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Did they think we wouldn't notice? Or are they rubbing it in our face!?

Fiat
What do you know about Fiat and about the history of american monetary systems? Hint: the present total (floating) fiat system hasn't been around all that long.

(Perhaps our most successful american exportation is to convince the rest of the world to adopt this particular floating fiat system... sorry about that)

Sound Off
And here's the point in the show that you can share your thoughts and maybe add some quotes and links to good info.

Image found via +Connor Boyack which I'm sure he found because of someone else :)
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57 comments
 
haha! - that's wild. Not sure if that's "Keeping it real" or a nice plot to sell more monopoly board games... Either way it's certainly uncanny!
 
I never see enough $50 bills to notice =)
 
As far as I know, Fiat are an italian car company...
 
+Darren Rye And as long as you and enough people continue making that association then the Federal Reserve and other central banks will remain happy.
 
Fiat money has been the illusion of choice since Nixon got rid of the gold standard, and that's a good 40 years ago now. Much like with power, money has value as long people believe it has.

So far, they could convince everyone that keeping on valuing Fiat money as more than paper and ink, was a good thing. We'll see how long they can drag out the inevitable.
 
I think a silver standard makes more sense than a gold standard due to the extreme scarcity of gold, but the current system is based on a house of cards that relies on us all to keep dancing happily, without thinking of the bigger picture.
 
+Cameron Siguenza The scarcity is exactly what gives money its value in a gold standard. Scarcity is what you want! An abundance of gold would devalue the money that is based on it. If tomorrow someone found that a quarter of Australia is a giant gold mine, the gold standard would be off the table. But yea, silver would work after the same principle, just much less valuable.
 
My vote is for a currency based upon a basket of commodities. I think it would be harder to manipulate the currency if it's based upon multiple commodities. In addition you need people to produce these commodities which in turn means more real jobs.
 
+Terry Taylor It's harder to manipulate a currency if 1) you take out the manipulators (central banks), and 2) you base the value of the currency on something that is scarce. If you use 10 different commodities or 1, is irrelevant, as long as they all stay relatively scarce, which is harder to ensure the more commodities you take into account. Precious metals are pretty reliable in that regard, until the Alchemists raise their hands, that is.
 
+Patrick Metzdorf Your reasoning does make sense. Then how about basing it on multiple precious metals?
 
+Terry Taylor I'm no economist, but I would think that could bring in a certain stability, i.e. if one metal loses value the others prevent the currency from losing too much.
Not sure. But since precious metals (let's stick to 2 or 3 like Gold, Silver and Platinum) never really experience any massive spikes, due to their inherent scarcity, we'd definitely get rid of inflation, as long as we don't allow central banks to manipulate the standard, i.e. how much gold a dollar is worth etc).
 
The Fiat system allows for the government to respond better to economic downturns and for economic booms too rise higher than they ever would under the restriction of any kind of scarce resource standard. Further by removing the stockpiling of scarce resources those resources are allowed to be put up for sale on the market and not make a single job to mine them but rather make a job to mine and refine them but jobs to transport them, jobs to turn them into products, jobs to sell those products and jobs to service those products... being that many precious metals end up in electronic devices these days and not in Grandma's jewelry case.
 
+Zack Davis No one argues that the government isn't able to manipulate the economy by relieving money of its underlying value. The problem is that it doesn't know what it is doing. And no one really can, since the economy is too complex, with too many variables, to really allow any one guy or a small caste of elitists to determine what everyone participating in that economy ought to do or be able to do.

It's a self-governing system, of which natural scarcity is a wonderful control mechanism, no power professionals are needed to tell us how much things are worth. It just comes out of the culmination of everyone's buying and selling activity.

Just because Gold is used for gadgets doesn't in the slightest mean that it cannot be made to anchor currency. I don't see what one has to do with the other. Kinda weird how you came to that conclusion.
 
+Zack Davis Our economic system has been in a downturn since the Fed was created and spiraling downward since Nixon ended the gold standard. When will this response occur? The Fed is reactive and not proactive to the economy because it's the free market and not the Fed which controls it. The Fed and fiat currency just get in the way and impede real progress.
 
+Patrick Metzdorf That was one of many examples, but using a scarce resource to back a hard currency does not stop the banks or government from meddling with it and creating catastrophes. If the government couldn't just print more money under the gold standard too (it can) and there wasn't credit (there is) and it was just a simplistic way of ensuring your money in Texas had the same value in California then it would work. Sadly a gold standard would shrink GDP and have many multiple negatives on our economy and there's really no benefit to a hard currency in the modern economy that should ever encourage us to move back to it.

