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Old July 1st, 2015, 05:54 PM   #1
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Can the FED keep up the perception that fiat currency is sustainable?

Fiat Money –Rome — The Denarius

Although Rome didn’t actually have paper money, it provided one of the first examples of true debasement of a currency. The denarius, Rome’s coinage of the time, was, essentially, pure silver at the beginning of the first century A.D. By A.D. 54, Emperor Nero had entered the scene, and the denarius was approximately 94% silver. By around A.D.100, the denarius’ silver content was down to 85%.

Emperors that succeeded Nero liked the idea of devaluing their currency in order to pay the bills and increase their own wealth. By 218, the denarius was down to 43% silver, and in 244, Emperor Philip the Arab had the silver content dropped to 0.05%. Around the time of Rome’s collapse, the denarius contained only 0.02% silver and virtually nobody accepted it as a medium of exchange or a store of value.

Fiat Money -China — Flying Money

When the Chinese first started using paper money, they called it “flying money,” because it could just fly from your hands. The reason for the issuance of paper money is simple. There was a copper shortage, so banks had switched to the use of iron coinage. These iron coins became overissued and fell in value.

In the 11th century, a bank in the Szechuan province of China issued paper money in exchange for the iron coins. Initially, this was fine, because the paper money was exchangeable for gold, silver, or silk. Eventually, inflation began to take hold, as China was funding an ongoing war with the Mongols, which it eventually lost.

Genghis Khan won this war, but the Mongols didn’t assume immediate control over China as they pushed westward to conquer more lands. Genghis Khan’s grandson Kublai Khan united China and assumed the emperorship. After running into some setbacks with paper currency, Kublai eventually had some success with fiat money. In fact, Marco Polo said of Kublai Khan and the use of paper currency:

“You might say that [Kublai] has the secret of alchemy in perfection…the Khan causes every year to be made such a vast quantity of this money, which costs him nothing, that it must equal in amount all the treasure of the world.”

Even Helicopter Ben would be impressed. Marco Polo went on to say:

“This was the most brilliant period in the history of China. Kublai Khan, after subduing and uniting the whole country and adding Burma, Cochin China, and Tonkin to the empire, entered upon a series of internal improvements and civil reforms, which raised the country he had conquered to the highest rank of civilization, power, and progress.”

Wait a second, I thought we were bashing fiat currencies here…Can anyone say crackup boom? Since Marco Polo experienced this firsthand, and has been very helpful to us thus far, I think I will allow him to finish his analysis of China’s paper money experiment.

“Population and trade had greatly increased, but the emissions of paper notes were suffered to largely outrun both…All the beneficial effects of a currency that is allowed to expand with a growth of population and trade were now turned into those evil effects that flow from a currency emitted in excess of such growth. These effects were not slow to develop themselves…The best families in the empire were ruined, a new set of men came into the control of public affairs, and the country became the scene of internecine warfare and confusion.”

I wonder if Keynes read Marco Polo’s experiences with Chinese fiat currencies when he said that the U.S. government should just bury bottles full of money in old mine shafts to spur economic growth.


Fiat Currency: A History of Failure
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Old July 1st, 2015, 06:41 PM   #2
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Here's the thing about fiat currency, it works better than gold, that's why no country bases it's currency on gold, because it doesn't work....
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Old July 1st, 2015, 07:45 PM   #3
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Originally Posted by Sabcat View Post
Fiat Money –Rome — The Denarius

Although Rome didn’t actually have paper money, it provided one of the first examples of true debasement of a currency. The denarius, Rome’s coinage of the time, was, essentially, pure silver at the beginning of the first century A.D. By A.D. 54, Emperor Nero had entered the scene, and the denarius was approximately 94% silver. By around A.D.100, the denarius’ silver content was down to 85%.

Emperors that succeeded Nero liked the idea of devaluing their currency in order to pay the bills and increase their own wealth. By 218, the denarius was down to 43% silver, and in 244, Emperor Philip the Arab had the silver content dropped to 0.05%. Around the time of Rome’s collapse, the denarius contained only 0.02% silver and virtually nobody accepted it as a medium of exchange or a store of value.

Fiat Money -China — Flying Money

When the Chinese first started using paper money, they called it “flying money,” because it could just fly from your hands. The reason for the issuance of paper money is simple. There was a copper shortage, so banks had switched to the use of iron coinage. These iron coins became overissued and fell in value.

