News & Analysis
Depression 2010 - Western Fiat-Money Finished?
Sluggish economy leaves many Japanese in the cold ... The global economy may be on the mend, but times are still tough for the masses of homeless, jobless people in Tokyo, where the only meal of the day is often a bowl of rice handed out by charities. Although Japan's export-driven economy is back on track, largely due to rising demand from Asia, the United Nations said its recovery was slower than other countries, and predicted only 0.9 percent growth in 2010 compared to 8.8 percent for China and 2.1 percent for the United States. This sluggish growth, combined with troubles at giant corporations in the world's second-biggest economy, has made earning a living very difficult for scores of Japanese. "I see no jobs around. It's a really tough situation," Eizo Tsuruga, a 50-year-old homeless man, told Reuters as he sat among others people eating a bowl of hot rice in the winter night. – Yahoo
Dominant Social Theme: Sometimes the global economy is down, and sometimes up.
Free-Market Analysis: Is the Western world struggling through a bad patch? Our argument, voiced with various levels of clarity at various times, is that the West is currently living through a failure of fiat money – specifically a failure of the global anchor currency: the greenback. The dollar is on its way out not because people want it to be necessarily (though some do) but simply because it is failing as a fiat currency. Central bank fiat currencies always fail. China had a number of fiat episodes and the populace was so scarred that fiat money was reportedly even banned in the 1800s. Here's a bit of history on China's melancholy brushes with unbacked paper money:
Fiat Money – China -- Flying Money
When the Chinese first started using paper money, they called it "flying money," because it could just fly from your hands. The reason for the issuance of paper money is simple. There was a copper shortage, so banks had switched to the use of iron coinage. These iron coins became over-issued and fell in value.
In the 11th century, a bank in the Szechuan province of China issued paper money in exchange for the iron coins. Initially, this was fine, because the paper money was exchangeable for gold, silver, or silk. Eventually, inflation began to take hold, as China was funding an ongoing war with the Mongols, which it eventually lost.
Genghis Khan won this war, but the Mongols didn't assume immediate control over China as they pushed westward to conquer more lands. Genghis Khan's grandson Kublai Khan united China and assumed the emperorship. After running into some setbacks with paper currency, Kublai eventually had some success with fiat money. In fact, Marco Polo said of Kublai Khan and the use of paper currency:
"You might say that [Kublai] has the secret of alchemy in perfection...the Khan causes every year to be made such a vast quantity of this money, which costs him nothing, that it must equal in amount all the treasure of the world."
Even Helicopter Ben would be impressed. Marco Polo went on to say:
"This was the most brilliant period in the history of China. Kublai Khan, after subduing and uniting the whole country and adding Burma, Cochin China, and Tonkin to the empire, entered upon a series of internal improvements and civil reforms, which raised the country he had conquered to the highest rank of civilization, power, and progress. ...
"Population and trade had greatly increased, but the emissions of paper notes were suffered to largely outrun both...All the beneficial effects of a currency that is allowed to expand with a growth of population and trade were now turned into those evil effects that flow from a currency emitted in excess of such growth. These effects were not slow to develop themselves...The best families in the empire were ruined, a new set of men came into the control of public affairs, and the country became the scene of internecine warfare and confusion." (- Daily Reckoning)
Interestingly, we can see in the above observations that fiat money first created a wonderland of progress and amusement. That's just what fiat money has done in the West and in Japan as well. It is now happening in China. Wherever fiat money travels it brings tremendous euphoria in its wake, though only to begin with. Cities are energized with false booms. Farm children flock to the urban environment to take jobs in factories producing ephemeral goods or work at useless government jobs – that are created from tax revenues during the boom time. Initially, because fiat money inevitably has a relationship to government, much of the perfection of society is attributed to a wise, fair-minded bureaucracy. The bureaucracy, by the way, believes it.
Monetary stimulation can go on for years. In America, it's been going on for nearly a century – which is probably the far end of what can be expected. But people can live and die under a central banking regime – which is usually a fiat regime (or ends up that way, anyway). Yes, it cannot be emphasized enough that fiat money (along with its enabler, central banking) is a foundational curse. Just as in China, it funds wars, makes the government look wonderfully efficient and even omnipotent, fools people into believing that the non-essential jobs they have are actually essential "modern" work – and sets the stage inevitably for regulatory regimes that must eventually descend into madness and ruin.
Fiat money empowers corporatism (in the modern age anyway) and distorts civilization by helping to implode agrarian republicanism. It is no coincidence that Thomas Jefferson despised central banking – and was in fact the most famous and influential agrarian republican. We can see the remnants of this sort of society in Switzerland, which has passed laws to maintain small farms. It is difficult to create a totalitarian society – even an ephemeral one – in a land of sturdy farmers. Such individuals grow their own food, have access to water and are willing to defend their land. America was a bit like Switzerland before the Civil War but is not now.