+Terry Taylor "Our economic system has been in a downturn since the Fed was created and spiraling downward since Nixon ended the gold standard. When will this response occur?" - Really? Well you must be living in a different country than me because GDP (nominal and real) have been on the rise for decades. http://earthtrends.wri.org/text/economics-business/variable-638.html

"The Fed is reactive and not proactive to the economy because it's the free market and not the Fed which controls it. " Our entire economic structure is reactive and always has been... last I looked the Great Depression happened on the gold standard. The Fed sets goals and decides how they want to balance inflation and credit. With or without the Fed and with or without a precious metal standard the government would still be reactive and the "free market" of gold would only leave our currency open to market failures even if you have many metals or commodities. Spreading the risk only reduces the risk it doesn't remove it and then it hinders banks and the governments ability to respond to economic downturns. The current system isn't perfect but economics as a whole is a science just like anything else and the economic system would be fiddled with in negative ways no matter what standard we use.
 
+Zack Davis Supposedly two functions of the Fed is to control unemployment and inflation and it has failed miserably at both. While depressions did occur under a gold standard they were much shorter lived when the government did not get involved.
 
+Zack Davis inflation is a tax. It removes value from my bank account and transfers that value to wherever the Federal Reserve chooses to allocate "new" dollars. Lately many of these "new dollars" have gone to other countries in the form of massive bailouts. What's more, this taxation on the American people is done by unelected persons in the Federal Reserve Bank. The British colonists that eventually formed the USA chose to risk their lives and fight to end unfair taxation without fair representation of how they are taxed and how the taxes are spent.
 
+Zack Davis also, you said that money could still be printed out of thin air even if it were backed by precious metals.... But this is false as long as the government notes are required to be backed by a fixed amount of a certain metal.
 
Outside of certain specialized electronics uses, what value does gold have other than a generally accepted value placed on it by consensus? Can we eat gold? Drink it?
 
Since the beginning of man's history of using currencies gold has been....well, the gold standard. Man cannot create it, it is scarce, fairly easy to authenticate, and it just so happens to be nice to look at. You cannot eat or drink Federal Reserve notes or currencies of any other country either. But you can spend them. It is also fairly difficult to buy a plane ticket with a garbage bag full of hamburgers.... The main reason that gold is a superior currency to fiat currencies is because the gold in circulation can not be quickly increased by the decisions and benefit of just a few men, thus decreasing the value of everyone else's. Fun facts: Every fiat currency throughout history has eventually failed. Never has a gold backed currency failed.
 
+Caias Ward that's really your argument? Or did I miss something in the conversation?
 
Currency is all based on scarcity. People consider gold to be valuable because it is scarce. If we were to go up to the moon and find out that it were solid gold with a thin layer of dust on top, and start mining it, gold would become worthless. Fiat money works just as well so long as the quantity is properly controlled.
 
+Kevin Burger and it isn't properly controlled because they don't have that limitation of scarcity.
 
+Scott Jarvie the problem with using gold is that it's finite, and the value we produce keeps increasing. In 1834, a dollar was backed by 1.5 grams of gold. Today, that dollar would be worth $79.23, so with our current currency, the bare minimum we could be charged for something is 79 cents. We'd just have to keep coming up with money that's backed up by smaller and smaller amounts of gold. And then there's the psychological aspect of it. You bust your but at work for a year, but there's so many more goods to go around that the price of gold keeps going up, so you take a pay cut. How demoralizing is that?
 
+Kevin Burger hey I just said fiat currency is not properly controlled and never will be and it doesn't help that there is not limitations made by nature's laws (aka scarcity) ... so I'm not sure why you're bashing gold to me and not discussing it with the other people that have already spent time defending a gold standard. They would probably be more willing to have that conversation with you.

However just a heads up they might use your examples for their own defense and to show why a reserve note has failed us.
 
+Kevin Burger you are right that its more complex than it seems. People can study, theorize and construct simulations all day long, but the economy is billions of moving parts, and never easy to predict. It does seem like the Federal Reserve system has a shelf life on it, though... even out basic concepts about money and value need to go through an evolution. I hope I live to see it.
 
+Scott Jarvie I was bringing up the point that a large number of those defending a commodity currency says gold and other precious metals have 'intrinsic' value. Yet intrinsic value comes from utility. Why not back currency with oil, soybeans, or other consumable commodities? Those have intrinsic value. Gold and other precious metals' prices are determined by speculation.

And there were other people in the conversation, some of which who were leaning towards a gold or other commodity standard. Those were the people I was directly addressing.

