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Thread: Arguments against fiat currency

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    RNG
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    Arguments against fiat currency

    On several forums of which I have been a member in the past, there have been a surprising number of people of all political positions who argued vociferously about the evil of fiat currency. Calling it a Ponzi scheme was one of the nicer things. Yet every time I challenged them to offer a superior alternative all I got was predictions of doom, gloom, economic chaos and an ugly death.

    In fact quite a few suggested going back to a gold standard, but it didn't take long to point out that even ignoring the fact that the government would then have to buy your total money supply worth of gold, the hard fact remains that that much gold does not exist. And that is only looking at the US.

    Interestingly enough, I have not seen anyone on PH take that tact.

    Are there critics of fiat currency here and if so, what alternatives do you suggest?
    Thanks from Thx1138 and Blues63

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    Veteran Member TNVolunteer73's Avatar
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    It is you see a socialist society cannot survive without repeated monetizing debt. print money to pay off government debt or to decrease the value of the dollars that are held by creditors.

    This is why they fail

    Capitalism on the other hand is an economy that has cycles of increase and decreasing periods. Capitalism is the only Economic system that does not fail. It is best when the currency is backed by hard assets example Gold or silver.

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    Did you read the OP. There isn't enough gold to back the currency. That is a non-starter. So instead of repeating Druggie Limbaugh propaganda, offer a viable alternative.
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    Bizarroland Observer Thx1138's Avatar
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    I used to belong to a precious metals forum and it was festooned with folks of the description in the OP...

    First... yes, there can be no going back to the gold standard, as stated there simply is not near enough gold or other precious metals to cover the US dollar.

    In fact, it is estimated gold would have to be almost $60,000 an ounce to cover the dollar, this if you acquired every ounce ever mined in history... (and there are other fundamental problems with that, each one a deal-breaker... like, what would that do to the price of gold? If the demand drove it up, then gold might inflate to $100K an ounce, see the resistance that would build?)

    The problem with fiat currency is not the currency itself, but I believe the rules concerning fractional reserve banking...

    What is it, nine to one?

    So, for every thousand dollars on deposit, the bank is able to lend $9,000...

    Now, the money might have initially been created out of thin air, but eventually it was worked for and paid off and does represent something of real value...

    The problem is, this dilutes all the other currency.

    So, one has to constantly invest.

    I have a fair stack of silver, and this is my inflation insurance policy... when the dollar goes down in value, generally the price of silver and other PMs goes up, so in this way it compensates for inflation.

    But fiat currency is here to stay, it would take a major collapse that represents much more trouble than currency devaluation to get us off it, basically the US would have to no longer exist.

    As I approach my retirement, I don't have the money they suggest one needs, (who does?) and I see my best strategy as trying to maintain a certain living standard, but doing it on the cheap...

    So, I bought a piece of land, will probably put a trailer on it, and will have to pay a whopping $225 a year for property tax and HOA dues combined...

    Then, I want to grow some of my own food and glean some from the forest as well.

    This way, my costs are low, but even if we did experience hyper-inflation, I'd still probably be okay, better off than many.

    Here is something interesting...

    Many are probably aware of the hyper-inflation in Zimbabwe... last I checked they were up to a hundred trillion dollar note, and those were selling on e-bay for 10 bucks...

    Now, if those folks would have kept their money in coinage instead of paper currency or numbers in a bank, they would have taken a hit perhaps, but would have been far better off than the old folks and toddlers that now have to pan the rivers for gold to eek out a small subsistence...

    Nickels for instance, are worth about six and a half cents, copper pennies are worth more than 3 cents...

    So... while the US govt cannot back the dollar with gold, the average citizen CAN back their own savings with gold, silver and other monetary metals!

    Thx
    Last edited by Thx1138; 7th October 2017 at 11:16 AM.
    Thanks from bmanmcfly

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    Quote Originally Posted by Thx1138 View Post
    I used to belong to a precious metals forum and it was festooned with folks of the description in the OP...

    First... yes, there can be no going back to the gold standard, as stated there simply is not near enough gold or other precious metals to cover the US dollar.

    In fact, it is estimated gold would have to be almost $60,000 an ounce to cover the dollar, this if you acquired every ounce ever mined in history... (and there are other fundamental problems with that, each one a deal-breaker... like, what would that do to the price of gold? If the demand drove it up, then gold might inflate to $100K an ounce, see the resistance that would build?)

