Monopoly fiat currency - a significant invention

Discussion in 'Markets & Economies' started by mmm....shiney!, Jul 15, 2020.

  1. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    The invention of monopoly fiat currency has given our national governments power never precedented before during a time of peace. At no other point in history that I'm aware have governments been free from the constraints of revenue raising as the modern state is since a gold standard was completely abandoned in 1971.

    The significance of this fact is that the State is now more powerful and more removed from those it governs. Given that it governs within reason, it is quite plausible that barring monumental social change (likely to be brought about by technological advancement and necessity ie threats to human survival) it is possible that the State as we know it, a centrally planned behemoth loosely based upon democratic principles is likely to remain with us for a very long time. Perhaps indefinitely.

    The aim of this thread is to gather together some thoughts from a variety of authors on the implications that a monopoly fiat currency has on our economic, financial and political systems. And I'll do what old @bordsilver used to do when he chose to bless us with his presence, I'll break this thread up into a number posts.

    Feel free to chuck in whatever you find or any opinions you may hold.
     
    Last edited: Jul 15, 2020
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  2. BuggedOut

    BuggedOut Well-Known Member Silver Stacker

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    Should we celebrate the 50 year anniversary next year?
     
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  3. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    I'll be quoting from a number of sources, but to make it flow better and easier to read I won't be inserting them as quotes, just as normal text with citations and my comments where I feel it necessary to bore you.

    1. Modern Monetary Theory in short.

    Fiat Currency Economics: A Primer on Modern Monetary Theory

    a. Fiat money is a creation of the State
    b.
    Money Is Introduced Into the Economy by Deficit Spending. That means governments spend first in order to distribute their currency. They spend first, then tax later. The implication of this is that they don't need to tax to get revenue.
    c. Government bonds are not operationally necessary in a fiat currency economy, but they are often used anyway. When Treasuries issue bonds they do so because the law says that they need to do so in order to raise funds. They could easily do away with bonds ie borrowing money if they just changed the law to reflect the reality of what it means to be an issuer of a monopoly fiat currency. But anyway.
    d(i). Sectoral Balances. Once created, a dollar exists unless and until it is taxed away by the government that created it. It is less confusing to think of taxation as destroying dollars and spending as creating dollars, instead of taxation as a collection of old dollars to be spent later.
    d(ii). At the most basic level we have a governmental sector and a non-governmental sector, and the two sectors, as a matter of accounting, must always be in balance. When the governmental sector creates a dollar and spends it into the economy (the non-governmental sector), it is balanced out by a corresponding liability in the governmental sector. And when a dollar is taxed out of the non-governmental sector, the corresponding liability in the governmental sector is extinguished.
    e. Issuing bonds doesn't put a government in debt. When the govt. sells a bond, they exchange a bond for $1000. They take $1000 out of the economy (the private sector, money they had previously injected) and give you a piece of paper and a promise. The government's liability is the same as it was before when that $1000 was floating around waiting to be spent. When the bond matures, say at 1%, the liability of the government has increased by $10, and it simply credits the bond holder and its liability is matched by the private sector's asset.
    f. Deficit spending is necessary to inject money into the economy as excess funds are hoarded by consumers in banks which in turn are converted into bonds ie given back to the government. Without deficit spending (aka a budget surplus) the economy would shrink.

    https://soapboxie.com/economy/fiat_currency_economics


     
  4. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    It's pretty frightening really.
     
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  5. leo25

    leo25 Well-Known Member Silver Stacker

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    In my eyes it will be the 108th anniversary.
     
  6. Oddjob

    Oddjob Well-Known Member Silver Stacker

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    [​IMG]
     
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  7. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Of course what this means is that the State doesn't need chemtrails, or vaccinations or to fluoridate water in order to control the populations, it simply needs to issue a "drug" that people are enthusiastically willing to dedicate a whole life to accumulating.
     
  8. leo25

    leo25 Well-Known Member Silver Stacker

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    Soma? aka Anti-depressants
     
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  9. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Jörg Guido Hülsmann on The Cultural and Political Consequences of Fiat Money

    a. Limiting Budget Is the Key to Limiting Governments. Ludwig Von Mises said that when it comes to limiting government power, it is essential that the government is financially dependent on the citizens and the way we control government is through the budget. It’s not sufficient that the people tell government officials what they should be doing. It is equally important, if not more important, to dictate how much money the government will have to achieve those ends.
    b. One of the central features of a fiat money system is that it tends to produce near-permanent price inflation.
    c. As a consequence it becomes rational to pursue riskier investments in order to find a rate of return that can match or exceed the rate of price inflation.
    d. We are encouraged to leverage using debt, as to not do so results in our savings being destroyed.
    e. In a fiat money society, you are more likely to increase your returns by remaining in debt and continuing to chase monetary revenue indefinitely by leveraging more and more funds.
    f. We become more materialistic than under a natural monetary system. We can’t just sit on our savings anymore, and we have to watch our investments constantly, and think about revenue constantly, because if it is not earning enough, we are actively getting poorer.
    g. Fiat systems enhance attempts to use the political system to control others.
    h. But at the same time, no household and no firm individually has an interest in abolishing the fiat system and putting in its place a natural monetary system. The short-term costs of such a transition would be immense. In this, we see that we are in a “rationality trap” in which one is motivated to maintain the fiat money system in spite of all its downsides, and because the culture at this point is so transformed by more than a century of easy access to fiat money.

    https://mises.org/library/cultural-and-political-consequences-fiat-money-0
     
  10. 66rounds

    66rounds Well-Known Member Silver Stacker

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    Very scary thoughts, but I don't rule out the possibility of war/revolution leading to a change of modern monetary economics
     
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  11. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    That's the sort of social upheaval that may change the system. Though I'm leaning toward any changes to be ushered in as a result of enhancements in technology and possibly solutions to any great challenges we face in the future, climate change for example, or famine.