A fiat currency is simply a medium of exchange. I will do x work and be given y dollars, which others accept as a medium. Consider it a replacement for a written contract every time I do something for someone.

As for fiat currencies failing, most every failure has resulted from externalities such as the collapse of the government, etc.
 
+Todd Green I hear you on that. Backed currencies have made sense for a long time, but up until the last 150 years or so, production capacities have remained stagnant. The problems of a finite currency weren't evident because the rate at which goods and services could be produced was constant. That isn't the case anymore.
 
+Caias Ward Wow, specialized? You mean almost anything and everything you use on a daily basis? Have you ever looked to what Gold is in either via production or product? haha

+Terry Taylor The Fed has never been tasked with controlling unemployment, they can have an affect on economic factors which affect unemployment but true unemployment comes from more factors than if the Fed raised interest a quarter of a percent. I don't know about you but I've never heard the media grind on the Fed about unemployment, this is because it's the Administration and the certainty they give the markets that usually decide if people invest in production or not. Currently there is little certainty (among other factors) therefore little employment improvements.

+Nathaniel Witmer So you have read enough to understand that economically speaking inflation is like a tax, great so you've heard a speaking point. You do know that some inflation is actually completely natural for a healthy and productive economy right? Lets get to the "inflation" that is caused by un-elected people. Monetary policy is handled by the Fed, this is their ability to buy and sell bonds and therefore control the amount of money in circulation and therefore the amount of inflation (from one side). Then you have FISCAL policy controlled by the elected politicians, which one of these do you think causes more inflation? It's our debt spending that increases our inflation, if we didn't have so much debt we could borrow rather than inflate our way out of this problem. But fiscal choices made for the last few decades leave us with few options when it comes to paying our bills so we water down our currency. As for the taxation being unfair... tell your politicians to stop spending money and pay off the debt so we have money rather than having to borrow money so that we don't need to inflate the currency to pay for economic down turns, even better have them balance the budget on the business cycle.

As for the comment that under the gold standard money cannot be inflated because it's required to be backed by a certain amount of metal, that's funny because the money supply must grow with the growth of real GDP or else prices will not be stable. Has the supply of gold kept up with real GDP growth over any substantial period of time? Could it be expected to do so from now on? If not, then the gold standard is really a non-starter.

"The main reason that gold is a superior currency to fiat currencies is because the gold in circulation can not be quickly increased by the decisions and benefit of just a few men, thus decreasing the value of everyone else's." -- As I said above that can be a bad thing just as much as a good thing. You also left out the fact that the gold in circulation cannot be quickly increased but it could technically be quickly decreased which would be catastrophic in itself as well. :)

Overall the gold standard cannot respond to economic demands as quickly as the fiat standard, the amount of available gold wouldn't even come close to covering the entire spending budget for the US economy. Heck even if we had all the gold produced today it would barely cover our deficit.

I could go on with reasons why it's no long suitable for our economy instead I'll just refer you here which has all the history, pro's and con's anyone needing to be informed would need. http://en.wikipedia.org/wiki/Gold_standard

Lastly though, as to no gold standard ever failing, I guess that depends on how you describe failure. To me the fact that we had to get off the gold standard for the Civil War is a failure of the gold standard. Others might disagree.

+Scott Jarvie +Kevin Burger There's far more to it than a failed attempt at using Keynesian economics during the last down turn that messed up the money supply but that said during an economic downturn inflation is to be expected. Though if we balanced our budget on the business cycle inflation as a whole would be a lot easier to stomach even in down times.
 
Compared to utility of oil, food or other commodities, yes, specialized.
 
+Caias Ward You're correct, I apologize I misunderstood your original point but get it now after reading your second post.
 
Fixed digital currency (no "reprinting for loss/damaged") with inflation by unanimous decision of the congress. Problem solved? Precious metals are conserved, money is not spent printing paper/metals, and inflation control is still available if absolutely necessary. Fiat? Sure, but as good as gold. Discussion start ...
 
I was just making the analogy in brainstorming that the fed whom in my opinion, "controls the flow of money therefore controls money", is similar to the fight to control the flow of information (i.e. google, facebook, yahoo, bing... etc.)
 
+Caias Ward You are correct that a currency should be like a simple exchange system. The problem with looking at fiat currency as simply being the medium of an exchange system is that while you hold that dollar it decreases in value... .and not because of fair market forces. It decreases in value because a small group of unelected men (the Federal Reserve Bank) can create more on a whim, thus decreasing the value of all the others. This is known as the inflation tax. And I'm not just talking about some rogues in the Fed printing up some extra paper cash to buy a Ferrari with. I'm talking about multiple trillions being given in zero interest rate loans to other countries and private corporations...again, without any elected oversight..... and again at the expense of every other dollar holder. In other words the Federal Reserve has a freedom to tax any holder of USA dollars (not just USA citizens!) as much as they see fit and use the funds for whatever they see fit, and without any oversight of the US Congress.

