Fiat Currency Always Fails

[Notcalculator]

Inflation isnt entirely bad. Capitalism needs to grow and right now that's the only way. Of course there are questions of sustainability. How long will this become sustainable? and it there a ceiling to continuous growth? I dont completely agree that fiat eventually fails. The truth is fiat fails because of greed and mismanagement.

[timerland]

See:

There Is No Escaping History.  Fiat Currency Eventually Fails.

Notice that this is a critique of fiat money -- not a critique of state-issued money under a gold/silver or other standard.  Fiat money is a rare occurrence in modern history.  (We live in strange times!)  As we can see, the examples found by the author are a small number of short periods here and there.

I have my own critique of gold/silver standards, but that's another issue.

Fiat currencies never lasts, you don't see fiat from even just 100 years ago ending up still in circulation with the same value.

A lot of people blindly trust in the government and their ability to maintain the value of their fiat currency. The fact is that it never happens. Fiat currency always depreciates in value over time without any exception because of the fact that governments can do whatever they want to issue more of it.

Investing some of your portfolio into BTC/other inflation hedges is the way to go imo for the long run.

Get as much money out of fiat as you can, while you can.

[BrentMack]

Nothing lasts forever and fiat does not escape this law. With the world advancing so much technologically and making so much advancement, there will be no room for fiat money as everything will be done electronically.

[BobK71]

but it seem to fiat currency printing should have a basis, and can not print as desired, because eventually there will be inflation. but for the long term i think fiat money making prices are not appropriate

There are all kinds of rules regarding money printing.  In Britain and the US there were laws against printing money beyond a certain ratio to gold reserves.

But all these fail to stop over-printing, because the incentives are for the elites to print more, and they always find a way around the rules.  (E.g. a night at the Waldorf Astoria in New York was advertised for $5 in the 1930s.  Now it's probably closer to $500.)

[BobK71]

In my opinion As long as fiat money still serves as a medium of exchange, it will always be needed by the people of today and therefore it will always have a function as an asset to all of us. although the best value-keeping asset is gold but even though gold is quite liquid, it is no longer money that serves as an intermediary.

True, but only a small portion of your savings needs to serve as a medium of exchange.  Most of it needs to be a store of value.

[data_teks]

Problem is now that all money issued by countries is fiat, after US went out of gold standard some years before.

[Hell-raiser]

See:

There Is No Escaping History.  Fiat Currency Eventually Fails.

Notice that this is a critique of fiat money -- not a critique of state-issued money under a gold/silver or other standard.  Fiat money is a rare occurrence in modern history.  (We live in strange times!)  As we can see, the examples found by the author are a small number of short periods here and there.

I have my own critique of gold/silver standards, but that's another issue.

Oh, ZeroHedge again, the messenger of eternal doom and gloom.

Paper currency has led to the collapse of almost every economy that has tried to institute a fiat currency to trade for goods and services. It’s not looking very well for the once mighty dollar, either.

Didn't read past these first two sentences as it is pretty much clear that they don't know what they are talking about. In simple terms, the author of that piece, whoever he might be, is putting the cart before the horse. It may in fact look like paper money leads to a collapse of almost every economy but in reality it is always the other way round. Whatever case you consider, the failure of paper money is the outcome of the failure of the state, not its cause. The Weimar Republic, Yugoslavia, Soviet Union, Zimbabwe, you name it, it was all a failure or breakdown of the state which quickly led to a collapse of the monetary system.

[Aikidoka]

As a matter of fact, you cannot live without using fiat currency because all countries are using it, and even if you have bitcoin, you eventually will transfer it into fiat money. I am not saying it because I support it, but we have to be realistic and honest with this reality.

You cannot live without fiat money, and there is no fiat money without bitcoin. You just need to have some coins in order to have fiat money.

[magneto]

As a matter of fact, you cannot live without using fiat currency because all countries are using it, and even if you have bitcoin, you eventually will transfer it into fiat money. I am not saying it because I support it, but we have to be realistic and honest with this reality.

You cannot live without fiat money, and there is no fiat money without bitcoin. You just need to have some coins in order to have fiat money.

What are you saying?

Bitcoin can exist without fiat currency. Only reason why people are trading fiat with bitcoin is because bitcoin is not yet completely mainstream. The discussion here is about the depreciative nature of fiat, and how they always end up being valueless. I completely agree with that, as you simply can't find any successful fiat currencies at holding value for the long term.

Bitcoin/gold/silver/other decentralised currencies can not only exist without fiat, it can also hold its value in the long term.

[metenjean]

We know that flat will fall in the end but that is how the world works now, government start to print more paper money everywhere and issue long term bond which create more debt in order to survive or try to develop to a bigger country. The economic recession already crashed a few times and its not that government can't stop it but because there is no alternative to do it.

[data_teks]

I am absolutely agree, whole stuff of paper money is complicated since there is can be printed unlimited paper money in the world..