But today, dear reader, we would propose that the West, and the entire globe, is living through a fiat money collapse. Economies all over the world have been inflated to their fullest and people can buy no more useless gadgets and work at no more superfluous jobs. Too many useful endeavors have been marginalized and phony ones have been elevated. An implosion is taking place. The world is reverting to a kind of mathematical practicality. In America, car companies have shrunk because there are too many cars, and houses are not being built because there are too many houses. Banks are not doing deals because too many deals have been done. All that is working overtime are the printing presses. While the greenback is exceptionally at risk we would argue that the same thing is occurring, to a greater or lesser degree, in Europe, in Japan, and even in China – despite all the happy talk about the Chinese miracle. Here's a famous investor on the subject of China:
Contrarian Investor Sees Economic Crash in China ... James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true. Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc. As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China's hyper-stimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like "Dubai times 1,000 -- or worse," he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent. "Bubbles are best identified by credit excesses, not valuation excesses," he said in a recent appearance on CNBC. "And there's no bigger credit excess than in China." (- New York Times)
Everywhere, major economies are having difficulty. We do not believe by the way that it is absolute serendipity. The power elite knows very well how fiat money and central banking work. Those at the top of the economic food chain readily anticipated more power falling into their laps – and ultimately facilitating a worldwide economic regime. But we have to re-emphasize that these same powerful people apparently did not take the Internet into account. This is most important.
Conclusion: By putting in place the mechanisms that guarantee endless quasi-collapses, the power elite profits inordinately. By not understanding that this time around the entire circus would be available for endless replays on the Internet, the power elite has put the system into tremendous jeopardy. Too many have run across free-market arguments on the Internet and come to believe (this time around) that the system is unfair and even impractical. Too many have witnessed and comprehended the full gamut of central banking's apparent destructive tendencies. None of this was in the game plan, in our opinion. Yet this seeming unraveling of financial certainty has tremendous ramifications for your portfolios, dear reader. We might suggest a modicum of gold and silver as you watch various fiat money economies of the world, especially the dollar, sputter and sink.
Posted by Scott McLagan on 04/22/10 11:21 PM
You know - it would be really nice if someone could actually say for sure what's going to happen ! Is there going to be a global crash/depression or not ! The opinions from the experts, as per usual, contradict each other, you can't trust your government to tell you the truth, you can't access the information you need to access in order to learn the truth, so it all just amounts to endless speculation!
Surely, there must be one person out there out of some 7 billion that knows for sure.
Sure, the whole western world has been living in some credit driven fantasy world for decades and that world is living on borrowed time now, but we need to know timelines so we can plan for what's coming !
So... who are the best people to listen to for advice ?
Suggestions welcome !
Suggestions backed by fact even more welcome !
Reply from The Daily Bell
No one has a crystal ball. You gather facts, think for yourself and take "human action" as best you can.
Posted by Steve on 02/15/10 06:41 AM
Why do we need "fiat" money to buy and sell gold? Why do you all forget the Feds confiscation of gold? It will happen again when your gold bubbles up in value.
Reply from The Daily Bell
Bell editors believe in free-banking - and thus in any money the free-market chooses. We do believe what the market would choose would be a private silver and gold standard, which historically has served the world well.
You are correct that the US may choose to confiscate gold at some point, though there were historical reasons for the gold confiscation which may not apply today. History does not always repeat itself exactly.
Posted by Common_Tater on 02/12/10 06:52 PM
Antal Fekete has a very good article now on bond speculators that are front running the fed in the treasuries market. His assertion is that the dollar is not really a fiat currency per se, but more of an irredeemable currency as this is a slight but significant difference. I highly recommend the read:
Click to view link
Reply from The Daily Bell
We are pleased to note that Antal Fekete is a columnist at the Daily Bell.
Posted by Dane on 02/12/10 06:17 PM
Yes, fiat money moved down the tracks of twenty five plus years of declining interest rates, used to snowball or roll the debt, have now come to the end of the tracks at 0 interest. I like the internet quip, let's be vigilant to any forms of censorship.
Posted by Mr Morphed on 02/12/10 05:17 PM
Finally we have seen the light. So now kiddies what ever shall we do? I suggest if you live in a city and have a bit of cash, you take it and get to the country and buy a farm. I doesn't have to be huge, just a place to grow enough food to assist what you can shoot.
