What is fiat money and what is it used for?
This is essential to understand because the current global unbacked paper monetary regime, or “fiat”, is an economically and socially destructive scheme – with profound and gravely damaging consequences. The is one answer, however, and that is to end the monopoly on state monetary production.
The Fiat money problem
The US dollar, Chinese renminbi, euro, Japanese yen, British pound and Swiss franc are the fiat currency.
Fiat money has three characteristics:
- Fiduciary money is money monopolized by the central bank of the state. It is created by central banks and state-approved commercial banks.
- Fiduciary money is mainly produced by the expansion of bank credit; it is created from nothing.
- Fiat money is dematerialized money, made up of colored paper tickets and bits and bytes on computer hard drives.
Fiat money is by no means “harmless”.
Fiat money is inflationary. Its purchasing power decreases over time, and history has shown that this entropy is almost as irreversible as gravity. Fiat money makes a few rich rich at the expense of many others. The first to get new money at the expense of those at the bottom of the ladder.
In addition, fiat money promotes speculative bubbles and the misallocation of capital, which lead to crises. This is why economies go through cycles of boom and bust. Fiat money lures governments, banks, consumers and businesses into the trap of excessive debt. Sooner or later borrowers find themselves in a deep hole with no way out.
Fiat money is easy to find, so the government can fund its adventures and misadventures. Easy money; it’s life. And the government continues to grow as it spends. As the state grows and grows like weeds in an unmanaged garden, this excessive growth strangles the free market economy, hurting production and employment.
The economic effects
After decades of creating credit and money out of thin air, central banks have built a colossal debt pyramid. The International Institute of Finance (IIF) estimates that global debt stood at 331% of global GDP in the first quarter of 2020. The coronavirus crisis, especially the politically dictated lockdown crisis, has exposed instability of the indebted global regime. monetary regime.
Without economic growth, investors must worry that borrowers will no longer be able to repay their debt, so they rush out of the credit market. As the supply of credit dries up, many borrowers are unable to repay maturing loans, nor can they obtain new funds.
To prevent the fiat currency regime from collapsing in the foreclosure crisis, central banks intervened, removing market interest rates and printing new money to keep states, banks, and businesses financially out of business. overloaded with defaulting on their payments. Central banks monetize large-scale national debt, so far seen only in times of war.
To sit down and think, “Well the monetary authorities have managed to bail out the system, everything will be fine” would be a big mistake. More than ever, central banks are severely damaging what little remains of the free market economic system.
Artificially low interest rates and massive amounts of newly created money lead to large-scale malinvestment, and under current circumstances, they are helping to make government even bigger, fueling the growth of the “deep state”. The uncomfortable truth is that the fiat money system and all the political efforts to push back its collapse lead to the planned economy or even outright socialism. And from an economic and historical point of view, we know that any form of socialism does not bode well. It makes people poorer, brings chaos, oppression and violence.
Furthermore, what should worry us all is that the fiat currency regime is an instrument for political forces who wish to transform, reshape, the world economy. The political establishment, the ‘Davos elite’, for example, undoubtedly favors fiat money and the erosion of the free market system that it entails – as they increase the possibilities for the state to interfere in it. people’s life. In fact, the so-called New World Order envisaged by the progressives – replacing the free market system with a politically planned economic system – if put into practice poses a serious threat to the freedom and prosperity of billions of people. in the world.
I will say a troubling truth, which is that if people are forced to use fiat money, the free economic and social order will not survive.
Fortunately there is a way out
What could be the solution? Well, a solution is at hand and technically speaking it’s pretty straightforward: make possible a free market for money!
A free market for money means that everyone has the freedom to choose what kind of money they think is best, and that everyone has the freedom to offer their fellow human beings something that they can use as money.
But wouldn’t that lead to monetary chaos? Wouldn’t the market be inundated with thousands of new sums? No, it wouldn’t! Because it is the demand for money, the multiplicity of choices made by the different actors, which would decide what would be used as money. If people can choose freely, it may not be long before a good emerges that will be used as currency not only nationally but internationally – as a universally recognized medium of exchange.
Of course, we wouldn’t know what people would prefer for money up front. However, looking into monetary history, there is reason to believe that precious metals, gold and silver in particular, would be in the race for currency. For the future, it could also be a crypto unit. Who knows?
Why aren’t people using gold and silver for payment right now? Well, people have gotten used to using US dollars, euros, etc. as a medium of exchange. Moreover, people are not yet discouraged by the chronic “inflationary tax” on their monetary balances, which means that the purchasing power of their fiat currencies decreases over time. And perhaps even more important: government taxes – namely value added taxes and / or capital gains taxes – on precious metals make them uncompetitive against official currencies.
But the change is underway. As you may be aware, a number of US states (like Texas, Arizona, Utah, and Wyoming, to name a few) have abolished sales taxes and levies. on capital gains on precious metals, allowing a level playing field in terms of competing alternative currencies. with the US dollar.
So if you are really looking for change, make a strong appeal to end the state fiat currency monopoly, let’s establish a free currency market!
The case of gold
Whatever comes out of the current monetary mess, whatever twists and turns it may take from here, there are good reasons to hold onto physical gold.
Fiat money will inevitably lead to inflation (loss of purchasing power) and economic hardship, as noted earlier. Thinking of gold, former Federal Reserve Chairman Alan Greenspan summed it up best when he said in 2014: “Gold is currency. It is still, obviously, a prime currency. No fiat currency, including the dollar, can match it. ”
However, gold is not only the ultimate means of payment. It is also a line of defense against the evils of fiat money. The purchasing power of gold cannot be degraded by central banks that use electronic presses. In addition, gold does not carry any credit or default risk like bank deposits do.
I venture to assume that gold is still the ultimate means of payment: in extreme situations, fiat money might no longer be accepted as money, but gold will still be accepted, I firmly believe.
There are good reasons to expect that gold, given the current state of macroeconomic factors, will offer attractive upside potential and also provide protection against the effects of the growing turmoil in the monetary system and global economy.
We don’t know what the future holds. But we know that a world of freedom and prosperity needs a strong currency, that it cannot function without a sound currency.
Even if you are optimistic that we as a people will overcome the current challenges, that humanity has the potential to move forward and create a better world, there are good reasons to rely on gold instead. than on fiat currencies – because gold will prevail over fiat money.
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