[Hell-raiser]

As a matter of fact, you cannot live without using fiat currency because all countries are using it, and even if you have bitcoin, you eventually will transfer it into fiat money. I am not saying it because I support it, but we have to be realistic and honest with this reality.

You cannot live without fiat money, and there is no fiat money without bitcoin. You just need to have some coins in order to have fiat money.

What are you saying?

Bitcoin can exist without fiat currency. Only reason why people are trading fiat with bitcoin is because bitcoin is not yet completely mainstream. The discussion here is about the depreciative nature of fiat, and how they always end up being valueless. I completely agree with that, as you simply can't find any successful fiat currencies at holding value for the long term.

Bitcoin/gold/silver/other decentralised currencies can not only exist without fiat, it can also hold its value in the long term.

In my view, Bitcoin can exist along with fiat but it can't exist instead of fiat. Such a question has been raised numerous times here, and many distinguished posters, with whom I certainly agree, pointed out that if Bitcoin were to substitute fiat, if purely hypothetically, the economy would quickly come to a halt and then implode. To sun it up, Bitcoin as well as other cryptocurrencies is a bad means of exchange, but this is what makes money into money. 

[godzillarekt007]

I am absolutely agree, whole stuff of paper money is complicated since there is can be printed unlimited paper money in the world..

No doubt and once people realize the system is no good, they switch over to a new "fairer" system. It all ends up being the same anyhow, this is the first time in 500 years+ we have seen a real shift to another type of currency. I don't know what lay ahead, but I am excited to find out and be on the forefront of history.

[BobK71]

Imo it's just the natural progression of humanity sir.
In the past we still can use gold/silver or paper money backed by gold because the money can still keep up with the demand (or mainly because population).
And when money cannot keep up, it became fiat to make sure people still can get enough money even when its intrinsic value decreased.
This is to prevent chaos and ensure order.
Surely fiat currency will eventually fail, but i don't see any solution for that issue.. maybe cryptocurrency?

That is the story told time and again by mainstream economists.  Remember these are the same people who told us the gold standard was good economics, until the elites in all countries were forced to default on gold, and then they told us gold was bad.

It's not that money must be 'flexible-supply' to keep up with growing economies.  It's the other way round.  A growing economy (from modern technological advance, etc.) enables the elites to skim off the cream of production by manipulating money.  No wonder, the economists tell us money must be flexible!

The deflationary fear is only justified by the bad experience of deflationary pain (e.g. the Great Depression, etc.)  But all such bad deflation in history has been preceded by a financial bust, which has been caused by elite-driven financial inflation and state-supported over-valuation of assets, anyway.

There can't be honesty in a system where voters don't understand enough (about money and finance) to hold the elites accountable.  It's not possible that central bankers and economists actually use policies for the good of society, because of this asymmetry of information.  If the elites didn't use the money system to receive unearned wealth and power, they'd be short-changing themselves, in a totally objective, morality-free sense.

[BobK71]

Inflation isnt entirely bad. Capitalism needs to grow and right now that's the only way. Of course there are questions of sustainability. How long will this become sustainable? and it there a ceiling to continuous growth? I dont completely agree that fiat eventually fails. The truth is fiat fails because of greed and mismanagement.

IMO the problem is with incentives.  The fiat money system has incentives for the elites to destabilize their own system, by issuing more money and debt to benefit themselves.  This eventually destroys the value of, and trust in, their issuance.

'Capitalism' is usually taken to mean unfettered, free markets.  But the state issuance of money is the height of state control.  Money can't find its value in the marketplace because the elites carefully manipulate money's price to operate and ensure the survival of a system that primarily benefits them.

[marcuslong]

Inflation isnt entirely bad. Capitalism needs to grow and right now that's the only way. Of course there are questions of sustainability. How long will this become sustainable? and it there a ceiling to continuous growth? I dont completely agree that fiat eventually fails. The truth is fiat fails because of greed and mismanagement.

IMO the problem is with incentives.  The fiat money system has incentives for the elites to destabilize their own system, by issuing more money and debt to benefit themselves.  This eventually destroys the value of, and trust in, their issuance.

'Capitalism' is usually taken to mean unfettered, free markets.  But the state issuance of money is the height of state control.  Money can't find its value in the marketplace because the elites carefully manipulate money's price to operate and ensure the survival of a system that primarily benefits them.

I don't think the system has the problem here, because if you have to look on the manipulations of the elites really helped to make the operation stable. Fiat currency is going to survive for more 100 years and people really have to recognize it as a sustainable currency. Unlike with crypto currency, the assurance is nothing to prove for due to its volatile movement and crashing always happened. Moreover we should understand that fiat currency money doesn't gain huge interests, but still the stability always in parallel to the regulations of a certain country.