In the 11th century, a bank in the Szechuan province of China issued paper money in exchange for the iron coins. Initially, this was fine, because the paper money was exchangeable for gold, silver, or silk. Eventually, inflation began to take hold, as China was funding an ongoing war with the Mongols, which it eventually lost.

Genghis Khan won this war, but the Mongols didn’t assume immediate control over China as they pushed westward to conquer more lands. Genghis Khan’s grandson Kublai Khan united China and assumed the emperorship. After running into some setbacks with paper currency, Kublai eventually had some success with fiat money. In fact, Marco Polo said of Kublai Khan and the use of paper currency:

“You might say that [Kublai] has the secret of alchemy in perfection…the Khan causes every year to be made such a vast quantity of this money, which costs him nothing, that it must equal in amount all the treasure of the world.”

Even Helicopter Ben would be impressed. Marco Polo went on to say:

“This was the most brilliant period in the history of China. Kublai Khan, after subduing and uniting the whole country and adding Burma, Cochin China, and Tonkin to the empire, entered upon a series of internal improvements and civil reforms, which raised the country he had conquered to the highest rank of civilization, power, and progress.”

Wait a second, I thought we were bashing fiat currencies here…Can anyone say crackup boom? Since Marco Polo experienced this firsthand, and has been very helpful to us thus far, I think I will allow him to finish his analysis of China’s paper money experiment.

“Population and trade had greatly increased, but the emissions of paper notes were suffered to largely outrun both…All the beneficial effects of a currency that is allowed to expand with a growth of population and trade were now turned into those evil effects that flow from a currency emitted in excess of such growth. These effects were not slow to develop themselves…The best families in the empire were ruined, a new set of men came into the control of public affairs, and the country became the scene of internecine warfare and confusion.”

I wonder if Keynes read Marco Polo’s experiences with Chinese fiat currencies when he said that the U.S. government should just bury bottles full of money in old mine shafts to spur economic growth.


