Fiat Currency Always Fails

[Crafts12]

Fial is outdated yes it's true, but fiat is stable more stable than bitcoin. But i still believe that crypto currencies will actually catch up and dethrone fiat as a way to exchange goods and services. I just hope that fiat will crash the same time as crypto currencies become strong enough to be a global currency.

Gone are the days when countries print money due to the Gold deposits, but now they just print almost whenever they want and from what the articles goes on to say it means that the entire world economy is in crisis.

Fiat still ahead to bitcoin even bitcoin has a high value. Because not everyone likes bitcoin there are still people who want fiat currency than it. Fiat was a strong type of currency that was supported by the government. Sad but true that the endless printing of money was only depending to the wants of the government.

[loreykyutt05]

Interesting article about fiat. It can be concluded that a constantly growing amount of paper money leads to a global crisis as a bomb with a deferred action. Perhaps we are a generation that will witness and take part in the global change of the monetary system.

I agree and I am very excited to see the world go cashless , Honestly I hate a paper money because I can't maximize it fully and I can easily lost it when I misplaced it however if we go digital I can maximize my money until it last centavo and I dont need to remind myself  everyday where will I place my money because it is already on my digital wallet , amazing isn't it ?

[ninis45]

as we know fiat money will remain in guanakan function only if bitcoin more received in a country then it can be ensured fiat money will be set aside by virtual money

[Hell-raiser]

This is what establishment commentators like to say.  Gold and Bitcoin are just investments.  They are not money.  My question is: if they're not money, what are they?  They don't allow you to live inside (like real estate.)  They don't claim a share of company profits and equity (like stocks,) and they don't claim a future stream of debt repayment (like bonds.)  Why do they have value?

You seem to get stuck with that tune ("what establishment commentators like to say"). I don't know what they say, I don't even know whom you refer to exactly. I proceed from my own understanding and it's pretty much in line with the history of money. Gold and Bitcoin are investment assets. Gold is basically a risk-free asset, while Bitcoin is a highly risky one. Gold is to preserve wealth, it is not expected to rise on its own unless things go awry in a major way. This is why gold has investment value. Bitcoin, on the other hand, is a speculative asset, and it gains such value, speculative value, because people expect its price to rise in the future. For the record, with most stocks it is essentially along the same line. Traders buy stocks as they hope their market value will surge in the future, while dividends (which are not guaranteed) come as a nice bonus, if ever.

I'm really surprised that you ask such questions.

You can slap whatever label you want on something, but the inner reality is always what really matters in the end.  Gold has value because of its monetary nature.

Apart from jewelry, most of gold value comes from its ability to preserve value in situations of economic collapse and meltdown. This has nothing to do with its monetary nature due to its near-complete absence nowadays.

[Geleve]

Yeah indeed. That is why gold has bern the most famous investment method for centuries it does not loose its value in long term. Never...

[bitadviser]

Yes, and it contolled by government, for example economy of my country based on the oil, the price of the oil changed up, but my fiat currency is the same vs dollar, so i do not trust the fiat, the prices didnt changed, and they will go up dosnt matter whats happening out of there

[TheClownSong]

Fiat money always have less purchase power because inflation. Inflation because central banks always printing money and they reason is want to boost economy growth and thats why bitcoin using decentralized system because no one can control the supply

[sharnel18]

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.

We never know the stability of fiat currency will be stable on its value,but as long as the fiat currency still serve to the people everything is in progressive function and asset to us.

[Hell-raiser]

'Massives retreats' notwithstanding, the overall pattern from 1913 (the Federal Reserve's founding) to today is that the stable-over-long-period dollar price of gold went from $22, to $35, to around $300, to around $1000.  Call it whatever you like, we have never left the gold standard de facto, because we can't, and we have been continuously devaluing the dollar against gold to keep the system stable.

From $22 to $1000, the dollar lost 98% of its value against gold.  I'll let that speak for itself.

Are you serious? That devaluation lasted for over 100 years, which gives you less than 1 percent annually. In fact, it is even less than that if you take into account compounding. For example, 1% devaluation in the last year would be equal to 10 dollars in absolute values. How many currencies do you know that would last as long and are as stable? If you account for real price inflation, you will see that gold gets devalued too, though in a lesser degree. You let the figures speak for themselves but you don't tell all the figures, but half-truths are worse than outright lies. You forget to mention how much wages increased since 1913. Recalculate the current price of gold in terms of, for example, hourly wages, and you will see how much gold appreciated in real terms.

