it be practical to have specie-backed money, if in practice, no-one could ever exchange the paper money for the precious metal? And if things did deteriorate to the point where everyone wanted their share of the precious metals backing the currency, would the distribution be fair, and actually be carried out to it's full extent?

Governments can declare that it is illegal NOT accept their currency as payment within that nation. In other words, if I go to the grocery store, and offer to buy a loaf of bread with U.S. dollars in the U.S.A, the grocery store must, by law, accept the official currency as payment. If the grocery store decided that the U.S. dollar was worthless, and refused to accept U.S. dollars as payment, they would be breaking the law. As long as I have the amount of currency that equals the price of the bread, it's against the law to not accept the official printed money as payment.

So the grocery store can not refuse to take the official printed money. But if they think the money is worthless, they could raise the price of a loaf of bread. So the grocery store could raise the price of a loaf of bread from $3 dollars to $300 dollars. At this point, uncontrolled inflation would rage.

[iwshares]

Very interesting take on the Fiat system Tradewinds. I'm reading "Reminisces of a Stock Operator" at the moment and the 2010 edition has some great footnotes on the late 1800's when the US temporarily abandoned the gold standard.

Is part of the trouble with Fiat system international trade e.g. not only can the grocery store in the above example decide the value of a dollar, but also any country or business that chooses to trade with the US e.g. buy bread from a US bakery for sale in it's stores.

Looking at Nixon's decision in the 1971, rather than accept the dollar was over leveraged he eliminated the problem by a move obviously supported by those who used the USD as a reserve currency. It's analogous to the credit crunch of 2008: rather than let the banks go bust like any other business they were bailed out. I'd bunch quantative easing under the same banner. Believing in capitalism and letting the natural selection process take place seem to be two different things.

Nixon merely put off solving the problem. Of course how could the US for example buy enough gold to back their currency again?

[Tradewinds]

Originally Posted by iwshares »

Of course how could the US for example buy enough gold to back their currency again?

I'm not convinced that gold backing of any currency is what really gives the public trust in the value of the currency. I think the debt to revenue ratio is important. I'm no expert on money, but that's the first thing I think of.

It's basically an issue of how responsible the government is with it's finances. And how responsible the government is with it's finances is simply a consequence of the individuals who make up the government. So it all comes back to human behavior.

History repeats itself. The human race just can't seem to "get their act together". Oh well, I'll just keep plugging along and hope for the best.

[iwshares]

Originally Posted by Tradewinds »

History repeats itself. The human race just can't seem to "get their act together". Oh well, I'll just keep plugging along and hope for the best.

Just think if the system was perfect we couldn't take advantage of it to make some money...

[Tradewinds]

Originally Posted by iwshares »

Just think if the system was perfect we couldn't take advantage of it to make some money...

Yes, you are right. But what are the ultimate consequences? If we make a lot of money, and it becomes worthless, that won't help us. We could hoard gold, but then we'd need a place to store it. And we'd probably need to have our own mini army or security forces to guard all our stuff. We can't eat gold, so that won't help if there are food shortages.

I'm considering the worst case scenario concerning the economy, and the value of currencies, which hopefully won't happen.

I think that currency values and exchange rates should be tied to how much bread an hours wages will buy. If I need to work 8 hours to buy one loaf of bread, then something is wrong! That's an extreme example, but it makes a point about what the value of money should be. Of course, that scenario gets into price fixing problems. Then once that happens, the free market is compromised.

[SIUYA]

buy a farm, but a gun, learn how to live off the land.

[Ingot54]

Originally Posted by iwshares »

Just think if the system was perfect we couldn't take advantage of it to make some money...

No ... you could actually make MORE money if the system was perfect, by adding value to whatever you are doing. A perfect system would simply ensure that you received what you have earned, not as we now have, a deceitful and manipulated situation, where only those with inside information, or deeper pockets have the advantage.

Under a perfect system, those who are lazy and shiftless, would receive the rewards of their attitude - poverty. In fact, under a perfect system, those who don't produce efficiently would be the last hired, and dependent on the welfare of the good grace of those who work diligently.