[BobK71]

Didn't read past these first two sentences as it is pretty much clear that they don't know what they are talking about. In simple terms, the author of that piece, whoever he might be, is putting the cart before the horse. It may in fact look like paper money leads to a collapse of almost every economy but in reality it is always the other way round. Whatever case you consider, the failure of paper money is the outcome of the failure of the state, not its cause. The Weimar Republic, Yugoslavia, Soviet Union, Zimbabwe, you name it, it was all a failure or breakdown of the state which quickly led to a collapse of the monetary system.

I might have to re-read that article, but the relationship between the state and its money seems more of a  chick-and-egg (in both directions) than a horse-and-cart case.

Confidence in state money depends on confidence in its state, true.  But confidence in the state also depends on confidence in its money.  The British Empire (and the Dutch and Spanish before it) were brought down by the incentives for the elites to issue too much paper money (even though this 'money' was technically debt payable in gold or silver.)  Savers and investors moved money to the rising US after World War I, and Britain lost the empire and endured economic pain over decades of the 20th century.  (The war was only the last straw that broke the camel's back -- since Britain had only 3% of the gold required to redeem its total issue of paper sterling under an official gold standard, we have to view paper sterling as a bubble that was simply not possible to sustain long-term, with or without a war.)

The French Revolution issued the Assignot, and the American Revolution issued the Continental, both of which collapsed due to their paper nature, not to the failure of the revolutionary governments.  Even Weimar Germany held together well after the hyperinflation.  With a new land-backed currency, the money system and the state were back in health in a few months.

I would agree that in many cases, failing states and/or bad policies lead to hyperinflation and collapse of the currency.  But these aren't the only examples of paper money.  The most recently strongest paper money is the dollar.  Yet its purchasing power today is on the order of 1% of what it was at the founding of the Federal Reserve in 1913.  If it has 'not collapsed' yet, it is because of bubble dynamics alone.

As we have seen with the Spanish, Dutch, British, and now American money bubbles, state supported bubbles might last a long time (and maybe much longer than outfits like ZeroHedge predict!) but the nature of bubbles is to burst -- no exceptions.

[BobK71]

As a matter of fact, you cannot live without using fiat currency because all countries are using it, and even if you have bitcoin, you eventually will transfer it into fiat money. I am not saying it because I support it, but we have to be realistic and honest with this reality.

You cannot live without fiat money, and there is no fiat money without bitcoin. You just need to have some coins in order to have fiat money.

What are you saying?

Bitcoin can exist without fiat currency. Only reason why people are trading fiat with bitcoin is because bitcoin is not yet completely mainstream. The discussion here is about the depreciative nature of fiat, and how they always end up being valueless. I completely agree with that, as you simply can't find any successful fiat currencies at holding value for the long term.

Bitcoin/gold/silver/other decentralised currencies can not only exist without fiat, it can also hold its value in the long term.

In my view, Bitcoin can exist along with fiat but it can't exist instead of fiat. Such a question has been raised numerous times here, and many distinguished posters, with whom I certainly agree, pointed out that if Bitcoin were to substitute fiat, if purely hypothetically, the economy would quickly come to a halt and then implode. To sun it up, Bitcoin as well as other cryptocurrencies is a bad means of exchange, but this is what makes money into money.  

IMO money must primarily be a store of value.  It is a means of exchange only because it is a good store of value, as no one would take a money in exchange for goods if that money isn't perceived to keep value.

Bitcoin can't be a good means of exchange because the blockchain architecture, by its trust-free nature, has too much overhead to be used in everyday transactions.  But it's this very trust-free nature that enables it to be a store of value.  A world one can envision is where savers hold most of their wealth in Bitcoin, but continuously convert a small portion to/from state currencies for spending.

This is not essentially different from the (wise) strategy of holding most of your coins in a private wallet, but keeping a small portion on an exchange for trading.  The exchange requires you to trust a central authority, but is more convenient.

BTW, by distinguished posters, do you mean all the top economists who used to praise the gold standard when the elites were in favor of it?  I would agree that the economy would implode if we somehow, magically transition quickly to a hard money.  But this is only because prices and production levels have been distorted by the modern fiat money inflationary system.  Thus, keeping this system going, because we're afraid of the pain of stopping, fits a classic definition of addiction.

[destroyer01]

A fiat currency system comes into existence as a result of excessive debt and the resulting hyperinflation.When the government is unable to repay all its debt in a physical form gold or silver then the idea arises to remove the physical backing.This is when the fiat money system is implemented and is one in which the value of money is based on confidence.

[NBIToin]

Looking at economic history one can see that different societies from different parts of the world during different times has been swinging from quality money (gold, silver) to paper money. Today we have Bitcoin and other crypto currencies that one can choose from.

As an Austrian I would like to make the proposition of free money, that is let the market (in other words us) decide what we want to use. If someone want to use Bitcoin that is great, gold, silver - be my guest. If someone want to use paper why not? But don't force anyone... with that said Fiat always fail!  :

Btw Very interesting thread and great opinions.