    The problem with fiat currency is not the currency itself, but I believe the rules concerning fractional reserve banking...

    What is it, nine to one?

    So, for every thousand dollars on deposit, the bank is able to lend $9,000...

    Now, the money might have initially been created out of thin air, but eventually it was worked for and paid off and does represent something of real value...

    The problem is, this dilutes all the other currency.

    So, one has to constantly invest.

    I have a fair stack of silver, and this is my inflation insurance policy... when the dollar goes down in value, generally the price of silver and other PMs goes up, so in this way it compensates for inflation.

    But fiat currency is here to stay, it would take a major collapse that represents much more trouble than currency devaluation to get us off it, basically the US would have to no longer exist.

    As I approach my retirement, I don't have the money they suggest one needs, (who does?) and I see my best strategy as trying to maintain a certain living standard, but doing it on the cheap...

    So, I bought a piece of land, will probably put a trailer on it, and will have to pay a whopping $225 a year for property tax and HOA dues combined...

    Then, I want to grow some of my own food and glean some from the forest as well.

    This way, my costs are low, but even if we did experience hyper-inflation, I'd still probably be okay, better off than many.

    Here is something interesting...

    Many are probably aware of the hyper-inflation in Zimbabwe... last I checked they were up to a hundred trillion dollar note, and those were selling on e-bay for 10 bucks...

    Now, if those folks would have kept their money in coinage instead of paper currency, they would have taken a hit perhaps, but would have been far better off than the old folks and toddlers that now have to pan the rivers for gold to eek out a small subsistence...

    Nickels for instance, are worth about six and a half cents, copper pennies are worth more than 3 cents...

    So... while the US govt cannot back the dollar with gold, the average citizen CAN back their own savings with gold, silver and other monetary metals!

    Thx
    I did not research it myself, but a close friend, a very smart guy who among other accolades was manager of R&D for a major international oil and gas service company invested all his assets in gold. Then he started digging and basically pulled out. He did it when gold was high but stable so basically only lost his transaction fees and broker fees. But he found out that there are people out there who think they own gold as in ingots, bullion, whatever you want to call it. But without telling you, they treat gold like banks treat money. If everyone who has a piece of paper that says they own X ounces of gold asked to have the gold sent to them, there isn't enough gold to do this.

    What prompted him to do that was a news story that University of Texas actually took possession of the $1B of gold bullion it owns.

    He asked himself why. It's more expensive to rent a safe storage area and self insure it. And the above is what he found.

    A Golden Tipping Point: University of Texas Takes Delivery Of $1 Billion In Physical Gold | Zero Hedge

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    Bizarroland Observer Thx1138's Avatar
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    Quote Originally Posted by TNVolunteer73 View Post
    It is you see a socialist society cannot survive without repeated monetizing debt. print money to pay off government debt or to decrease the value of the dollars that are held by creditors.

    This is why they fail

    Capitalism on the other hand is an economy that has cycles of increase and decreasing periods. Capitalism is the only Economic system that does not fail. It is best when the currency is backed by hard assets example Gold or silver.
    Tell that to Weimar Republic Germany and modern day Zimbabwe or the Greeks...

    Thx
    Thanks from Blues63

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    Bizarroland Observer Thx1138's Avatar
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    Quote Originally Posted by RNG View Post
    I did not research it myself, but a close friend, a very smart guy who among other accolades was manager of R&D for a major international oil and gas service company invested all his assets in gold. Then he started digging and basically pulled out. He did it when gold was high but stable so basically only lost his transaction fees and broker fees. But he found out that there are people out there who think they own gold as in ingots, bullion, whatever you want to call it. But without telling you, they treat gold like banks treat money. If everyone who has a piece of paper that says they own X ounces of gold asked to have the gold sent to them, there isn't enough gold to do this.

    What prompted him to do that was a news story that University of Texas actually took possession of the $1B of gold bullion it owns.

    He asked himself why. It's more expensive to rent a safe storage area and self insure it. And the above is what he found.

    A Golden Tipping Point: University of Texas Takes Delivery Of $1 Billion In Physical Gold | Zero Hedge
    Oh, I believe you are talking about paper stocks as opposed to "physical."

    Yes, for awhile there gold and especially silver peaked and probably made a few fortunes.

    I bought into silver @$11 an ounce (this is physical silver) and two years later it peaked at $50 an ounce...

    Now it hovers around $17 and has been there for years, it is not really an "investment" much anymore.

