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Thread: The Knock on Fiat Currency

  1. #1
    RNG
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    The Knock on Fiat Currency

    Yet again, it a thread a bit back some poster(s) railed against fiat currency. Surprisingly that time there wasn't an accompanying rant about the fed as seems to so often happen, but the two aren't that connected to my mind.

    But once again, on a new forum this time, I will start a thread on a topic of great interest to me. What option is there to a fiat currency.

    First, let me blow away the supporters of a gold currency. From the first link below with lots of other google hits giving very similar numbers, there is about 165,000 metric tons of gold on the surface of the world. That is about 364 million pounds or about 5.8 billion oz. An oz is close enough to a troy oz in this to not impact the conclusion.

    So at $1200/oz, there is $7 trillion in the world right now. Sounds great.

    The problem is that the US, M2 money supply number, the US has $10.7 trillion worth of money out there. There isn't enough gold in the whole world to cover the amount the US would need.

    So what are the options?

    All The World's Gold Facts

    How much actual money is there in the world? | HowStuffWorks
    Thanks from Thx1138 and Claudius the God

  2. #2
    Radical Centrist BigLeRoy's Avatar
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    Keynes: "Gold is a barbarous relic."

    Trying to go back to the gold standard in today's world would trigger a MASSIVE deflation, as prices would NECESSARILY need to plummet, to equate supply and demand; and the result would be a global economic depression the likes of which the world has never seen.

    Indeed, a lot of research now connects the severity of the Great Depression of the 1930's to attempts by various nations to stay ON the gold standard. The nations that tried to stay on the gold standard the longest, like France, suffered the worst depressions/downturns.
    Thanks from Thx1138 and Claudius the God

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    Bizarroland Observer Thx1138's Avatar
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    Quote Originally Posted by RNG View Post
    Yet again, it a thread a bit back some poster(s) railed against fiat currency. Surprisingly that time there wasn't an accompanying rant about the fed as seems to so often happen, but the two aren't that connected to my mind.

    But once again, on a new forum this time, I will start a thread on a topic of great interest to me. What option is there to a fiat currency.

    First, let me blow away the supporters of a gold currency. From the first link below with lots of other google hits giving very similar numbers, there is about 165,000 metric tons of gold on the surface of the world. That is about 364 million pounds or about 5.8 billion oz. An oz is close enough to a troy oz in this to not impact the conclusion.

    So at $1200/oz, there is $7 trillion in the world right now. Sounds great.

    The problem is that the US, M2 money supply number, the US has $10.7 trillion worth of money out there. There isn't enough gold in the whole world to cover the amount the US would need.

    So what are the options?

    All The World's Gold Facts

    How much actual money is there in the world? | HowStuffWorks
    Yes, as a silver stacker I remember a figure that gold would have to be $57,000 an ounce to back the currency... so any idea of gold backing the dollar is just fairy tale thinking.

    The world silver market is only about 20 billion annually, so that is also not an option.

    The Mexican Libertad is a silver coin with no face value, it fluctuates with the price of silver.

    A small, local economy could back it's money with monetary metals or just issue coinage, but never for an economy as large as the US.

    Myself, I bought silver back in 2009, anyone can back their dollars with precious metals, I have enough to offset any fluctuation in the dollars I have saved.

    When the dollar goes down, silver goes up and vice-versa, so if your savings dollars lose value your silver will compensate.

    So, any of us can back our own currency... do it yourself...

    Thx

  4. #4
    RNG
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    Two other factors to consider. The best guess at present is that there is only a further 57,000 tonnes of gold to be mined.

    And, and this is another curse of the computer/high tech age. For the first time ever, gold is being consumed. About 12% of gold being mined now is going for uses where in each component it is such a small amount it is not possible to recycle it so it is now a consumable commodity, a new factor.
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    Bizarroland Observer Thx1138's Avatar
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    Quote Originally Posted by RNG View Post
    Two other factors to consider. The best guess at present is that there is only a further 57,000 tonnes of gold to be mined.

    And, and this is another curse of the computer/high tech age. For the first time ever, gold is being consumed. About 12% of gold being mined now is going for uses where in each component it is such a small amount it is not possible to recycle it so it is now a consumable commodity, a new factor.
    That's also happening with silver, the electronics industry uses it up, never to be recovered.

    I have heard that a big screen TV uses about a half-ounce of silver.

    (Also, more and more often silver is being used for it's anti-bacterial properties, they are using it in fabrics for instance so clothes will stay fresher longer.)

    Silver has numerous industrial uses, gold on the other hand is practically useless.

    I used to belong to a precious metals forum and there are some who still tout the gold-backed dollar.

    The debt dollars would also have to be backed, almost 20 trillion...

    Here is an article you guys might like.

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

    Thx
    Last edited by Thx1138; 12th June 2017 at 08:24 PM.

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    RNG
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    Even if we had enough gold to cover the current currency, every increase in GDP would require the government to get that much more gold or we would suffer extreme deflation. An economic disaster.
    Thanks from Claudius the God and BigLeRoy

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    Bizarroland Observer Thx1138's Avatar
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    Quote Originally Posted by RNG View Post
    Even if we had enough gold to cover the current currency, every increase in GDP would require the government to get that much more gold or we would suffer extreme deflation. An economic disaster.
    Yes, once the dollar was de-coupled from gold there was no going back.

    Some at the metals board used to lament the fact that the dollar is no longer backed by gold...

    I guess they don't stop to realize that if the govt needed the gold to back the dollar, then all the gold these guys have accumulated would be confiscated... (duh)

    Thx

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    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.

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    Junior Member Claudius the God's Avatar
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    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.
    Thanks from Thx1138

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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.
    I detect a criticism of the system here but do you have an alternative to offer?

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