+Caias Ward Consumable commodities haven't fared well as backing for currency because as they are consumable the quantities in existence/circulation at any given time can vary greatly and so value varies greatly and so the value of your currency would vary greatly. The quantity of gold in existence only grows slowly at a fairly consistent pace so there are no wild supply caused value fluctuations.

+Kevin Burger What you are describing is kind of a half baked view of how the modern life would be with a gold backed currency. The dollars you work for would go up in value, or more accurately, the cost of everything else would continue to go down..... Not so much because just because of the scarcity of gold or as you put it because "the value we produce keeps increasing", but because our modern means of production are continuously getting more efficient. If you look at the cost of goods in gold instead of in dollars, as major technological and industrial breakthroughs have occurred the cost of goods has gone down. This is what everyone dreamed the age of technology would bring. Robots doing people's work, cost of production going down, efficiency and production skyrocketing, falling prices, easier for everyone to get by, dollars handed down from generation to generation having greater and greater buying power. These are good things my friend. Not demoralizing at all. Some nay sayers will say but there are more and more people and the supply of gold is not keeping up with the pace of population expansion, but for a number of reasons it doesn't play out that way- mostly as the buying power of each ounce increases the individual needs less of the substance to buy the same amount of goods.... this is deflation, but not the deflation boogey man that the Fed has been selling( +Todd Green too )

+Zack Davis what???! Do you read or listen to the Fed's many statements? They routinely cite unemployment numbers as part of the basis for their actions. ( +Terry Taylor )..... What's more, the Fed has recently been put in charge (along with other federal bureaucracies) of regulating mortgage lending, investments, insurance, and other areas of the financial industry..... the Federal Reserve Bank. This is so far away from even their intended purpose of existing.

+Zack Davis First let's get this out of the way: Although commonly misused by many tools claiming to be economists, the word inflation actually refers to the inflation of the money supply. The increase in prices is a result of the increase of money supply. Many have begun to refer to the increase in prices as inflation but this is incorrect for a number of reasons, namely that when the purchasing price of a currency drops, unless it is because of a lack of confidence in the issuing entity it is because of an increase in supply. Lack of confidence in the issuing entity usually causes sharper decreases and typically is either corrected or continues to cause a crash. The gradual and continual decrease in buying power of the US dollar that we're discussing here is due to increase in money supply.

+Zack Davis Now you said a whole lotta false above so I'll try to break it down line by line.... You said that the fed just buys and sells bonds to control inflation and the government controls our spending.... this was MAYBE once the case but not any more. The Federal Reserve partial audit in 2008 showed that the Federal Reserve loaned TRILLIONS to other governments, other central banks, private banks, and private corporations. Further, this was just a partial audit. We have not had a full audit of the Federal Reserve Bank for decades! We don't know what else they are doing. And why is this? Every other bank, and non profit, every branch of the government and quasi governmental institution has to make complete financial disclosures annually, why not the Fed? In fact members of congress have been fighting for decades to audit the Fed and the Fed has fought desperately to avoid this.

Then, +Zack Davis you said (exact quote from above!) "It's our debt spending that increases our inflation, if we didn't have so much debt we could borrow rather than inflate our way out of this problem" WOW, I MEAN WOOOOWWWW!!! I'm not even gonna touch that one, you said enough yourself!

Then +Zack Davis you said "As for the taxation being unfair... tell your politicians to stop spending money and pay off the debt so we have money rather than having to borrow money so that we don't need to inflate the currency to pay for economic down turns..." Don't you see my profile pic? Aren't you at least somewhat familiar with Ron Paul and his positions? Of course I am an advocate of reducing government spending!

Then Zack, you go on to say that our government spending is more responsible for "inflation" (you're using the term to mean increase in prices) than the Federal Reserve Bank inflating our money supply. You're right that out of control government spending is part of the problem but it goes hand in hand with the Fed inflating money supply. The Fed actually buys our US Treasuries with money it "printed" out of thin air. The Fed also injects Trillions into the economy in the form of 0% interest rate loans to banks. The Fed is responsible for much more of our inflation (increase in US dollars in circulation) than debt spending from other countries such as China, although by no means am I defending our government's dependency on Chinese credit. But pointing out another glaring problem doesn't take away from the gravity of the original problem.

