Why fiat money is so wrong
Fiat money is not honest money. It is a paper currency backed by nothing. That in itself is fine. I have no problem with fiat money, electronic currency or any other medium of exchange. Just remember, money is a cipher. The problem is the government monopoly on money causes business cycles and economic pain. The easiest way to control issue is to eliminate fiat money, that is the Fed’s power.
- Fiat money is creating money out of thin air and distorting the capital structure, creating business cycles, driving up debt and increasing inequality manifest by the Gini coefficient.
In 1971 Nixon took the world off the International Gold Standard. This Nixon shock eliminated the Brenton Woods pegging of the dollar to 1/35 the value of a troy ounce of gold. Nixon was not one of our greatest presidents. Specie-backed representative money becomes the norm.
However, the real chaos started in 1913 with the creation of the Fed and a monopoly on legal tender. Read what the government has done with our money: US fiat money.
Federal reserve system alternatives to control fiat money abuse
Money is a medium of exchange. In economics the market for money is the most important market there is, because disequilibrium in the money market cause business cycles, otherwise known as recessions, depressions, panics, and crises. The solution is easy, find an alternative to the US Federal Reserve bank.
In this post, I give two ideas.
I like listening to guys like Alan Greenspan and Ben Bernanke on TV. They sincerely try. They are ethical in actions and calm in demeanor and use such nice flowery economic vocabulary. I would trust those guys if I knew them personally or with a business dealing. However, to micromanage and fine-tune the economy of the United States, no way. Not a chance. It is foolish to be lulled into a sense of security with their charm.
Do you think eliminating the Federal Reserve system and replacing it with real non-fiat money is radical?
Think again. The problem with having a Federal Reserve and a government monopoly on money is:
- Historically the Federal Reserve has missed every impending crisis and in fact, made it worse, recent examples are fueling the Internet stock bubble or the Crisis of 2007. Historically the Federal Reserve caused the Great Depression and prevented the recovery.
- The Chairman of the Federal Reserve bank, as well-intentioned and educated as he does not have the ability to predict the demand for money. In fact, predicting the weather two years in advance would be easier as there are less exogenous variables. Believe me, I am a smart guy and I could not even predict money flows. It is hard enough to predict the price of one stock, let alone aggregate macroeconomic indicators. He is no one special, just an academic with an opinion, but responsible for all our economic lives.
- Money supply policy usually has a long lag factor, so actions by the Fed today might not be seen for two years and this will exacerbate business cycles. It does not work even if you could predict it.
If I did not convince you to do your own research on the history of business cycles or use your own judgment about the economy now. Abolish the Federal Reserve system and we all will return the US to prosperity. The easiest way to eliminate the Fed is a return to hard currency. It worked for thousands of years. With hard currency, you do not have hyperinflation. Countries go on Fiat money when they run out of options like the US issued greenbacks during the civil war. It is not something that should be the accepted norm.
Eliminate fiat money – Return to the gold standard – Federal Reserve alternative I
Fiat money is paper money backed by air. Or in the US the ‘full faith and credit of the US government’. There is no commodity backing the currency. The dollars value is based on what people think it is worth, rather than intrinsic value. Normally I have not a problem with this as every commodity or thing in the world has subjective value, based on supply and demand.
The supply of gold increases pretty steadily about 2% a year which matches the 150-year historic growth rate of the USA. Therefore, coincidentally this seems like a match. Even if the rate was different it would not matter actually. Further, in times of panics, money is backed by gold and fear is less.
The problem is when the government can increase the supply of fiat money at will instead of normal market forces, it is open to abuse and miscalculation. Again just think of history from the inflation of the 1970s to the crisis of today. The Fed’s quantitative easing will destroy the value of the dollar.
Free money – Allowing competing currencies – Federal Reserve alternative II
Why is free money, that is competing currencies, a good idea? Right now it is illegal to use anything but dollars in the USA for financial transactions. This is the US government monopoly on money. But if other issuers could issue money, backed by commodities such as gold and silver, such as in the free money era in the USA in the 19th century, you will have a self-regulated money supply. This means fewer business cycles and steady growth.
The crisis would end as prices would adjust. If there was something called free money, banks could issue currencies backed by gold or silver, markets, not the Federal Reserve would control the supply and demand for money.
I personally prefer free money, rather than a gold standard. However, a return to the gold standard is a step in the right direction. Ron Paul at times might seem eccentric but he does understand economics. Ron Paul on fiat money, eliminate it.
Fiat in Latin means let it be done
Do not let it be done to you or the USA. Do not let the Fed just do whatever it wants. The US needs to implement something other than the Federal Reserve system is with the end of the government monopoly of money the US government must be more responsible in financial spending. The debt cannot be inflated by quantitative easing or printing money. This means returning the USA to freedom and prosperity. Finding a viable alternative to the Federal Reserve and eliminating fiat money is a practical and philological issue. Do you trust the government to manage your money or you?
Leave a Reply