Posts tagged fiat currencies
Posts tagged fiat currencies
Beware the Coming Bailouts of Europe
Tuesday, December 20, 2011 – by Ron Paul
The economic establishment in this country has come to the conclusion that it is not a matter of “if” the United States must intervene in the bailout of the euro, but simply a question of “when” and “how.” Newspaper articles and editorials are full of assertions that the breakup of the euro would result in a worldwide depression, and that economic assistance to Europe is the only way to stave off this calamity. These assertions are yet again more scare-mongering, just as we witnessed during the depths of the 2008 financial crisis. After just a decade of the euro, people have forgotten that Europe functioned for centuries without a common currency.
The real cause of economic depression is loose monetary policy: the creation of money and credit out of thin air and the monetization of government debt by a central bank. This inflationary monetary policy is the cause of every boom and bust, yet it is precisely what political and economic elites both in Europe and the United States are prescribing as a resolution for the present crisis. The drastic next step being discussed is a multi-trillion dollar bailout of Europe by the European Central Bank, aided by the IMF and the Federal Reserve.
The euro was built on an unstable foundation. Its creators attempted to establish a dollar-like currency for Europe, while forgetting that it took nearly two centuries for the dollar to devolve from a defined unit of silver to a completely unbacked fiat currency note. The euro had no such history and from the outset was a purely fiat system, thus it is not surprising to followers of Austrian economics that it barely survived a decade and is now completely collapsing. Europe’s economic depression is the result of the euro’s very structure, a fiat money system that allowed member governments to spend themselves into oblivion and expect that someone else would pick up the tab.
A bailout of European banks by the European Central Bank and the Federal Reserve will exacerbate the crisis rather than alleviate it. What is needed is for bad debts to be liquidated. Banks that invested in sovereign debt need to take their losses rather than socializing those losses and prolonging the process of adjusting their balance sheets to reflect reality. If this was done, the correction would be painful, but quick, like tearing off a large band-aid, but this is necessary to get back on solid economic footing. Until the correction takes place there can be no recovery. Bailing out profligate European governments will only ensure that no correction will take place.
A multi-trillion dollar European aid package cannot be undertaken by Europe alone, and will require IMF and Federal Reserve involvement. The Federal Reserve already has pumped trillions of dollars into the US economy with nothing to show for it. Just considering Fed involvement in Europe is ludicrous. The US economy is in horrible shape precisely because of too much government debt and too much money creation and the European economy is destined to flounder for the same reasons. We have an unsustainable amount of debt here at home; it is hardly fair to US taxpayers to take on Europe’s debt as well. That will only ensure an accelerated erosion of the dollar and a lower standard of living for all Americans.
by Andy Hecht December 12, 2011
True Value of Paper Money Exposed
The value of a fiat currency – money that gets its value from government laws or regulations; i.e. money without intrinsic value – depends on the full faith and credit of the country that prints it.
Today, given the enormous levels of debt, the US and the European Union are printing more and more paper currency. The process of adding liquidity to the system has created a farce.
By any conventional accounting standards, these countries are so indebted that their paper currencies are worth only the value of the paper they are printed on – which is why gold has moved higher for a decade and why it will continue to appreciate.
It is not that the intrinsic value of gold has gone up – it is the intrinsic value of currency that has been unmasked.
Governments Now Realize the Value of Gold
Central banks no longer sell in the gold market. If there is any government out there that wishes to follow Gordon Brown’s example, there are scores of buyers that will gladly take the gold off their hands.
In fact in 2011, central banks and governments around the world purchased a staggering 450 tons of the yellow metal.
Indeed, 18% of all of the gold mined in 2011 found its way into central bank vaults. Central banks now realize that owning gold as a reserve asset beats low-yielding US dollars or debt-riddled euros any day.
The central bank of Korea, the world’s eighth largest holder of foreign reserves, bought 15 tons of gold in November after snapping up 25 tons in June and July.
And, Korea is not alone. In 2011, China, Russia, Kazakhstan, Colombia, Belarus and Mexico, among others, have all added to their gold reserves and have plenty of room to add more.
Demand is still growing
The pace with which central banks and government are buying is not slowing down.
Swiss banking and financial giant UBS two weeks ago noted: “Purchases of as much as 450 tons in 2011 may be repeated next year as Asian nations and emerging economies diversify their reserves.”
That’s at least 450 reasons why the price of gold will continue to climb.
The demand for gold from individuals and investors is also rising.
Chinese jewelry demand alone is around 13% higher year-on-year at some 131 tons.
China’s growing appetite for gold as a means of investment saw demand for gold bars and coins expand by 24% from year earlier levels to 60.2 tons. And, all this as the price of gold rose to new highs.
The Bottom Line
The demand for the shiny yellow metal continues unabated in the current global economic environment.