    It peaked also in the 1980s, this was artificially induced by the Hunt Bros. and snowballing speculation. It went up above $50 and suddenly dropped, and I knew people from that forum that were STILL, 30 years later waiting for silver to peak again so they can cash out!

    Hating silver all along the way.

    I never really looked at it as an investment per se, more of insurance to cover my savings.

    Also, I just needed something worthwhile to put some money into, if I keep it around too much I tend to spend it, lol.

    Thx

  8. #8
    Bizarroland Observer Thx1138's Avatar
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    Quote Originally Posted by RNG View Post
    I did not research it myself, but a close friend, a very smart guy who among other accolades was manager of R&D for a major international oil and gas service company invested all his assets in gold. Then he started digging and basically pulled out. He did it when gold was high but stable so basically only lost his transaction fees and broker fees. But he found out that there are people out there who think they own gold as in ingots, bullion, whatever you want to call it. But without telling you, they treat gold like banks treat money. If everyone who has a piece of paper that says they own X ounces of gold asked to have the gold sent to them, there isn't enough gold to do this.

    What prompted him to do that was a news story that University of Texas actually took possession of the $1B of gold bullion it owns.

    He asked himself why. It's more expensive to rent a safe storage area and self insure it. And the above is what he found.

    A Golden Tipping Point: University of Texas Takes Delivery Of $1 Billion In Physical Gold | Zero Hedge
    Something else... the practice of not having enough gold to cover your ETFs, electronic shares is known as "shorting"... selling shares to gold you don't actually possess...

    (And I see that is a Tyler Derden article from 2011 when this stuff was going down, an "exciting" time for precious metals!)

    (How can they get away with this? Well, it's most unlikely that everyone is going to demand their physical gold at one time... I believe it was J.P Morgan that got into some trouble in this a few years ago, there was a lot of speculation on them in this regard!)

    Now, some shares are "certified" and "allocated" this is where they give you the serial number to bars of physical metal, and when and if you want to take possession, you are going to pay for "storage" and take quite a beating.

    Some of these are not so much in the electronic shares business as they are the secure storage business, lol.

    Generally, it is only for people who really specialize in this, and even for them it's a crap game. (Oh, and the taxes are around 28% I believe!)

    An investor has to make money, a hedge funder like me is content to let physical silver simply maintain it's real world value.

    Thx
    Last edited by Thx1138; 7th October 2017 at 12:03 PM.

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    Quote Originally Posted by Thx1138 View Post
    Oh, I believe you are talking about paper stocks as opposed to "physical."

    Yes, for awhile there gold and especially silver peaked and probably made a few fortunes.

    I bought into silver @$11 an ounce (this is physical silver) and two years later it peaked at $50 an ounce...

    Now it hovers around $17 and has been there for years, it is not really an "investment" much anymore.

    It peaked also in the 1980s, this was artificially induced by the Hunt Bros. and snowballing speculation. It went up above $50 and suddenly dropped, and I knew people from that forum that were STILL, 30 years later waiting for silver to peak again so they can cash out!

    Hating silver all along the way.

    I never really looked at it as an investment per se, more of insurance to cover my savings.

    Also, I just needed something worthwhile to put some money into, if I keep it around too much I tend to spend it, lol.

    Thx
    No, I am not talking "paper stocks" unless you mean a piece of paper that claims you own some gold but it is held through some brokerage or equivalent. It is people who bought this piece of paper being told they own that physical amount of gold. But they don't in reality. There is no ingot with their name on it. Just like when you look at your bank statement and it says you have $3.49 in your account. There isn't a little box with your name on it with three dollar bills and some coins in it. If everyone who has money in that bank came and asked for it in cash, they don't have it. Just like the people who hold "your" gold don't have it.

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    Quote Originally Posted by Thx1138 View Post
    Something else... the practice of not having enough gold to cover your ETF, electronic shares is known as "shorting"... selling shares to gold you don't actually possess...

    Now, some shares are "certified" and "allocated" this is where they give you the serial number to bars of physical metal, and when and if you want to take possession, you are going to pay for "storage" and take quite a beating.

    Generally, it is only for people who really specialize in this, and even for them it's a crap game.

    An investor has to make money, a hedge funder like me is content to let physical silver simply maintain it's real world value.

    Thx
    OK, you understand this, but many don't. Although a thought just came to me. Gold today is just as much a fiat entity as cash is.

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