    This has been the most common (and most powerful) form of social/political change through history, especially since the reformation. Have a gander at what the internet has done to raise political awareness and empowerment. I can see advancements in payment systems/private currencies eg cryptocurrencies, the roll-out of 5G networks and AI, space exploration, low carbon oil, as well as medical advancements etc as being some of the possible catalysts for change.

    As an example, though completely unrelated to fiat currencies scientists in WA think that they may be able to use DNA tests (pharmacogenomic testing) to fine-tune medications for people suffering from depression. This is the sort of technology that saves time and importantly, lives. This is the sort of technology that improves the human condition, and spirit. And history has shown that when advances in improving the human condition are made, so too are advances in freedom made. But then I am an optimist. :D

    DNA research aims to take 'trial and error' out of depression medication treatment
     
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  12. Markco2

    Markco2 Active Member Silver Stacker

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    "And I'll do what old @bordsilver used to do when he chose to bless us with his presence, I'll break this thread up into a number posts."

    One of my favourite posters when I was first here at Silver Stackers.
    Is he no longer with us, or, just left the building for a short break?

    I grapple with the idea of MMT being our saviour.
    Still find it hard to accept.
    One thing I know, governments have always stuffed things up using some form of dystopian mechanism to control society. Throughout history, it always ended badly, before it gets better. Rebellion and War is the usual outcome. I don't see anything different here.

    IMHO, Fiat currency as we know it is dead. Equally, the current metrics of our economy is of little importance when you consider GDP, CPI and other meaningless jargon that has no reflection of the reality of societies general wellbeing.
    Where I see the War being fought is in the crypto space between Centralised and Decentralisation of the monetary system. Decentralised, being "Custer's last stand."

    The blockchain being the battleground.

    Apologies if I sound a bit of a defeatist.
    I live in Melbourne.

    Welcome to central Hotspot, the capital of Australia.

    Cheers Markco2
     
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  13. tongkat

    tongkat Active Member Silver Stacker

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  14. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    He fell in love and got busy. Also his plate at work became very full and he got involved with his local LDP.

    I'm not sure if he's still in love, I haven't spoken to him for about 12 months, just after David Leyonhjelm basically told me on facebook that I was a dickhead. :p

    He was a good man. Not Leyonhjelm, bordie
     
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  15. precious roar

    precious roar Active Member

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    You're going to upset a lot of people with that sentence :)
     
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  16. JulieW

    JulieW Well-Known Member Silver Stacker

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    Congratulations and Kudos!
     
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  17. madaw1

    madaw1 Well-Known Member

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    This is correct-they've already done this-they don;t need to control population-we started controlling ourself in society now...
     
  18. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    That was my evil intention. ;)
     
  19. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Modern Monetary Theory and inflation.

    Advocates of MMT argue that the role of government is to intervene in the market when there are idle resources ie an oversupply of labour but a demand for goods or services remain unmet. The Federal government recently announced that grants will be made available to homeowners for renovation projects as long as these projects are valued at $150 000 or more. The aim of these grants is to support workers in the construction industry. We flagged such a move months ago in the threads about the RBA and negative rates as the housing and construction market are key metrics in the RBA's assessment Autralia's economic wellbeing. But the problem with implementing MMT policies is that unless it is done well (if that's possible) then the effect of such stimulus packages will be to drive up inflation as it puts pressure on wages.

    Robert Murphy makes the case that one of the reasons why certain industries struggle at times is that they were the beneficiaries malinvestment during periods of previous booms. And it's often the result of government and central bank policy that artificially stimulated these sectors and attracted investment. He writes in his review of Stephanie Kelton's "The Deficit Myth":

    [QUOTE+Robert Murphy]"idle capacity" in the economy doesn't just fall out of the sky, but is instead the result of the malinvestments made during the preceding boom. So, if we follow Kelton's advice and crank up the printing press in an attempt to put those unemployed resources back to work, it will simply set in motion another unsustainable boom/bust cycle.[/QUOTE]

    https://seekingalpha.com/article/4355605-review-of-stephanie-keltons-deficit-myth

    Unsustainable boom/bust cycles are unsustainable because they draw resources away from sectors that may be operating at the margin and into these government supported sectors causing wages to rise and making it difficult or near impossible for other sectors to compete. Murphy argues that advocates of MMT maintain that it is only when the economy is at full potential that the opportunity cost of the spending programs arise and on this note he believes they are wrong, as these public spending programs will not only draw out current idle resources, but also labour and resources out of other sectors long before the point of full employment is reached.
     
  20. mattyman174

    mattyman174 Member

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    No Government intervention into the market has inspired confidence in the public of the governments ability to manage that intervention correctly or well to any benefit.

    The move to MMT will be no different. The government will cause unimaginable damage and then conveniently forget the role it played when it fails spectacularly.
     
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