The bottom line is this: Gold is in demand and that promises to continue through the coming months and years – primarily because it remains the most stable asset and currency in the world.
Gold is the closest asset to a sure thing that exists today, and its price is nowhere near the top.
It’s coming . . . sooner than you think.
Pay attention #Occupy protesters. The root culprits are the central banks and the fiat currencies they create out of thin air. To solve the world’s economic problems we need first to get out of debt (no more bailouts or stimulus) - - - allow the market the freedom to work as it was meant to. Then we need to replace the fiat currencies (paper money) with something that has true value and cannot be manipulated by governments and bankers as paper can. That likely means a return to some kind of gold standard. Gold has been recognized everywhere on the planet as having intrinsic worth for thousands of years. Bankers and governments hate gold because they can’t control it or the persons who possess it.
Fiat (Latin, meaning “let it be so”)
It turns out that the biggest villain of all is not a person, but a system.
Specifically, the fiat money system.
If you’ve got four minutes, check this out to see why the rich are getting richer while everyone else is getting taken to the cleaners and ground into the dirt.
And why nothing will change until we attack the problem at its root.
Mises Daily: Thursday, October 13, 2011 by Hans-Hermann Hoppe
Assume that you rule over a territory that has developed beyond the stage of a primitive barter economy and where a common medium of exchange, i.e., a money, is in use. First off, it is easy to see why you would be particularly interested in money and monetary affairs. As state ruler, you can in principle confiscate whatever you want and provide yourself with an unearned income. But rather than confiscating various producer or consumer goods, you will naturally prefer to confiscate money. Because money, as the most easily and widely saleable and acceptable good of all, allows you the greatest freedom to spend your income as you like, on the greatest variety of goods. First and foremost, then, the taxes you impose on society will be money taxes, whether on property or income. You will want to maximize your money-tax revenues.
In this attempt, however, you will quickly encounter some rather intractable difficulties. Eventually, your attempts to further increase your tax income will encounter resistance in that higher tax rates will not lead to higher but to lower tax revenue. Your income — your spending money — declines, because producers, burdened with increasingly higher tax rates, simply produce less.
In this situation, you only have one other option to further increase or at least maintain your current level of spending: by borrowing such funds. And for that you must go to banks — and hence your special interest also in banks and the banking industry. If you borrow money from banks, these banks will automatically take an active interest in your future well-being. They will want you to stay in business, i.e., they want the state to go on in its exploitation business. And since banks tend to be major players in society, such support is certainly beneficial to you. On the other hand, as a negative, if you borrow money from banks you are not only expected to pay your loan back, but to pay interest on top.
The question, then, that arises for you as the ruler is, How can I free myself of these two constraints, i.e., of tax-resistance in the form of falling tax revenue and of the need to borrow from and pay interest to banks?
It is not too difficult to see what the ultimate solution to your problem is.
You can reach the desired independence of taxpayers and tax payments and of banks, if only you establish yourself first as a territorial monopolist of the production of money. On your territory, only you are permitted to produce money. But that is not sufficient. Because as long as money is a regular good that must be expensively produced, there is nothing in it for you except expenses. More importantly, then, you must use your monopoly position in order to lower the production cost and the quality of money as close as possible to zero. Instead of costly quality money such as gold or silver, you must see to it that worthless pieces of paper that can be produced at practically zero cost will become money. (Normally, no one would accept worthless pieces of paper as payment for anything. Pieces of paper are acceptable as payment only insofar as they are titles to something else, i.e., property titles. In other words then, you must replace pieces of paper that were titles to money with pieces of paper that are titles to nothing.)
Ron Paul has consistently held to his message about the creation of money for decades. A vote for Ron Paul in 2012 is a vote for sanity and a stable economy.
Ron Paul on Fiat Money: 1970s Video
Sept. 14, 2011
This ancient video has good audio. Here, Ron Paul correctly frames the debate over fiat money. It is a moral issue: theft. It is a political issue: power. It is a free market issue: a violation of competition, i.e., a government-granted monopoly. Fiat money is anti-free market.
By framing the issue correctly, he never lost sight of the enemy institution: the central bank. This is why he refuses to give Bernanke any slack.
By sticking to his knitting for 35 years, he has become the most formidable political opponent of central banking in American history — and probably world history. He never stopped hammering on the central bank. He finally gained an audience in 2007, 30 years or more after this video was shot.
His ability to expand that audience today makes him a major threat to the Federal Reserve. He will continue to get out this message after 2012. But he will do so from outside of Congress.
He is wise to leave. A politician can do only so much. He has been inside the Congress continually for over 20 years. He had earlier successful runs. There comes a time to transfer the torch. He has used his office to educate the public. He can do this from the private sector now.