I used to believe in the concept of money. I put my trust in the crisp pink fifties, coke laced twenties, and bacteria infested ten pound notes until I heard about fiat currency.
Definition of fiat currency;
‘Inconvertible paper money made legal by government decree’
The money we use today is fiat money. In 1971 President Nixon took the US (therefore the rest of the world too) off the gold standard. The gold standard was when all money was backed up by the value of gold. Gold being an expensive and rare commodity, had a direct correlation with the amount of money printed. You couldn’t just print money willy nilly because it was controlled (tapered) by the amount of gold in production. So, Nixon got rid of the gold standard which therefore allowed money to be printed willy nilly. The dollar, pound and euro are now all fiat currencies.
‘The history of fiat money, to put it kindly, has been one of failure. In fact, EVERY fiat currency since the Romans first began the practice in the first century has ended in devaluation and eventual collapse, of not only the currency, but of the economy that housed the fiat currency as well.’
FIAT is a Latin word that means ‘let it be so’. It is the law that makes this form of currency be money. Without that legal enforcement, and the fact that we have to pay taxes with this money, the money in your pocket or the numbers you seen in your bank account would be meaningless.
Now, there are some benefits to having a fiat currency;
Gold and Silver had been known as old fashioned currency and the fiat money system is more suited to modern day consumer desires.
Gold has to be dug out the earth, processed, melted down etc, so it takes time to turn it to actual currency. Fiat money therefore encourages economic growth at a much higher rate.
The fiat system has been chosen by the people we trust with our economics and laws, so how could it be a bad thing?
I can’t think of anything else.
Its true to say, that reverting back to the gold standard would bring the world as we know it to a halt. Technology, property ownership and military defence have all been allowed to progress exponentially due to the creation of fiat money. Without it we probably wouldn’t have Facebook and most people who own a home now wouldn’t own one under the old gold standard system.
Fiat money broken down
Only the government has the power to issue fiat money, but banks can create it through lending. If someone wants to borrow £1000, a bank can create it from nowhere and then charge interest. Banks can also create money by lending against an asset, such as a house. They’re given the deeds to the house, and they create the money out of nowhere and then lend it. With interest added on top. The supply of money has grown exponentially ever since this system of fiat money came into play 40 years ago.
Those that have the power to issue money, governments and banks. They haven’t had to do anything productiveto earn it, they just create money.
Companies and individuals who get the money early. They can spend it before the prices of the things they want to buy has risen to reflect the new money in circulation. They can get services, products and assets, cheap.
Prices soon rise (Inflation).
So, holders of assets (shares or houses) will see gains, without there being any actual improvements to the house or company in question.
This can lead to speculative bubbles.
Who gets this money early?
However money is created, through lending, fractional reserve banking, financial bailouts, or money printing
BANKS are usually at the top of the money issuing pyramid.
Next, come corporations who borrow large sums of money.
Those on lucrative government contracts for new ventures.
Banks associates and partners.
Those that borrow early and at low rates.
Banks senior employees.
They all quickly get their share of the pie. In many cases, this will come in the form of BONUSES.
What about those at the bottom of the pyramid?
People on fixed incomes (thats most people), people who live in remote areas, or people with savings.
By the time the money has filtered down to them. The prices of the things they want to buy has increased. Savings buy them less, and wages remain largely unchanged. In many cases, people have to take on DEBT to be able to afford the things they previously wanted to buy.
This means, they have to go back to the banks. This method of money creation only redistributes money from the bottom to the top of the pyramid. Therefore the inequality gap gets bigger, and bigger, and bigger.
I agree with Barrack Obama on this one.
‘Financial inequality will be the defining challenge of our time.’
Middle classes are getting wiped out and the super rich are really having a field day. Fiat money has given the financial power to a small group of people in this world, and they’ll continue to laugh at the ‘poor folk’ from their high golden horses.
As the inequality gap continues to grow;
More people will be unemployed.
More people will have to work longer hours for less money.
More people will be shoved into poverty.
More people will die of starvation (Mostly Third World).
More people will borrow from banks, putting themselves in more debt.
More people will lose their houses, and other collateral based assets.
- More people will result to crime to bridge the gap, or have the latest clothes like our TV heroes.
- More people will take to drink and drugs as a form of escapism.
Is there a way to fight the fiat currency system?
Because the world has recognised the almighty dollar as its reserve currency, we’re all pretty much part of this fiat system. There have been some countries who have tried to resist. Iraq, Libya, North Korea and Iran. We all know what happened, or will happen to each of these countries, so resistance really is futile.
Learning how the system is rigged has made me lose trust in the value of money. Just like any relationship, once the trust goes, its pretty much the end of that relationship. Most people live their lives working ridiculous hours only to retire on a pension that is barely adequate. I don’t think people should have to live this way.,
The bankers are laughing all the way to the bank. And as they work at the bank, its a convenient trip for them too. We can blame the banks all we want for recessions and depressions, and financial crashes. Throw any amount of insults at them and they’ll be able to deflect it with shields made of cash. Taking personal financial responsibility is important, especially when the essence of the system is rigged.
Its down right immoral and unfair, but financial education is the key. We are all slaves to a new world of fiat money. This worthless currency is at the heart of all things good and bad, and if we do take a lesson from history its this.
It will inevitably come to a catastrophic end!