If you worked harder, more efficiently for your employer, both he and you would prosper and win.
If you improved the product you made, and/or made it more efficiently you would be paid more.

In a perfect system we would not need Labour Unions because workers would not need to become collective bargainers. By the same token, they would deliver a fair day's work for their pay, and get a fair day's pay for their work.

In small groups, small enterprises and businesses, this principle is far more efficient than it is in larger conglomerations. The reason is that a level of personal knowledge and care exists in the relationship between employer and employee, and trust and integrity are valued more than the 10 minutes pay for the unavoidable overtime on the day.

There is no need for litigation between small business owners and their employees, because the business owner has personal knowledge of his employees, and vice versa, and problems can be more quickly worked out at the discussion tables, and not the courts, as in big business.

Of course, this is in the "perfect" model, not the realistic one we are actually living.

Regarding currency, which is getting back to topic ... workers exchange their time and their labour for money, conditions and perks. Something is given and something of value is gained.

When someone can create money that has not been produced through the effort of labour (ie printing press, or electronic decimal place manipulation) where no value has been added, then it cheapens the value of the labour that DOES work for the money.

Taken to the extreme, this would end up as slavery.

Sound familiar? What is inflation, if not enslavement of people?

This video is 6 min 46 long ... and I include it to show that there are indeed intelligent forces remaining that would like to see the return of slavery. The Civil Rights movement battled long and hard and had assassinations within its own ranks, before victory was assured.

If these forces that are interested in a return to slavery for some (or indeed all) "common" people, are still harboring those values, might it be feasible that they would use other means to effect those ends?

ANY other means?

YouTube - ‪Slavery: Presidents and the Constitution‬‏

YouTube - ‪Slavery: Presidents and the Constitution‬‏

The current Fractional-Reserve banking system Fractional-reserve banking - Wikipedia, the free encyclopedia coupled with the current fiat money system Fiat money - Wikipedia, the free encyclopedia and the market economy Market economy - Wikipedia, the free encyclopedia are what we have.

What we really need to know and understand, in order to make sense of the Fiat Money vs the Gold Standard debate, is who is benefiting from the current demise of the dollar? Answer that question and you might uncover truth.

The current fiat money system ushered in by the eradication of the Gold Standard by President Nixon in 1971, (ostensibly to inflate away the costs of the war in Viet Nam) is now manipulated by those who are hell-bent on devaluing the $USD to pay for consuming excesses and ongoing wars, space programmes, welfare, social security, pension and retirement prgrammes and social medicine bills, all run up in the last 25 years, and doubled in the past 5 years, conservatively speaking.

Given that vested interests are in control of the treasury benches, how then are they making themselves prosperous through the trashing of the world's reserve currency?

More importantly, since the break-down of the $USD is not in the best interests of the American (and indeed all) working people, what foreign interests are benefiting from the impoverishment of this nation, and others like it in the west?

Unfortunately we do not have a perfect system, but that does not mean we should stop striving to build it.

But it will not happen until men value their personal character, reputation and integrity more than they do the dollar. And these men must lead their families and teach these same principles to their sons and daughters.

Where might we find such men today ... even ONE man?

Under a perfect system ...

It might not be such a bad idea to wrest back the "executive power" enjoyed and abused by the USA's top power echelons, who are now "governing by executive order" and get back to the founding fathers principles enshrined in the United States Constitution - Wikipedia, the free encyclopedia

I have tried to avoid the inclusion of conspiratorial attitudes, but it is hard to avoid, given that the rich-and-powerful have used, and will continue to use, all means political and financial to achieve their ends.

[SIUYA]

Originally Posted by Ingot54 »

I have tried to avoid the inclusion of conspiratorial attitudes, but it is hard to avoid, given that the rich-and-powerful have used, and will continue to use, all means political and financial to achieve their ends.

as would most people given any system regardless of their wealth and power.

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I thought debt and interest was what enslaved us....and then its us who borrows money to enslave ourselves.
There is nothing like a good conspiracy..thanks