Just do it, and you will be surprised how badly gold fared. It depreciated almost 2 times in terms of real purchasing power, and you simply can't say that it is what "establishment commentators like to say". These are the real figures, which you choose to ignore.

[jaysabi]

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.

Who can ever forget the great economic teachings of the imitable Tyler Durden.  It's hard to take seriously a bunch of clowns who peddle conspiracy theories under a pseudonym on the internet, but let's pretend anyway.

You have to zoom out 100 years to make an argument that the dollar is not stable. Over years, the dollar is stable. Over decades, the dollar is predictably fairly stable. In both cases, the stability is great enough allow long term planning and storage of value and for people to be reasonably certain what their stored value will be worth for long periods of time. Ostensibly, Tyler Durden would be a fan of Bitcoin, but in contrast to the USD, Bitcoin miserably fails the store of value and reasonably certainty of value aspects of a useful currency over any stretch of time.

Because you have to zoom out so far to find meaningful loss of value for holding USD, and because nobody holds wealth in USD for 100 years, the "loss of value" purported to have been suffered has never actually been realized by anyone. If you had a physical dollar 100 years ago, it would be depreciated, yes. But, you didn't have a dollar 100 years ago because you weren't alive 100 years ago. And the people who were alive didn't hold value in cash currency for 100 years. In short, the dollar has devalued by 95% over the last 100 years but nobody has lost 95% of their stored value due to depreciation of the dollar.

Most importantly, there is no such thing as perfect money. What we have in the USD is stable over long periods of time and due to the nature of value and an inability to reliably store it in this universe, that's the best you're ever going to get. Money itself isn't value; it's a representation of value, meaning it represents real things that are produced and consumed that people want/need in the present. This is the key point here: You cannot possibly store more value than what can ever be consumed in the present, so expecting a representation of value that was created 100 years ago to hold perfectly for goods that will no longer exist when it is to be spent is unreasonable. Money depreciates necessarily over time unless we can perfectly store all the value ever created, which we cannot because we constantly destroy value by consuming goods or through depreciation of real assets over time. As the value that the money represents is destroyed/consumed over time without a corresponding reduction in the money supply, money necessarily has to lose value over time.

[BobK71]

This is what establishment commentators like to say.  Gold and Bitcoin are just investments.  They are not money.  My question is: if they're not money, what are they?  They don't allow you to live inside (like real estate.)  They don't claim a share of company profits and equity (like stocks,) and they don't claim a future stream of debt repayment (like bonds.)  Why do they have value?

You seem to get stuck with that tune ("what establishment commentators like to say"). I don't know what they say, I don't even know whom you refer to exactly. I proceed from my own understanding and it's pretty much in line with the history of money. Gold and Bitcoin are investment assets. Gold is basically a risk-free asset, while Bitcoin is a highly risky one. Gold is to preserve wealth, it is not expected to rise on its own unless things go awry in a major way. This is why gold has investment value. Bitcoin, on the other hand, is a speculative asset, and it gains such value, speculative value, because people expect its price to rise in the future. For the record, with most stocks it is essentially along the same line. Traders buy stocks as they hope their market value will surge in the future, while dividends (which are not guaranteed) come as a nice bonus, if ever.

I'm really surprised that you ask such questions.

And you still haven't answered my question, 'why do they have value?'  What you gave were pages from a speculator's handbook, not an explanation based on the fundamental reality of how the financial and monetary systems work.

You can slap whatever label you want on something, but the inner reality is always what really matters in the end.  Gold has value because of its monetary nature.

Apart from jewelry, most of gold value comes from its ability to preserve value in situations of economic collapse and meltdown. This has nothing to do with its monetary nature due to its near-complete absence nowadays.

The 'how' is not the same as the 'why.'

[BobK71]

I somewhat agree with you that a monetary system should not create an artificial growth, though this is a separate and very complex topic in itself, with arguments both in favor and against such growth. But how does it challenge my point that the elites are also interested in the common good over the long term?

