Why We Need a Free Market in Money

Rushcourt71

What is fiat money and what does it do?

This is essential to understand since today’s worldwide unbacked paper, or “fiat,” money regime is an economically and socially destructive scheme—with far-reaching and seriously harmful consequences. There is an answer, though, and this lies in ending the money production monopoly of states.

The Problem of Fiat Money

The US dollar, the Chinese renminbi, the euro, the Japanese yen, the British pound, and the Swiss franc represent fiat money.

Fiat money has three characteristics:

• Fiat money is money monopolized by the state’s central bank. It is created by central banks and commercial banks licensed by the state.
• Fiat money is mostly produced through bank credit expansion; it is created out of thin air.
• Fiat money is dematerialized money, consisting of colorful paper tickets and bits and bytes on computer hard drives.
  

Fiat money is by no means “harmless.”

Fiat money is inflationary. Its buying power dwindles over time, and history has shown that this entropy is almost as irreversible as gravity. Fiat money makes a select few rich at the expense of many others. The first to get new money benefit to the detriment of those on the bottom rung.

What’s more, fiat money fosters speculative bubbles and capital misallocation, which culminate in crises. This is why economies go through boom and bust cycles. Fiat money lures states, banks, consumers, and firms into the trap of excessive debt. Sooner or later, borrowers find themselves in a deep hole with no way out.

Fiat money is easy to come by, so the government can finance its adventures and misadventures. Easy money; easy come, easy go. And the government keeps growing as it keeps spending. As the state expands and grows like weeds in an untended garden, this excessive growth strangles the free market economy, causing production and employment to suffer.

The Economic Effects

After decades of credit and money creation out of thin air, central banks have built up a colossal debt pyramid. The International Institute for Finance (IIF) estimates that global debt amounted to 331 percent of global GDP in the first quarter of 2020. The coronavirus crisis, in particular the politically dictated lockdown crisis, has laid bare the instability of the world’s debt-ridden fiat money regime.

Without economic growth, investors must fear that borrowers will no longer be able to service their debt, so they rush to exit the credit market. As the credit supply dries up, many borrowers are not in a position to repay maturing loans, nor are they able they obtain new funds.

To prevent the fiat money regime from collapsing in the lockdown crisis, central banks have stepped in, suppressing market interest rates and printing new money to prevent financially overstretched states, banks, and firms from defaulting on their payments. Central banks monetize national debt on a grand scale, hitherto seen only in times of war.

The Political Effects

To sit back and think, “Well, monetary authorities have successfully bailed out the system, everything will be fine,” would be a grave mistake. More than ever, central banks are doing severe damage to what little is left of the free market economic system.

Artificially low interest rates and massive amounts of newly created money lead to malinvestment on a grand scale, and under current circumstances, they help make government even bigger, feeding the growth of the “deep state.”

The uncomfortable truth is that the fiat money system and all political efforts to fend off its collapse lead to the planned economy or even outright socialism. And from an economic and historical perspective, we know that any form of socialism does not bode well. It makes people poorer, brings chaos, oppression, and violence.

Furthermore, what should worry all of us is that the fiat money regime is instrumental for those political forces that wish to transform, to reshape, the world economy. The political establishment, the “Davos elite,” for instance, undoubtedly favors fiat money and the erosion of the free market system it brings—for they increase the possibilities for the state to interfere in people’s lives. In fact, the so-called new world order that progressives envision—replacing the free market system with a politically planned economic system—if put into practice poses a serious threat to the freedom and prosperity of billions of people around the globe.

I will speak an unsettling truth, which is that if people are coerced into using fiat money, the free economic and free societal order will not survive.

Luckily, There Is a Way Out

What could be the solution?

Well, a solution is at hand, and, technically speaking, it is quite simple: make possible a free market in money!

A free market in money means that everybody has the freedom to choose the kind of money he or she thinks is best and that everyone has the freedom to offer his or her fellow human beings something that can serve them as money.

But wouldn’t that result in monetary chaos? Wouldn’t the market be flooded with thousands of new monies? No, it would not! For it is the demand for money, the multiplicity of choices made by individual actors, that would decide what would be used as money. If people can choose freely, it may not take long for a good to emerge that will be used as money not only nationally but internationally—as a universally recognized medium of exchange.

Of course, we wouldn’t know what people would prefer as money in advance. However, looking into monetary history, there is reason to believe that precious metals, gold and silver in particular, would be in the race to become money. Looking ahead, it could also be a crypto unit. Who knows?

