Hi doma,
Am I reading you correctly? Do you believe paper money has a 6,000 year history?
I am surprised any Ponzi scheme has lasted 40 years.
On the other hand, government borrowing has gone on for a fairly long time. Think back to the Napoleonic War, for instance, and how the UK funded its fleet.
The use of paper currency in the UK has a long and reasonably stable history. Intermittent inflation and deflation, of course. I guess inflation and deflation reflect people's sense of the underlying value of currency within a complex economy. And then, I suppose, of the economy itself.
40 years? Stirling? The US dollar?
Whereas the history of metallic coinage is rather miserable. You might think about Diocletian's Price Edict, for instance. Or Henry I's treatment of money changers who debased the coin of the realm.
Not sure quite why you have this notion that gold is the only thing which is valuable. Why do you think gold is valuable, rather than, say, land? Or cows? Or plutonium?
Or fiat shares of stock?
There's no value to society in Wave's services?
Hi doma*,
You made a number of historical assertions which are incorrect. So rather than face the fact that your theory is based upon muddled history you move onto the attack against Keynes?
"Since the Fed's inception in 1913 the U.S dollar has lost 97% of it's value....Gee that
must just be a coincidence since the Fed's mandate is to preserve the dollars value!"
I think you may be getting mixed up with the ECB. Amongst other things, the Federal Reserve's role is "to conduct the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates." In the US, price stability is not the only goal. It is balanced with other goals such as maximum employment. As a result of its tremendous credibility and the resilience of the US economy, the US dollar is now the world's reserve currency. Long term interest rates in the US are now lower than those in Germany. The European currency, governed by a bank which adheres to a simple notion of price stability, is on the verge of collapse. I think the Fed may be doing something right!
Perhaps you don't know so much of the history of inflation during the era of gold and silver coinage as we sheep; but if you are going to make an argument about fiat currency, you should know that inflation has been a serious issue since money was invented. It was certainly an issue when we had metal coinage, which was why I provided you with some examples. I'm sure it was an issue when folks traded wampum and cowry shells. I think tally-sticks were used for different purposes by the Norman exchequer - the Normans used metal coins for transactional purposes. Henry I was a son of William of Normandy.
I strongly recommend you go back and read about inflation in the Roman and medieval eras, before paper currency was invented so you can learn about the kinds of troubles both emperors and monarchs experienced. Why do you think gold disappeared from the Western Empire in the late Roman period?
As regards maintaining the value of a currency - in a normal growth economy, monetary tools tend to work pretty well to control inflation. That was our experience in the Reagan era. But monetary tools have little to offer in a deflationary environment because there is no such thing as a negative interest rate. So if you want to ameliorate the harms of deflation, you need to find a different set of tools to influence things. Quantitative easing is the closest thing we have to a negative interest rate. It is a monetary tool. It is a lot harder to get folks to reduce their wages than to reduce a currency's value.
By the way, I agree that investing in dollars and not seeking interest is a dumb idea. That is why many folks put money into Treasuries, Gilts etc.
In spite of the value of a single dollar, the total value of the US economy has grown considerably over the last 100 years. This is due to vast improvements in productivity as much as anything.
I guess this means we should all invest in fiat shares. Like those people around here have been doing.
Doma: 6,000 years of history tells us btw that No Fiat Paper Ponzi scheme has lasted more than 40 odd years
Alea:
1. Most of 6,000 years of history occurred before anyone had a paper currency, so it tells us nothing. The Chinese invented paper currency during the West's middle ages and naturally struggled with it as an innovator. They didn't have much knowledge of the economics with which to manage it.
2. In the modern era, the US has operated a fiat currency since 1971. I guess this is why you use 40 years as your max. Next year I guess you'll up the limit to 41 years.
3. Monetary policy seems to manage inflation pretty well during periods of growth.
4. Unconventional monetary instruments like QE seem to be helpful in periods of deflation. No one has said QE solves all problems, and it is a cheap kind of argument to misrepresent the position of a person who disagrees with you.
5. Amazingly, US interest rates suggest that the market values the US dollar as a very stable store of value right now. Viewed sensibly, that means 40 years of success for a stable, modern fiat currency.
6. So calling the US dollar a Ponzi scheme is really a bit silly.
7. Thinking of gold and silver as stable forms of coinage is simply uninformed.
8. There isn't remotely enough gold and silver in the world to underpin the global economy.
9. Any number of other assets have value.
10. A fiat currency is based upon the not-too-complex fact that economies store value for things other than the kinds of metal that primitive people desired. You obviously missed the irony in the fact that gold was used as a doorstop in the plutonium storage room at Los Alamos. Why? Because the value of an element which generates a vast amount of energy, such as electricity, is self-evidently wildly higher than it is for a boring metal.
So I'm not sure I see anything much in your claim that is useful.
Missed doma's final post, so cannot respond nor do I have access to his deleted posts to fill in the gaps. Needless to say, I was a little irritated at being called a sheep and at having my views mischaracterised etc. Hence the testy final response.
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