Too much rank silliness, really. Coffee, safaris and the weather. Nope, today we are posting something a lot more intellectually stimulating. Allow me to recommend to your perusal and careful attention a fascinating article entitled “Why does Fiat Money seemingly work?”. Even if you passionately disagree with the rest of this article, it’s a interesting read.
Now some of you will be wondering what fiat money is. I can see you all now, squinting, head cocked, thinking extra hard, with a little thought bubble above your heads enclosing a picture of a $5 note with 4 wheels and a Fiat badge in the place of queen’s head. Nope. Fiat money or currency, is money which derives its value from the fiat or command of a government or other authority. The dollar bill is a great example of fiat money. As a piece of paper or plastic, pretty much worthless. But valuable because the government says it is.
The article recommended discusses both the origin of the fiat currency, its history, and most significantly, its fragility. In the view of the author it must eventually fail. Here are a few tantalising quotes to whet your whistle (or spike your spyglass if that’s more your thing).
“Since the central bank’s balance sheet is largely composed of government debt, it has an incentive to manage the public’s ‘inflation expectations’ and inflate the currency as inconspicuously as possible.”
“…free market tends to consistently lower the prices of goods and services over time. That is the logical result of increasing productivity. This is why the widely accepted tenet that we "need some inflation of the money supply to enable the economy to grow" is a complete lie.”
“In a nation of debtors, inflation is the politically most palatable form of monetary policy – after all, everybody is focused on the short term (politicians and bureaucrats on their terms of office, consumers on their debt and their desire to buy more things they don’t need with money they don’t have, and so forth). No one considers for a moment, that in the long run, this policy means ruin. Over time, the middle and lower classes will see their real incomes and living standards shrink ever more, while the true beneficiaries of inflation – those who get first dibs on every dollop of newly created fiat money – amass more and more of the wealth that is stolen from its producers by inflation.”Have a read.
Now for the digression. For those of you who are not Christadelphians, this could be a little much. If so, leave me a comment, and I will either explain further or not. Anyways … I’ve always wondered about fiat money. The Lord, in the Olivet Prophecy, told us that the believers would be eating and drinking, buy and selling, oblivious till the very day they were taken away to the judgment seat of Christ. This language has, to me, always implied a time of incredible economic prosperity. Why would the believers be unconscious of the nearness of Christ’s return if the times were bad. Rather, in bad times, the faithful are watching and aware of the need for and the real nearness of Christ. It’s in good times that we forget.
Coupled with my view that Christ would return in prosperous economic times, I feel that the removal of the believers will be marked by the beginning of some very bad times for the world at large … a time of trouble such as never was will dawn. I think that this time arrives when for some reason, and I have no idea about the actual mechanics of this, the world realises that dollars (fiat money) are really worthless. Such a realisation, experienced simultaneously globally, could easily destroy the worlds economy in a matter of days. And the article above shows how this could happen. As the author states
“Government mandated fiat currency simply does not work in the long run. We have empirical evidence galore – every fiat currency in history has failed, except the present one, which has not failed yet.”When then? Soon.