How fiat money fails: deconstructing the government’s thin promise
Fiat money has a surprisingly short lifespan. The almighty US dollar that currently serves as a world reserve currency is not exempt, despite all the claims that it cannot fail. Throughout history, fiat money has failed again and again, where solid assets such as gold have survived. Discarding the acts of God and unforeseen circumstances, the number one reason why fiat fails is due to a weak economic policy. This is where gold and bitcoin really prevail.
Good as gold
There is a reason why no one hears people say “good as a fiduciary” to describe something reliable or valuable. Gold has been used as currency for thousands of years, from at least 700 a. C., when it was favored by the merchants of Lidia. The oldest fiat money that is still used today has only existed for a little over 300 years, beginning in 1694 with the founding of the Bank of England. Prior to its use as a currency, gold was used in bartering and trading worldwide, in the absence of a political mandate. On the contrary, “fiat” means “by decree” or “to be made” and depends on the laws backed by the force of a state or monarch to demand its use, or another contrary.
A recent tweet from user @ 100trillionUSD makes an interesting observation. When a fiduciary failure occurs, it tends to happen first as a gradual construction and then suddenly uncontrolled, shooting itself into oblivion. The German gold mark was a gold-backed currency for the empire from 1873-1914. After the gold standard was abandoned in 1914, the paper brand would soon cease to have value and was erased by hyperinflation at the toilet paper level in 10 years.
This is an extreme case, no doubt, but even when it comes to the most reliable fiat money, it is always devalued in relative uselessness at some point. As mentioned, the current holder of the most durable fiat currency is the British pound sterling, with 325 years. Compared to its initial value in silver, when it was created to help finance the war in 1694, it has lost almost 100% of its value.
The history of the devaluation of the US dollar is no less sad. As noted by a prominent inflation calculator:
“According to the consumer price index of the Bureau of Labor Statistics, today’s prices in 2019 are 2,493.53% higher than average prices throughout 1913. The 1913 inflation rate was 2.06% . The current inflation rate (2018 to 2019) is now 1.71%. If this number is maintained, $ 1 today will be equivalent in purchasing power to $ 1.02 next year. ”
So, the real question with the fiat is not how stable it is, but “how long does it take for it to be adequate to turn it on?” A 27-year study of the much cited but much discussed fiat found that 20% of the 775 fiat currencies examined failed due to hyperinflation and that 21% were destroyed in the war. 24% percent was reformed through a centralized monetary policy. This means that most of the failure or interruption of the fiat is due to government intervention, war and economic policy.
Emphasizing the inability to wage a large-scale war in the absence of this fiduciary document, dollardaze.org states that “Initially, money is a tangible commodity. That product is then concentrated on those that issue paper tickets merely representative of the underlying product. The reason for doing this is to lend more on paper bills than can be legitimately supported. ” In other words, the powerful accumulate hard assets through an obfuscated and meticulous scammer, while the poor suffer difficulties, forced to use the rubbish coin offered to them instead of wealth.
Modern Fiat masks
To obtain a very detailed list of modern hyperinflation cases, the Hanke-Krus hyperinflation table is a revealing resource that illustrates the unreliable nature of government money. Although it is now a bit outdated and does not include recent examples such as Venezuela, the data is presented directly. In August 1945, prices in Hungary doubled in just 15 hours. Brazil experienced a 2.02% daily inflation rate from December 1989 to March 1990. Even Austria is not historically immune, the crown hyperinflated for almost a year from October 1920 to September 1922. The Hanke-Krus study is a sobering reminder of what happens when the solid economic principle is ignored. As Austrian school economist Ludwig von Mises said:
“The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy. ”
And also: “The gold standard did not collapse. The governments abolished it to pave the way for inflation. The whole gloomy apparatus of oppression and coercion. police, customs guards, criminal courts, prisons, in some countries even executioners, had to take action to destroy the gold standard. “
Whether or not one agrees with the proclamation of the renowned economist is irrelevant in the face of economic reality. Fiat money is, was and will always be less valuable over time by its very nature. Bitcoin and crypto can remedy this if they are taken advantage of properly and in a market large enough and determined. However, judging by the current regulatory climate and history itself, the Fiat will not fall without a fight.
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