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Thread: The Knock on Fiat Currency

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    RNG
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    Quote Originally Posted by Claudius the God View Post
    I see fiat money like the money in a Monopoly game, the supply is theoretically endless because the value of it has nothing to do with it's intrinsic value, it is merely a statement of measure or as some would say, a value of debt. There is no way fiat money will ever be replaced by a commodity backed regime such as gold, as others said it would destroy the world's economy overnight. The key to understanding how to manage fiat money lies in the peculiar structure of each nation's economic situation. In our case, we owe debt in US dollars, nothing else. Given that truth and the nature of fiat money, there is no limit on how much debt we can carry as long as faith in the US dollar remains strong. Our dollar is valued because of our economy and power. As long as our economy and power retain the confidence of the world, we can do what we wish including seignorage or just wiping our national debt away with a keystroke on some computer. This is why I no longer worry about the national debt but the flip side of it is personal debt. That debt has me worried because if it became too large relative to earning power, it could affect our economy and thus confidence in us as a nation and issuer of currency.
    Two factors. The Euro is gaining ground as well as the Renminbi. The US is still the dominant reserve currency but not to the degree that it once was and the trend is slowly downwards. Some oil is being sold in Euros and Renminbi for example.

    Secondly, you brought up what is probably the most important aspect of fiat currencies. As long as both the citizens internally and foreign businesses and governments have confidence in it, things are fine. If the government engages in the creation of too much, that confidence drops and back we are to Venezuela and Zimbabwe territory. So no, you can't print yourself out of debt. Well, maybe once, but there will be extreme consequences.
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    Junior Member Claudius the God's Avatar
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    Quote Originally Posted by RNG View Post
    Two factors. The Euro is gaining ground as well as the Renminbi. The US is still the dominant reserve currency but not to the degree that it once was and the trend is slowly downwards. Some oil is being sold in Euros and Renminbi for example.

    Secondly, you brought up what is probably the most important aspect of fiat currencies. As long as both the citizens internally and foreign businesses and governments have confidence in it, things are fine. If the government engages in the creation of too much, that confidence drops and back we are to Venezuela and Zimbabwe territory. So no, you can't print yourself out of debt. Well, maybe once, but there will be extreme consequences.
    I agree but I was only mentioning it because there is no limit to the creation of fiat money theoretically. The limits are about confidence, inflation and effective demand. The interesting thing about macro econ is that we are now seeing economists across the world leave old ideas about macro behind because much of what all of us were taught was really created during the Gold Era. What might have made sense then does not make sense now especially in a global economy. Competing global currencies are a threat to the dollar but unless Trump completely destroys America, I do not see the world moving away from the dollar.

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    Quote Originally Posted by RNG View Post
    I detect a criticism of the system here but do you have an alternative to offer?
    There's nothing intrinsically wrong with fiat currency. It's all in how the supply is managed against GDP. As long as the supply of currency remains fairly solidly linked to economic growth, its value remains relatively steady. The problems arise when the nation's bills outstrip revenue collection and printing presses make up the difference, and when the economy tanks for extended periods and the powers-that-be get 'stimulus' happy.
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    Quote Originally Posted by webrockk View Post
    There's nothing intrinsically wrong with fiat currency. It's all in how the supply is managed against GDP. As long as the supply of currency remains fairly solidly linked to economic growth, its value remains relatively steady. The problems arise when the nation's bills outstrip revenue collection and printing presses make up the difference, and when the economy tanks for extended periods and the powers-that-be get 'stimulus' happy.
    That is exactly the point I was making when a poster said deficits and debt didn't matter as long as the country can print money. He used way bigger words but that was what he was saying. And another poster commenced to moan about the lack of backing for the dollar.

    That is what prompted me to start this thread.

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    Radical Centrist BigLeRoy's Avatar
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    Quote Originally Posted by webrockk View Post
    How the Fiat System Works - dummies

    Instead of a tangible commodity like gold, the promise of your continuing industriousness, spending and borrowing is what 'backs' and gives fiat currency its value.

    You, working class hero, have basically been collateralized.
    What is it about gold that makes it so appealing?

    Is it because it's shiny?!?

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    Radical Centrist BigLeRoy's Avatar
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    Quote Originally Posted by RNG View Post
    Two factors. The Euro is gaining ground as well as the Renminbi. The US is still the dominant reserve currency but not to the degree that it once was and the trend is slowly downwards. Some oil is being sold in Euros and Renminbi for example.

    Secondly, you brought up what is probably the most important aspect of fiat currencies. As long as both the citizens internally and foreign businesses and governments have confidence in it, things are fine. If the government engages in the creation of too much, that confidence drops and back we are to Venezuela and Zimbabwe territory. So no, you can't print yourself out of debt. Well, maybe once, but there will be extreme consequences.
    I am alarmed by the folks who have suggested simply minting a (say) platinum coin worth $1 trillion dollars, and actually mint up exactly 20 of them, and use them to pay off the national debt.

    This kind of fuzzy-headed thinking about the national debt could lead us very far astray. But it sounds sort of like Trumpian thinking to me.

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    Quote Originally Posted by BigLeRoy View Post
    What is it about gold that makes it so appealing?

    Is it because it's shiny?!?
    History, heft, malleability, conductivity, non-reactivity, permanence, scarcity....and yes, some people find it purdy.

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    Radical Centrist BigLeRoy's Avatar
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    Quote Originally Posted by webrockk View Post
    History, heft, malleability, conductivity, non-reactivity, permanence, scarcity....and yes, some people find it purdy.
    Fossilized dodo bird droppings are even more scarce; why not use them instead?

    I don't see why the conductivity of gold would make it more desirable as 'money'. But yes, 'non-reactivity' and 'permanence' are both desirable characteristics of money.

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    Quote Originally Posted by BigLeRoy View Post
    Fossilized dodo bird droppings are even more scarce; why not use them instead?

    I don't see why the conductivity of gold would make it more desirable as 'money'. But yes, 'non-reactivity' and 'permanence' are both desirable characteristics of money.
    Here's a pretty good article on this.

    https://www.livescience.com/32863-go...ent-money.html

    "Why did gold become the standard for money? Why not copper or platinum or argon? A chemical engineer explains.

    An element must meet four qualities to stand alone as a premium currency, Sanat Kumar, the chair of the chemical engineering department at Columbia University told NPR. First, it can't be a gas gases simply are not practical for currency exchange. That knocks out a bunch of contenders from the right side of the periodic table, including the Noble gases, which would meet the other three qualifications.


    Second, it can't be corrosive or reactive pure lithium, for example, ignites when exposed to water or air. Iron rusts. This qualification knocks out 38 elements."

    More at link^

    Thx
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    Bizarroland Observer Thx1138's Avatar
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    Quote Originally Posted by BigLeRoy View Post
    I am alarmed by the folks who have suggested simply minting a (say) platinum coin worth $1 trillion dollars, and actually mint up exactly 20 of them, and use them to pay off the national debt.

    This kind of fuzzy-headed thinking about the national debt could lead us very far astray. But it sounds sort of like Trumpian thinking to me.
    "Um yeah, I was wondering if you could break this for me... um, how about a billion 100s, a billion 20s, five billion 10s,..."

    Thx

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