If someone knows a system in-between or hybrid of the two I outline below, let me know.... Let me describe what i perceive as two opposite economic systems that can exist. 1. Legal tender is a fiat currency backed by no physical asset - current monetary system. In such system governments can easily take debts as $$$ printing costs nothing. Gov agencies and organizations and state sponsored companies can grow ad infinitum. Bonanza for gov. tyrants. Pretty soon (After few decades) debt is so huge, that real interest rates have to be negative to keep the whole rigged game alive. Such system FORCES fiat currencies in place of gold and silver. Everything incl taxes, stocks, debts, loans is priced in fiat not in ounces of metals. 2. Legal tender is a metals backed currency. Gov cannot take debts easily. They are forced to balance budgets. Private sector tends to be much stronger/larger than in sys 1. Public sector is waay smaller - like in USA pre 1971. In such system , as everything is priced and exchanged for gold/silver, value of these metals tends to be quite high in relation to other assets. And for good reason - they are non-perishable, mobile, universal around the globe, fungible, scarce - all qualities of MONEY. FIAT system, as it constantly prints new fiat units, inevitably pushes prices of real physical things like real estate and stocks higher and higher. Esp. with negative real rates, which must be there with high enough debt levels. At the same time, it pushes the prices of precious metals LOWER in relation to other physical assets like properties and stocks. Why? In this system with high flying property prices, large portion of population is priced out - has to rent or take mortgages. In some countries like Germany , Switzerland roughly half of population rents. Governments equipped with printing machine will go to bed with corporations, favor corporations in every possible way, as they are $$$ cows - concentrated entities perfect to milk, corrupt, etc. The stronger corporations, the weaker small businesses. So, we have two trends: 1/ weaker, small family businesses and 1/4 to 1/2 of people who must rent. Landlords making money on these rentals simply invest in more rental properties instead of precious metals which don't pay yield. 2/ small businesses losing market share to huge corporations who have favorable treatment from the gov and banks. End result is: quite big part of population has much less capital to park it in precious metals VS in a system where their small businesses are stronger and they fully own their homes. Fiat monetary/econ. system basically uses a virtual imaginary TOOL called fiat currencies to suck real capital from the public and concentrate it in corporations, gov. agencies, banks and esp central banks. This is done by interest on mortgages, interests on state debt, inflation tax which applies to all currency holders. Ask yourself : what fundamentally is US Dollar? Its not a physical asset, not a piece of land, not a company, not a technology, not a commodity. Its just damn, artificial, very clever weapon. As about half of all existing gold is in the form of jewelry, widely distributed across population, and more than half of non-industrial silver is also in jewelry (approx 8B oz vs 5.4B oz in silver bullion), humanity already owns a perfect mean of exchange and store of value. It is "we the people" who build homes, roads, train stations, malls, etc. so why is that these properties are increasingly owned by banks or investment funds? The reality is, we the people could easily own ALL real estate , directly, not through mortgages . We could literally be our own banks with vaulted or directly held gold and silver. However, as you can see BlackRock buys more and more real estate, so as Chinese moguls and Bill Gates buys up as much agric land as possible. Central banks accumulate gold at quickest pace ever - Russia, Turkey, Brazil, Thailand, China - they all increase their holdings rapidly in the last 5 years. Banks and corporations suck all the best physical wealth, while flood us with their fake virtual paper dollars/euros/yens. Our private finances are subject to hardcore audits but Fed, IMF or BIS? Never. Fort Knox? Gimme a break! Its truly sad to watch why humanity is not able to recognize that system #1 is extremely bad for them but good only for tiny tiny elite.
OP, I think you make some valid points, I also think you need to remember that causation does not necessarily imply correlation. You said the following about housing and corporations: I would counter that this is not necessarily due to fiat, but more a result of (a) an American love obsession with real-estate, which has been largely fueled by (b) the last 40 year history of interest rates (non-stop decline) in the USA and (c) the over-abundance of available credit due to the US government's involvement in the 30 year mortgage market. In terms of "governments being in bed with corporations" due to fiat, I mean look at the history of Standard Oil, Vanderbilts, and the Carnegies....the monopolistic power these groups held in the early 1900s is far beyond anything we see today....so again this "in bed with corporations" is not necessarily a fiat currency issue. The problem, as I see it, is that the USA post-WW2 was given an extraordinary privilege with the USD being the global reserve currency, and as time goes on, the government is abusing that privilege more and more. Russia uses a fiat currency system, yet they pay 6.5% on their sovereign debt, and run balanced fiscal budgets, even if it's people living in outside of cities live in poor conditions....why does Russia do this? Because 20-something years ago Russia defaulted on it's debt, and therefore no longer has the privilege that the USA currently enjoys to spend like drunken sailors. I also think a large part of the problem we are seeing with inequality is due to technology, particularly the internet, and how it has created a winner-take-all economy due to the scale that the internet allows corporations to achieve. One huge mistake the US government made 25 years ago was not appreciating the disruptive nature of the internet, and changing business laws accordingly to ensure more robust competition and not just winner take all scenarios.
When currency is traded on an exchange it has a value from the trading price. You could have precious metals that are valueless if people don't want to buy them. Currency has its own demand purely as a medium of exchange, so it does not need to be backed up by anything as long as it is demanded and maintains a certain value. All things are worthless unless someone wants to buy them.