Fiat Currency: A History of Failure
Currency today is based on global investing. Since everybody that's a major player has skin in the game, they're not going to let it default. Wealth is no longer based upon the physical value of the currency itself, but the perception of how much of it you have at any time. If you can buy real estate, land, physical assets such as oil, gold, silver, or coffee beans for that matter, and have access to everything you need based on that percieved wealth, what does it matter? All of the major global investors and the central bank will come to each others needs at a time of crisis, unless you buck the system. Like Greece did. So they get to pay the price for it. It's their rules, and no one country or group of investors is powerful enough to upset it. A global market with an investment value of some $76 trillion at any one time is more valuable than all of the physical gold and silver combined on the planet. This was set up back in the 30's to prevent any one country or group of powerful people to be able to hoard all of the wealth and hold the rest of the world hostage to their demands. Since no one can do that now even if they bought most of the gold and silver in the world, if they're shunned by the major players in the global investment market, it doesn't matter. All they are is somebody that owns a lot of metal. They can be prevented from having access to the markets and their movements restricted like the oligarchs in Russia are finding out the hard way. It has actually become a reality now that gold and silver have any percieved value as currency, and is nothing more than just another commodity in the global investment market. Right now the most valuable commodity on the planet is oil, and it won't be much longer before fresh water takes it's place.
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Old July 1st, 2015, 09:06 PM   #4
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Originally Posted by skews13 View Post
Currency today is based on global investing. Since everybody that's a major player has skin in the game, they're not going to let it default. Wealth is no longer based upon the physical value of the currency itself, but the perception of how much of it you have at any time. If you can buy real estate, land, physical assets such as oil, gold, silver, or coffee beans for that matter, and have access to everything you need based on that percieved wealth, what does it matter? All of the major global investors and the central bank will come to each others needs at a time of crisis, unless you buck the system. Like Greece did. So they get to pay the price for it. It's their rules, and no one country or group of investors is powerful enough to upset it. A global market with an investment value of some $76 trillion at any one time is more valuable than all of the physical gold and silver combined on the planet. This was set up back in the 30's to prevent any one country or group of powerful people to be able to hoard all of the wealth and hold the rest of the world hostage to their demands. Since no one can do that now even if they bought most of the gold and silver in the world, if they're shunned by the major players in the global investment market, it doesn't matter. All they are is somebody that owns a lot of metal. They can be prevented from having access to the markets and their movements restricted like the oligarchs in Russia are finding out the hard way. It has actually become a reality now that gold and silver have any percieved value as currency, and is nothing more than just another commodity in the global investment market. Right now the most valuable commodity on the planet is oil, and it won't be much longer before fresh water takes it's place.
Be it a perceived value or not the reality is that it is based in the negative..it is not finite. So the purchasing power, interest rates and inflation of the USD are controlled by an entity. The FED. When the power to just create an infinite amount of currency is possible it decreases the value of everything that is already in existence. How is that a good thing?
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Old July 1st, 2015, 09:16 PM   #5
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Originally Posted by skews13 View Post
Currency today is based on global investing. Since everybody that's a major player has skin in the game, they're not going to let it default. Wealth is no longer based upon the physical value of the currency itself, but the perception of how much of it you have at any time. If you can buy real estate, land, physical assets such as oil, gold, silver, or coffee beans for that matter, and have access to everything you need based on that percieved wealth, what does it matter? All of the major global investors and the central bank will come to each others needs at a time of crisis, unless you buck the system. Like Greece did. So they get to pay the price for it. It's their rules, and no one country or group of investors is powerful enough to upset it. A global market with an investment value of some $76 trillion at any one time is more valuable than all of the physical gold and silver combined on the planet. This was set up back in the 30's to prevent any one country or group of powerful people to be able to hoard all of the wealth and hold the rest of the world hostage to their demands. Since no one can do that now even if they bought most of the gold and silver in the world, if they're shunned by the major players in the global investment market, it doesn't matter. All they are is somebody that owns a lot of metal. They can be prevented from having access to the markets and their movements restricted like the oligarchs in Russia are finding out the hard way. It has actually become a reality now that gold and silver have any percieved value as currency, and is nothing more than just another commodity in the global investment market. Right now the most valuable commodity on the planet is oil, and it won't be much longer before fresh water takes it's place.
In May 2014, the Bank for International Settlements - "the" bank - put the value of the global derivatives market at about $710 trillion, for context....
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Old July 1st, 2015, 09:20 PM   #6
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Be it a perceived value or not the reality is that it is based in the negative..it is not finite. So the purchasing power, interest rates and inflation of the USD are controlled by an entity. The FED. When the power to just create an infinite amount of currency is possible it decreases the value of everything that is already in existence. How is that a good thing?
You've got to factor in a growing global population.

I'm not sticking up for the FED, and whomever the FED answers to. They're the fiscal puppet-masters. They literally hold the power of life and death in their unanswerable-to-anyone hands.
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Old July 1st, 2015, 09:54 PM   #7
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You've got to factor in a growing global population.

I'm not sticking up for the FED, and whomever the FED answers to. They're the fiscal puppet-masters. They literally hold the power of life and death in their unanswerable-to-anyone hands.
No doubt that would increase demand and in turn increase cost and prices. But w/ the growing population the workforce is also increased so the production of necessities like food and clothing shouldn't get hit to hard. W/ something finite like gold for the currency to represent it keeps things in check. If someone were to try and devalued their money one could just cash in. In theory this could also inspire micro economies local goods for local services exc.
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Old July 2nd, 2015, 01:15 AM   #8
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Fiat Money –Rome — The Denarius

Although Rome didn’t actually have paper money, it provided one of the first examples of true debasement of a currency. The denarius, Rome’s coinage of the time, was, essentially, pure silver at the beginning of the first century A.D. By A.D. 54, Emperor Nero had entered the scene, and the denarius was approximately 94% silver. By around A.D.100, the denarius’ silver content was down to 85%.

Emperors that succeeded Nero liked the idea of devaluing their currency in order to pay the bills and increase their own wealth. By 218, the denarius was down to 43% silver, and in 244, Emperor Philip the Arab had the silver content dropped to 0.05%. Around the time of Rome’s collapse, the denarius contained only 0.02% silver and virtually nobody accepted it as a medium of exchange or a store of value.

Fiat Money -China — Flying Money

When the Chinese first started using paper money, they called it “flying money,” because it could just fly from your hands. The reason for the issuance of paper money is simple. There was a copper shortage, so banks had switched to the use of iron coinage. These iron coins became overissued and fell in value.