Click to view link
Posted by Jay on 02/12/10 01:06 PM
Do not put your trust in uncertain riches, for verily riches make wings for themselves like eagles and fly away. Do not put your trust in silver and gold. They too will fail. My son, why will Ye spend your money for that which is not bread? Wisdom is too high for a fool, but it is found in the pages of God's Word, the Bible. A Jew named Solomon wrote most of this wisdom in the book of Proverbs under the inspiration of God Himself.
Posted by Ron Pollan on 02/12/10 09:31 AM
Your analysis of the fiat money situation is extremely accurate. It seems there are many of us, who understand, but wait for the fat lady to sing.
Posted by Ross Johnson on 02/12/10 05:27 AM
Yes fiat money is finished . That's why every one is buying the dollar
Posted by Alan on 02/12/10 03:05 AM
Nomisma, you are grievously in error in your homage to the ubiquitous perfidy of fiat currency. Far from "doing well", the Continental dollar was an inflationary disaster that wiped out the savings and livelihoods of hundreds of thousands during the War of Independence, and was so hated that it was the Founding Father's experience with it, more than anything else, that led them to wisely insert into the US Constitution the prohibition against the states mandating anything but gold and silver as legal tender --- a prohibition that they foolishly did not extend to the federal government, perhaps never imagining that our monetary system and federal government would end up so corrupted and powerful as to expressly override their wishes and issue fiat currency itself.Or have you never once read or heard the phrase "Not worth a Continental"? It is NOT a reference to Europeans!
Posted by Nomisma on 02/11/10 05:02 PM
I recommend Stephen Zarlenga's book, "The Lost Science of Money" for a better understanding of fiat money and how Adam Smith shilled for the Bank of England.
Fiat is not the problem, its putting the money power into the hands of private interests by taking it away from the public. The US did well with the continentals during the revolution and greenbacks during the civil war. It was only when we gave the money power over to the private bankers that our money started working against us.
Reply from The Daily Bell
You are Brownian and we are Austrian. We believe gold and silver circulated as money before the state declared it so - and that honest money and free-markets are the building blocks of freedom. However, we are also on record as declaring that public money - stripped of private influence - would probably be better than the horrible mercantilistic system we have now.
Posted by MetaCynic on 02/11/10 02:36 PM
The official perception of the nature of money, has come a long way since the early days of the Republic. The U.S. Coinage Act of 1792 prescribes the death penalty for officials who debase the currency! The founding generation fully understood the destructive horrors of fiat money and prescribed the supreme punishment for counterfeiting.
Today, except for those of Austrians and libertarians, all economic theories and political ideologies fervently embrace the madness of fiat money and endless credit creation. The straight faced response to the ruin brought about by credit creation and debt is more credit creation and debt. Such logic would prescribe brine for the thirst created by drinking seawater!
If the Coinage Act of 1792 is still on the books, what prevents an ambitious federal prosecutor from throwing the book at Bernanke and friends? We would witness firsthand the power of personal accountability to restore a sound currency.
Posted by Dan on 02/10/10 09:43 PM
Great article,,,as usual. It was long ago proven that the banks have to be protected from their own greed. When they dumped Glass-Steagall, they got the bit in their greedy little teeth and ran with it. In typical parasite fashion, they never considered if the host would survive. Then, along Obama-ites with Cloward-Piven which calls for an induced crash;
Click to view link
Evidently, the "World-GOV" people want a crash to induce us to accept world GOV as really great alternative to National GOV. The banks will crash it out of limitless Click to view link is willing to crash, naively believing that the "phoenix" will be wonderful. History says NO !
The Illuminaughty are willing to crash us to accomplish world GOV. The PTB aim to destroy all institutions and affiliations so that we're left with the only option of embracing the state as our ultimate "security blanket" They seem to ignore sociology. Their destruction of family and social institutions has just served to fill the penal institutions.
We're traveling on a large raft floating in shark and crocodile infested waters. The big power groups have lit the end of the raft on fire. The internet has served us brilliantly BUT, so many people prefer to have their collective heads in the sand. You can clear out a crowded room simply by talking about U.S. debt. When/if the "security blanket" has fallen away, people are going to be quite cast adrift and angry. It remains to be seen just what facet will crumble
first;Click to view link
Will it be "gold, guns, ammo? Will it be "dirt, water, seeds? Interesting time, all right.
Posted by John Forster on 02/10/10 08:33 PM
Speaking of Chinese Monetary History: WOODEN NICKELS OR, THE DECLINE AND FALL OF SILVER COINS by William F Rickenbacker (Eddie's adopted son) witnesses to the decimation of China's silver money when FDR authorized the treasury to purchase silver at above-market prices. The smugglers began stripping China of silver, in spite of it becoming a capital crime. The resultant "deflation" weakened them, making them vulnerable to being taken over by a central banking system that was all the rage.