It doesn't.  It's a totally separate issue.  The elites are only 'interested in the common good' in the sense that they want their bubbles to be sustained for as long as possible, because they benefit the most from these.  But the way they go about it, and the incentives for the elites to destabilize their own system, guarantee that the bubbles will burst, with the worst pain suffered by the public.  They either don't see this coming, or they don't want to see.

Besides, the problem with a limited-supply monetary system is that it heavily interferes with the economic growth. Basically, money should make economic relationships easier or, at the very least, not stand in the way. However, a limited-supply currency takes away some percentage of economic growth as it rewards holders for just holding that currency.

It doesn't.  It merely allows savers to retain their honestly earned wealth.  Deflationary pain in the past has simply been caused by the collapse of the demand that has been propped up by the economic distortion from financial inflation during the 'good' times, in the first place.

But if you reward someone, you should necessarily take from someone else. There is no free lunch. In this case you take some share of the revenue from producers who are actually doing something useful and give it to someone who doesn't do anything productive, who does nothing apart from sitting on their money. Why should they get rewarded?

'Reward' has been made morally relative in your argument.  When you take morality out of the issue, you can argue that when you prevent the theft of a wallet, you're rewarding the owner of the wallet and robbing the thief.  Oh, and if the theft promotes economic growth, so much more power to your argument.  (Not that I'm equating your argument with this -- I'm only saying if you give no consideration to moral issues, you will reap your 'reward.')

[BobK71]

Paper currency encourages violent crime by making robbery pay off and drug dealing and illegal immigration profitable; by giving criminals an easy to use means of payment, Rogoff pointed out. In The Curse of Cash; he noted that the Swedish government greatly reduced the number of bank robberies by simply lowering the amount of cash in circulation, which made such crimes less profitable.

Ironically, this is a claim that is leveled at Bitcoin and other Cryptocurrencies, that they facilitate crime when it reality cash is by far the largest method or exchange for criminals.

They say more than half of the total worldwide value of US dollar cash is in $100 bills.  This is pretty amazing, since you can easily spend a month in the US without ever seeing the $100 bill.

This points to the fact that US dollar cash has been a major facilitator of crime and corruption around the world for decades, if you want to use the language of the outraged Rogoff.  Yet it's only recently that establishment figures started speaking against paper cash. 

The real issue isn't crime.  While criminal demand for dollar cash helped support the dollar in the past, since the 2008 crisis, the existence of cash has become a net negative for the system.  That is because, over the last decade, deflation has been the main problem, and the elites would love to be able to use negative interest to force people to spend and lend.  But the existence of cash defeats any system of negative interest.

[BobK71]

I disagree with you that fiat currency always fails. If i may ask how many times have you been disappointed by fiat currency? And if it is true what are the necessary measures you have taken to avoid such in the future

My lifetime is short compared to the 500 year history of elite-manipulated 'money.'  Some state-issued money can last a long time before they fail or get devalued to a small fraction of their value.  (E.g. the pound.)  But it doesn't change their nature, or the incentives for members of the elites to destabilize their own money.

If I had lived my life in England any time between 1690 and 1931, my paper pound would have been freely redeemable for the same amount of gold throughout that period.  It still doesn't change the nature of the system, and, as we see, there was a run on the Bank of England's gold in 1931 and the pound's 'exchange rate' against gold went from 4+ pounds to the ounce to about 1000 pounds today.

Keep in mind that the original linked article is technically about 'totally fiat' money.  These are rare occurrences in modern history, even considering we have been under a 'totally fiat' system today for 45+ years.

In the end, the difference between 'totally fiat' and other state money is only a matter of degree.  Human-issued money always suffers from the same destructive incentives.

[BobK71]

Fiat money always have less purchase power because inflation. Inflation because central banks always printing money and they reason is want to boost economy growth and thats why bitcoin using decentralized system because no one can control the supply

'Boosting economy growth' is what establishment commentators like to say.  The reality is that the elites benefit the most from the various bubbles supported by state-controlled money.  (A major example is that politicians can issue government bonds that are almost as good as money -- since the central bank can print money to save an indebted government from bankruptcy.  So politicians are almost as good as being able to print money.)

State money does boost the economy, but at an artificially fast rate, and always with a financial disaster down the road.  After 500 years of this, the elites either don't know this will happen, or don't want to know.