In the 11th century, a bank in the Szechuan province of China issued paper money in exchange for the iron coins. Initially, this was fine, because the paper money was exchangeable for gold, silver, or silk. Eventually, inflation began to take hold, as China was funding an ongoing war with the Mongols, which it eventually lost.

Genghis Khan won this war, but the Mongols didn’t assume immediate control over China as they pushed westward to conquer more lands. Genghis Khan’s grandson Kublai Khan united China and assumed the emperorship. After running into some setbacks with paper currency, Kublai eventually had some success with fiat money. In fact, Marco Polo said of Kublai Khan and the use of paper currency:

“You might say that [Kublai] has the secret of alchemy in perfection…the Khan causes every year to be made such a vast quantity of this money, which costs him nothing, that it must equal in amount all the treasure of the world.”

Even Helicopter Ben would be impressed. Marco Polo went on to say:

“This was the most brilliant period in the history of China. Kublai Khan, after subduing and uniting the whole country and adding Burma, Cochin China, and Tonkin to the empire, entered upon a series of internal improvements and civil reforms, which raised the country he had conquered to the highest rank of civilization, power, and progress.”

Wait a second, I thought we were bashing fiat currencies here…Can anyone say crackup boom? Since Marco Polo experienced this firsthand, and has been very helpful to us thus far, I think I will allow him to finish his analysis of China’s paper money experiment.

“Population and trade had greatly increased, but the emissions of paper notes were suffered to largely outrun both…All the beneficial effects of a currency that is allowed to expand with a growth of population and trade were now turned into those evil effects that flow from a currency emitted in excess of such growth. These effects were not slow to develop themselves…The best families in the empire were ruined, a new set of men came into the control of public affairs, and the country became the scene of internecine warfare and confusion.”

I wonder if Keynes read Marco Polo’s experiences with Chinese fiat currencies when he said that the U.S. government should just bury bottles full of money in old mine shafts to spur economic growth.


Fiat Currency: A History of Failure

Wasn't sure about the anti-Keynes comment, until I read this.

Quote:
At The Daily Reckoning, we’ve been in the business of independent financial forecasting since 1999. We take a look at the world and markets, make an educated guess about where they’re headed and alert you to ways we think you can protect yourself and profit from the trends that the mainstream press has overlooked.

Our metier is forecasting booms, busts and bad endings on your behalf… patting you on the back when you do well by them… and owning up to it when we make hash of it.

It’s your money, after all.

Each day that the markets are open, we have the honor and privilege of writing to subscribers of our free daily e-letter with one big idea. One way you can profit from and make sense of (or at the very least, laugh at) the world of finance, economics and politics.

We publish your Daily Reckonings, sent by email, each and every afternoon.

It's one opinion piece. I don't agree with its assumptions at all.
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Old July 2nd, 2015, 06:58 AM   #9
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No doubt that would increase demand and in turn increase cost and prices. But w/ the growing population the workforce is also increased so the production of necessities like food and clothing shouldn't get hit to hard. W/ something finite like gold for the currency to represent it keeps things in check. If someone were to try and devalued their money one could just cash in. In theory this could also inspire micro economies local goods for local services exc.
You probably know this. Fiat money is a mandatory element of fractional banking. Inflation is an inevitable outcome of a fractional banking system as well. When loans are made, i.e. when money is created, the interest on the loan isn't simultaneously created, but must be "created" by the blood, sweat, and tears of the borrower.

Today, you gotta get the "print dollars" image out of your mind. All the big stuff is happening on computers, with the stroke of a key.

In a fractional banking system, deposits always are dwarfed by the dollar value of outstanding loans. If you dig a little, you find that Fed regulations require NO dollar reserve on certain loans. Iow, the banks have an unlimited ability to create money in certain cases.

So, the bankers rule. Like ol' Mayer said, who cares who makes a nation's laws? If you've got control of a nation's money supply, you've got the power.
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Last edited by imaginethat; July 2nd, 2015 at 07:01 AM.
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Old July 2nd, 2015, 09:38 AM   #10
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Wasn't sure about the anti-Keynes comment, until I read this.




It's one opinion piece. I don't agree with its assumptions at all.
Of course it's an opinion piece but it was one that had a list of failed fiat currencies thru out history. Are you familiar w/ the theory behind Keynesian economics? It's a complete farce based on a mathematical model that is completely skewed.
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