Why aren’t people using gold and silver for payment purposes right now? Well, people got used to using US dollars, euros, and the like as media of exchange. What is more, people are not yet deterred by the chronic “inflation tax” on their money balances, which means that the purchasing power of their fiat monies decreases over time. And perhaps even more important: government taxes—namely value-added taxes and/or capital gains taxes—on precious metals make them uncompetitive against official currencies.

But change is underway. As you may know, quite a few US states (like Texas, Arizona, Utah, and Wyoming, to name a few) have abolished sales taxes and capital gains taxes on precious metals, allowing for a level playing field in terms of alternative monies competing with the US dollar.

So if you really seek change, make a strong call for ending the state’s fiat money monopoly, let us establish a free market in money!

The Case for Gold

Whatever comes out of the current monetary mess, regardless of the twists and turns it may take from here, there is good reason to hold on to physical gold.

Fiat money will, as noted earlier, inevitably bring inflation (the loss of purchasing power) and economic hardship.

Thinking about gold, former Federal Reserve chairman Alan Greenspan summed it up best when he said in 2014:

“Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.”

However, gold is not only the ultimate means of payment. It is also a line of defense against the evils of fiat money. Gold’s purchasing power cannot be debased by central banks running the electronic printing presses. In addition, gold does not carry a credit, or default, risk as bank deposits do.

I dare to assume that gold still represents the ultimate means of payments: in extreme situations, fiat money might no longer be accepted as money, but gold will always be accepted, I strongly believe.

There are good reasons to expect that gold, given the current state of macroeconomic factors, offers an attractive upside potential—and also provides protection against the effects of increasing turmoil in the world’s monetary and economic system.

We do not know what the future will bring. But we do know that a world of freedom and prosperity needs sound money, that it cannot possibly function without sound money.

Even if you are optimistic that we as a people will overcome the current problems, that mankind has the potential to move forward and create a better world, there is good reason to rely on gold rather than fiat currencies—for gold will prevail over fiat money.

Source: Infowars website (at https://www.infowars.com/posts/w ... ee-market-in-money/)

KH_Hirsch

There is a reason why gold has been abandoned as a currency or even covering the monetary value of an economy. Amongst other things there is a clear issue with gold, it's heavy and needs to be stored in a safe place. Also, it's somehow hard to divide, imagine you need to pay for certain goods and besides the fact that you need to have the right amount of gold available there may also be the problem what you do with the return amount, if there is enough gold in small coinages available.

Gold is a great idea to preserve value and as history shows it may even rise in value specifically when inflation fears are in the markets. But the same can be said about other non-perishable goods like houses or companies. During inflation holding on to cash is obviously less positive because the purchasing value simply gets smaller. However if you need to buy things what else would you do?

There could obviously be an "electronic form" of gold whereby each person's holding in gold is in a specific account at a bank or the central bank and once an exchange of value happens then the two accounts will either be debited or credited. That way nobody needs to carry gold around and it's also a lot easier to pay in small amounts. But this creates again the problem who actually owns the gold in the banks' deposit boxes? Is it an individual ownership, do all share the gold in the "global" account and what happens if gold gets missing? And one may argue that this approach is almost like fiat money and wouldn't be too far off with that thinking.

So let's go with a mechanism which is easy exchangable, easy to carry, easy to produce (in terms of printing) but yet comes with a lot of safety mechanisms. At the same time it should preserve value in a reasonable form i.e. some inflation may be okay and don't forget inflation is the other side of interest on your holdings in your account. But let's not think about Bitcoin or similar where fluctuations of thousands seem to be a normal way nowadays.

Let me know what you think!

Rushcourt71

I still incline towards gold, but in a different sense.

Paper money gives too much control, legal regulation and financial leverage to central banks, monetary agencies and super rich families who assume authority based on expertise and personal wealth.

Second gold can in some ways be measured and weighted worldwide in a way that paper currency cannot and hence give some ability to regular consumers and other markets to have some kind of say and knowledge of applying it.

In addition, it eliminates the role of oppressive financial markets and central monetary institutions such as higher merchant banks who could not care less about the common masses.

Next, high interest rates, which otherwise seriously erode both wages, savings and the ability to compete with the rich would disappear also diminishing some forms of monopolisation.

In terms of gold as durable monetary units in relation to paper currency, I would refer to the model adopted in earlier Islamic societies. Cheques, financial agreements and singular transactions in reference to gold involving different parties for common causes can ease the inequality barrier by keeping monetary contracts between the buyer and seller alone. State interference exists in the presence of legal protectionism, obligation and minimal taxation in place of excess paperwork and red tape.  

I will refer to your other points in a separate message.