[BobK71]

'Massives retreats' notwithstanding, the overall pattern from 1913 (the Federal Reserve's founding) to today is that the stable-over-long-period dollar price of gold went from $22, to $35, to around $300, to around $1000.  Call it whatever you like, we have never left the gold standard de facto, because we can't, and we have been continuously devaluing the dollar against gold to keep the system stable.

From $22 to $1000, the dollar lost 98% of its value against gold.  I'll let that speak for itself.

Are you serious? That devaluation lasted for over 100 years, which gives you less than 1 percent annually. In fact, it is even less than that if you take into account compounding. For example, 1% devaluation in the last year would be equal to 10 dollars in absolute values. How many currencies do you know that would last as long and are as stable? If you account for real price inflation, you will see that gold gets devalued too, though in a lesser degree. You let the figures speak for themselves but you don't tell all the figures, but half-truths are worse than outright lies. You forget to mention how much wages increased since 1913. Recalculate the current price of gold in terms of, for example, hourly wages, and you will see how much gold appreciated in real terms.

Just do it, and you will be surprised how badly gold fared. It depreciated almost 2 times in terms of real purchasing power, and you simply can't say that it is what "establishment commentators like to say". These are the real figures, which you choose to ignore.

Again, there's no need to argue.  Put a hundred dollar bill next to its equivalent in gold, on the same table, leave them there for a century, and see which one is now worth more.  No need for more words!

And yes, wages have gone up, of course.  (One would hate to live today on 1913 wages!)  So earn today's wages, but put your savings into gold and Bitcoin, or at least that portion that is meant for long-term safe store of value.

[BobK71]

Who can ever forget the great economic teachings of the imitable Tyler Durden.  It's hard to take seriously a bunch of clowns who peddle conspiracy theories under a pseudonym on the internet, but let's pretend anyway.

You have to zoom out 100 years to make an argument that the dollar is not stable. Over years, the dollar is stable. Over decades, the dollar is predictably fairly stable. In both cases, the stability is great enough allow long term planning and storage of value and for people to be reasonably certain what their stored value will be worth for long periods of time. Ostensibly, Tyler Durden would be a fan of Bitcoin, but in contrast to the USD, Bitcoin miserably fails the store of value and reasonably certainty of value aspects of a useful currency over any stretch of time.

Because you have to zoom out so far to find meaningful loss of value for holding USD, and because nobody holds wealth in USD for 100 years, the "loss of value" purported to have been suffered has never actually been realized by anyone. If you had a physical dollar 100 years ago, it would be depreciated, yes. But, you didn't have a dollar 100 years ago because you weren't alive 100 years ago. And the people who were alive didn't hold value in cash currency for 100 years. In short, the dollar has devalued by 95% over the last 100 years but nobody has lost 95% of their stored value due to depreciation of the dollar.

Most importantly, there is no such thing as perfect money. What we have in the USD is stable over long periods of time and due to the nature of value and an inability to reliably store it in this universe, that's the best you're ever going to get. Money itself isn't value; it's a representation of value, meaning it represents real things that are produced and consumed that people want/need in the present. This is the key point here: You cannot possibly store more value than what can ever be consumed in the present, so expecting a representation of value that was created 100 years ago to hold perfectly for goods that will no longer exist when it is to be spent is unreasonable. Money depreciates necessarily over time unless we can perfectly store all the value ever created, which we cannot because we constantly destroy value by consuming goods or through depreciation of real assets over time. As the value that the money represents is destroyed/consumed over time without a corresponding reduction in the money supply, money necessarily has to lose value over time.

Sorry, this is an establishment-friendly opinion that forgets a few key points.

A long time frame of history shows the basic nature of state-issued money (as the devaluation of the dollar against gold by 98% shows.)  But chances are, the future won't be exactly the same as the past.  It took until 1971 for gold to go officially higher than $35/ounce, and only 40+ years to go all the way to $1000+/ounce.  This is due to the strength of the US lead world system, wars, etc., and this pattern probably won't repeat exactly.  So who knows how far gold and Bitcoin can go in our lifetime, or in the next decade?