Reply from The Daily Bell
Posted by Jim Quinn on 02/10/10 06:22 PM
I think this article may be of interest to your readers.
Click to view link
Reply from The Daily Bell
Posted by Shawn on 02/10/10 05:18 PM
If the economies of the world were allowed to grow organically through supply side economics, we wouldn't have to have as many cars or houses or to few jobs. The creature from Jekyll Island ( The Creature from Jekyll Island, G. Edward Griffin) is doing its designated job, in partnership with the leftist economics of Keynes.
As "The Bell" and other clear minded internet communications report, the world is going through a major shift in almost all areas, I would venture to say a growth spurt and growth spurts can be painful. The west seems desperate to hang on to values that are not working.
We of the Austrian school are watching a sinking ship and throwing life lines. The crew on this ship are pretending not to see the rescue efforts and thats a characteristic of a sociopath. The answers are clear and proven, a Republic that respects the Constitution, with a truly free market and low taxes and a defensive military prospers as do all of it's people.
One can't help but think that maybe there is more than meets the all seeing eye here and maybe things are going according to a plan. Why else would our government be filled with educated people who continue to do insane things over and over again?Lots to ponder.
Posted by Bill Ross on 02/10/10 03:29 PM
The "rule of law" was subverted because of the insights of Darwin in the area that choice is determined by environmental factors and perception. The judiciary (to be kind) was not aware of the crucial importance of "equality under law" and how class warfare (for profit) can be achieved by splitting people into artificial legal classes (income, disadvantaged, Jew...) and profiting from the conflict (while hypocritically and falsely blaming it on flawed human nature).
As to fiat currency, it is fraud and theft. The grim reaper of "Mathematics Of Rule" proves what happens to civilizations that do not respect the rights of the productive:
http://www.cli.gs/MathematicsOfRuleWe are living it.
Posted by Ancona on 02/10/10 02:48 PM
I have been preparing for this for five years now. Having divested of a significant portion of my fiat for tangibles, I am in a position to weather the impending storm in some degree of comfort. If I were you, I would add food, water filtration, a few solar panels, lead and lead delivery devices to your stash. I'm just saying...
Posted by Kenny Wright on 02/10/10 01:53 PM
Look out below, because that's where we are.
Posted by Patrick Wood on 02/10/10 01:44 PM
Fiat currencies will not burn separately. When the "end" comes, they will all go up in flames at the same time.
Are the global elite unaware of this? Not! They will wait in the wings with an alternative solution, run by themselves, and it won't be gold.
The intellectual chatter on Technocracy is of great concern because their solution could have its roots in a scientific dictatorship with its respective Carbon Currency.
Reply from The Daily Bell
Good points ... Please see:
Click to view link
Posted by Jesse Townsley on 02/10/10 12:01 PM
In addition to fiat currency, we have the spectre of "redistribution of income and assets" by governments, for the alleged purpose of helping people who need help, or to save business entities that should have been allowed to fail.
Fiat currency, and redistribution of income and assets appear from my reading of the U. S. Constitution to be prohibited. Had they been, and had this ban been upheld by the Supreme Court, which should also have happened, then none of the present mess could have been created.
But, pardon me, these facts are obvious to anyone who wishes to look and to understand. They are not obscure or difficult to understand. So, it is obvious that he puppetmasters are using these tools to end up taking control of everything (the so-called "One World Government" concept.)
How to deal with this? In addition to educating the public about how we are being hoodwinked, we need to take away their ability to spend money indiscriminately. My plan is to end the banking system's 'fractional reserve' methodology, which is inherently inflationary and fraudulent to the core.How to do this?
My idea is for everyone who owes money to any bank using the fractional reserve system (which is almost all of them) to stop paying their notes and mortgages instantly. Then, when the banks try to collect, argue in court that the banking system is fraudulent and never gave you any lawful money in the first place. (Which is absolutely true!)
While this argument may not win the day if only a few people try it (simply because the courts are also controlled by our Federal Government), it has to win if hundreds of thousands of people do it at the same time. The banks would fail, and the courts would be swamped.
The act of doing this, and getting this result, might be enough to convince the Supreme Court to act responsibly and to make illegal all of the predatory legislation that the U. S. Congress has passed in the past 150 years, which would take away the power of the Federal Government, and make it possible for Americans to take back the control of our own government, which is exactly what the U. S. Constitution says We The People have the express right to do.Think about it.
jesstownsley@Click to view link