And Zack, you said "....so that we don't need to inflate the currency to pay for economic down turns...." Our government nor any central bank should ever take any action to "pay for economic down turns". Every market has cycles. Basic economics. If you try to "artificially" eliminate the downturns then you never adequately remove inefficient elements from the market nor provide the opportunities necessary for more efficient elements to excel. The downturns cause the opportunities that turn into the next upward turn.... And even if it were good to try to counter downturns in the economy who gave the Federal Reserve the authority to do this? AND even more importantly we need to recognize that it was the Federal Reserve's attempts to stimulate the economy with 0% interest rate loans to banks and Fannie/Freddie that caused the housing bubble and led to the economic downturn that we're in now in the first place!!!!!!

Then Zack, you said "As for the comment that under the gold standard money cannot be inflated because it's required to be backed by a certain amount of metal, that's funny because the money supply must grow with the growth of real GDP or else prices will not be stable." ..... It depends on what you mean as stable. Just as prices are constantly going up now they would be constantly going down just as they did prior to 1913. Prior to the Federal Reserve the prices of goods fell almost every year! It was not a bad thing! It was good, unless you were a bank. Even then it wasn't necessarily bad, but meant you'd have to focus on getting the deposits and then earn profit from responsible lending. Not nearly as much fun as borrowing money at 0% interest rates from the Federal Reserve Bank, lending it out to unqualified borrowers that you'd never lend to in a million years if you'd get stuck holding the loan, then selling the loan to a quasi-governmental institution that in the end experiences massive defaults and gets injected with massive bailouts from.... none other but the Federal Reserve Bank.

+Zack Davis then you wen on to say "You also left out the fact that the gold in circulation cannot be quickly increased but it could technically be quickly decreased which would be catastrophic in itself as well." .... It would be very difficult to do, and the same could theoretically occur with any fiat currency too. At least with the precious metals the supply can't suddenly be INCREASED in only the accounts of one organization.... And if we were on the gold standard and suddenly China announced they were permanently removing their large gold stores from circulation what would happen to your gold? Likely nothing which I'll explain in a moment, but if anything did happen it would be that your gold would increase in value... It would have more buying power. That sounds ok to me. What's more, if we were on the gold standard, and China suddenly announced that they were permanently removing their gold stores from circulation it would likely not really affect the value of gold too much because those were long term gold stores anyway and a future Chinese government would likely reverse the decision. These things have already been discussed to great lengths. You should read up on the topic.

+Zack Davis then you said " the amount of available gold wouldn't even come close to covering the entire spending budget for the US economy. Heck even if we had all the gold produced today it would barely cover our deficit." Obviously you've read some talking points in the news..... The US dollar has largely replaced gold as the reserve currency of the world. As global demand for the dollar grew demand for gold fell. If we were to go back to the gold standard, depending on who you ask the value of an ounce of gold would likely be somewhere between $3500 and $5000. Many people such as myself believe it would be much higher than that. And what's more, our government wouldn't have been able to spend like it has been because they wouldn't be able to print it "out of thin air"!

And as for your reference to briefly prohibiting people from exchanging their notes for the precious metal backing them during the Civil War, yes, our government spent beyond it's means and had to force a tax on the people. Whether this was the right or wrong thing for them to do at the time is a whole other debate. But I certainly don't want the government spending beyond it's means and forcing the people to come up with the difference through an inflationary tax.... I would say except in the most dire of circumstances but you know politicians as well as I do, they'll cook up an emergency to increase funding in a heartbeat.

And lastly, Zack, although Wikipedia's page on the gold standard has a lot of useful information, reading it does not cause one to understand the underlying concepts that support the use of a precious metal backed currency nor cause one to understand all of the flaws in fiat currencies.

And to everyone, if you want some more info on the Federal Reserve Bank, how it was formed, how hard people fought against it at it's inception and why, and what effects it has had on our country I HIGHLY RECOMMEND THIS BOOK: The Creature From Jekyll Island . It is very factual, has been peer reviewed plenty, and gives the whole ugly truth.
 
Fiat currency isn't new. It dates to the Romans in the first century.
 
there's lots of things that date back to the Romans... and lots of those things suck too. But it is new doing it to the extent that we're doing it... I guess it's pretty impressive that we've got it going the way we do for over 30yrs already.
 
I had a fiat they are cool. (had a few) italian!
 
IF THE US GOVERNMENT KNEW HOW TO PLAY MONOPOLY, WE WOULDNT BE 100 TRILLION IN DEBT
 
Didnt you know we are being sold out like a monopoly game united we can make a real change! Not just trust in our liar and chief
 
I don't think I've ever seen a $1 or a $5 bill before. Really weird to see only a single digit on money. 
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