Yes, the dollar has been relatively stable over the last century, compared to other state issued currencies.  But the price the world paid was wars and imperial aggression.  Just two examples:

- World War II was caused by the rise of Hitler, which was caused by the instability and tight deflationary squeeze that the US lead system deliberately put on Germany during the post-World-War-I period and the Great Depression.

- Poor countries were bribed or forced to borrow massive amounts of dollars after World War II, more than they could hope to repay.  (This became one of the major support systems for the dollar as it guaranteed the countries would always be thirsty for dollars.)  Only a few leaders were wise and courageous enough to resist this system, and 'regime change' was the fate of those who didn't change their minds.  (See 'Confessions of An Economic Hit Man' by John Perkins.)

It is true that money is only a representation of value.  It's only a claim on the future real productivity of the economy, and who knows what the economy can do in future.  All true.  But this establishment line forgets that the destructive incentives inside a state-money system further destabilize the value of money and life itself.  In fact, we can argue that the majority of economic, social and political instability has been caused by state money.

[BobK71]

Because you have to zoom out so far to find meaningful loss of value for holding USD, and because nobody holds wealth in USD for 100 years, the "loss of value" purported to have been suffered has never actually been realized by anyone. If you had a physical dollar 100 years ago, it would be depreciated, yes. But, you didn't have a dollar 100 years ago because you weren't alive 100 years ago. And the people who were alive didn't hold value in cash currency for 100 years. In short, the dollar has devalued by 95% over the last 100 years but nobody has lost 95% of their stored value due to depreciation of the dollar.

Zooming out so far is only to make it super-clear that state money is clearly losing value.  From last year to this year, do you expect any price to go down in fiat money?

If most people don't hold most of their savings in cash, that is because they are forced to invest in riskier assets, by the design of the system (ie automatic loss of the value of your savings, unless you take risks.)  What this shows is that this is a system of theft, by design.  (Another way to say it is that it's an inflationary system, by design.)

Oh, and it just happens, if you put your money in the (shadow) banking system, or buy stocks, the advantage goes to those who know which banks will be bailed out, and which stocks will do well.  (Not to mention the top elites whose lives are based on issuing debt.)

[Guryon_master]

Yes, fiat money does not the applicable use in making transaction by buying, selling, paying and investment. I consider it as a running to its forgotten place to let crypto currencies rule the economy.

[jaysabi]

Because you have to zoom out so far to find meaningful loss of value for holding USD, and because nobody holds wealth in USD for 100 years, the "loss of value" purported to have been suffered has never actually been realized by anyone. If you had a physical dollar 100 years ago, it would be depreciated, yes. But, you didn't have a dollar 100 years ago because you weren't alive 100 years ago. And the people who were alive didn't hold value in cash currency for 100 years. In short, the dollar has devalued by 95% over the last 100 years but nobody has lost 95% of their stored value due to depreciation of the dollar.

Zooming out so far is only to make it super-clear that state money is clearly losing value.  From last year to this year, do you expect any price to go down in fiat money?

If most people don't hold most of their savings in cash, that is because they are forced to invest in riskier assets, by the design of the system (ie automatic loss of the value of your savings, unless you take risks.)  What this shows is that this is a system of theft, by design.  (Another way to say it is that it's an inflationary system, by design.)

Oh, and it just happens, if you put your money in the (shadow) banking system, or buy stocks, the advantage goes to those who know which banks will be bailed out, and which stocks will do well.  (Not to mention the top elites whose lives are based on issuing debt.)

You can't store value permanently. It's physically impossible. Things that have value decay and are consumed, and value is constantly destroyed through these two means. The failure of goldbugs is that they expect that all value ever created will last forever, which is why they push the gold standard so hard. It defies economy reality. The value of what you create in the present is going to be worth significantly less in 50 years, and the money that underlies that value should likewise be worth less. Value starts to decay the moment it is created. When money doesn't also, it creates deflation. The appreciation of value in money creates disincentives to spend, which lowers economy activity and puts downward pressure on the economy. Consumption is what creates value, and inflation stokes consumption. It may look manipulative, and perhaps it is, but it's far preferable to the the types of crises caused by the gold standard and our collective inability to shorten the duration and severity of those crises. If all value ever created was storable infinitely, the gold standard would make sense. Because value can't be stored indefinitely, gold ultimately does more harm than good.