You wrote a small book. It nicely represents, with the exception of some patently absurd statements, what is arguably the majority opinion among the educated population of the United States. That yours is a popular view, is indicated by the number of likes here on ET that your post immediately elicited. Unfortunately, what you have written completely misunderstands fiat currency and why the developed world has moved to it. It further misunderstands what we routinely refer to as our national debt. Equally,it misunderstands the purpose of that 'debt,' and by extension misunderstands the purpose of treasury securities. Furthermore, what you have written evidences a certain nostalgia for the gold standard, bringing to mind certain senators such as Ron and Rand Paul. At the same time, it reveals a complete lack of understanding of why we, and other nations, are not on a gold standard anymore. And that is, simply said: a gold standard is impossible to maintain. It is no longer feasible. That a gold standard for currency would eventually be untenable among modern nations was realized in 1944 when it was proposed in the waning days of WW II. The remarkable thing is that following its full implementation in ~1957, it lasted as long as it did, <20 years. All of what I have written here has been discussed in detail here in ET forums, including the hard evidence and reasoning behind our modern system of fiat money. This same subject is by now amply covered in countless economic journals and technical monographs as well as in the popular media, e.g., You Tube and numerous contemporary blogs. As an excellent place to start bringing yourself up to date on this topic I would refer you to former, U.S Senate economist Stephanie Kelton's new book entitled the "Deficit Myth". It is an easy read even by those without an economics background. In the meantime, if you want to address specific topics further I might be inclined to weigh in with my two cents, but I don't see the point in rehashing everything, as it has already been covered so thoroughly, and so well, by myself and others here and world wide. Finally, I can not ignore such eye popping mis-statements of fact that you included such as: Our private finances are subject to hardcore audits but Fed, IMF or BIS? Never. Fort Knox? Gimme a break! I can't help but be alarmed by such radical statements when they appear here on the internet in this economics forum, of all places! Sadly, some naive person is bound to accept such an absurd statement as true. Equally alarming is the mere thought that any educated person in our modern world would think something so preposterous is true.
These are valid points. Perhaps you should mention that the Forex markets are dominated by central banks who have no intention of letting their respective currencies values relative to their trading partners be determined by internet social media scuttlebutt or Robinhood traders' enthusiasm. (Can one even trade forex on Robinhood?). I find I can not disagree with you; yet you must realize that there is something very much behind a currencies value other than popular opinion or peoples faith in it, which of course is also a factor.
For those interested in beginning a serious study of modern fiat money theory start with this web page: https://www.google.com/search?clien...vsLjagp0DAAA&sa=X&lei=GOREYeOhGI6jqtsPgIuu8AY Here are a few of the major contributors (note that some are related via first or second generation mentor student relationships) Here a few of the major influencers: George Friedrich Knapp (late 19th Century -- 1920s) ;Abba Lerner (1940-50s); Hyman Minsky (1940s-90s) ; Randall Wray; William Mitchell; Warren Mosler; Stephanie Kelton, Nathan Tankus; James K. Galbraith; Paulina R. Tcherneva, and many many more I could mention. Nathan Tankus' blog is interesting. It is not surprising that many of these have a connection to the Levy Institute at Bard College and therefore to Hyman Minsky of the famous "Minsky Moment". And here is a marvelous little book having not much to do with Modern Fiat Money Theory that I can not recommend too highly to anyone interested in The Fed and Banking in general. So far as I know there is nothing else like it that is so accessible as Joseph Wang's "Central Banking 101." It is right up to date.
Sorry, the limk above in wrong it should be: https://www.google.com/search?clien...H5H1gdClAwAA&sa=X&lei=PeREYdXdKquwqtsP4dCIkAk
I find I can not disagree with you; yet you must realize that there is something very much behind a currencies value other than popular opinion or peoples faith in it, which of course is also a factor. To answer the statement above. The value of currency is the need to hold a medium of exchange that will enable transactions at a future date. The demand for currency, which creates its value, is the level of the need to make transactions using that specific currency at a future date. If there is a high need or desire to make transactions at a future date using a specific currency then it will have a high value. The value will alter depending on the need to make transactions using the currency at a future date, which can be affected many different factors. Perhaps you could define the value of a currency as the desire or need to make transactions using it in the future.
Piezoe, 1. I kindly ask you to list 3 major arguments why currency backed by gold or by gold AND other physical assets is NOT possible or effective today. I want all these arguments to be based on facts logic and common sense. 2. I do not advocate solely for gold backed currency. I think legal tenders could also be backed by silver, copper deposits (underground), REITs or equity ETFs like S&P500 , Russell 2000, basket of 9000 global stocks. Currently however, we can own ETFs but we cannot send them to other specific people like we send fiat currencies, we can only do it via centralized exchanges. THere are no technological obstacles to make stocks, ETFs or REITS peer-to-peer. 3. Please show us links to latest audits of Fort Knox from the year 2019, 2020? By at least 3 major auditors like KPMG. 4. Please indicate who exactly are the ultimate owners of Fed, BIS and IMF? If you will say "cartel of the banks" then list who are the major owners of these banks. If major shareholders happen to be BlackRock, Vanguard , StateStreet etc, list who are major shareholders of these funds? 5. Lastly, describe exactly why fiat currency system does not create gigantic advantage to people close to "printing press" or close to governments who distribute vast quantities of newly created currency? Also known as "Cantillon Effect". Again, be specific and describe it in 5 to 10 sentences.