Topic: The fiat-money bubble! - page 4. (Read 3487 times)

Yea i agree, everything without any "practical value" as food, shelter etc has a risk of becoming a bubble. People do love to speculate.

Really any value into anything without "real" value, is as you say, based upon the crowds perception of what SHOULD be the price of a particular object (paper,rocks whatever). Kind of like a mutual agreement to get the society up and running, trading resources constantly wouldn't be very practical as we know.

I dont think the fiat money is evil in itself, but people are just to prone for corruption for a fully centralized currency to really work. I personally see the confidence level for bank and government here in Sweden drop more and more and how anybody could have confidence in the USA banks/government i would never be able to understand. Kind of been declining here in Sweden (the confidence) since the USA and Island economic crises (witch really shows how stupid and corrupt government can be).

I totally agree with you in everything you say like that fiat money, in itself, will eventually fail. If bitcoin would be implemented as a easy-to-use currency everywhere, why would you even use a bank? IMO cryptocurrencies basically have most of the pros that fiat has, but not the biggest cons (like corruption).

Using state-issued money or bitcoins, in my world this choice boils down to "do i trust myself to manage my funds, or do i trust a corporation with a history littered of corruption?"

Personally i rather manage my personal wealth without a overhanging shadow seeing every financial move i make, my confidence lies in myself, not banks!

There's a major difference between tulips and Bitcoin.  Tulips were not a very good money.  Bitcoin is designed to be a money, with anonymity and security built into an electronic architecture, in addition to the usual monetary properties like durability, divisibility, etc.

Anyone can claim anything is a bubble, really.  (Except for items that you can use directly and are priced only for that value -- these will never fulfill the vital role of money.)  Any claim to wealth (that is transferable) must rely on the confidence of the crowd -- a network effect that says, since other people think it has value, I think it has value.  When that network effect collapses, the claim's value is gone.

The main problem with state-issued money is that, while it enjoys powerful support by the state-bank alliance, all individual members of the elites have the incentives to destabilize their own money, by issuing too much money, by borrowing too much, by using deception to prop up their system temporarily, etc. -- all the history we know.  So, fiat money, almost by definition, must collapse.  The very strongest ones in history retain a small fraction of their purchasing power.

So, after 2000, with all the problems suffered by the state-bank system, it's not surprising to see investors looking to non-state monies, gold and Bitcoin, to store part of their wealth.

You can call it speculation, but under the modern system, everything is a gamble (because that is the way the elites like it.)  It's just that most speculations are gambles in favor of the state-bank system, at least implicitly.  (If you buy bonds, you're implicitly betting that the dollars your bond will pay at maturity will be good.)  These speculations have a bad reputation, since there are so many of them, they are often promoted deceptively, and their collapses are all over history.  Gold and Bitcoin are two of the few ways you can gamble against the state-bank system -- they are a different beast altogether.  They do have problems, but not the ones usually associated with most speculative bubbles.

Not entirely true... People will resort to commodity trading like it was done 1000's of years ago. A packet of cigarettes or a slab of chocolates will

be the new currency. You have to remember, most people have generators and backup power and alternative methods like solar power to

generate electricity... and the Blockchain is saved on harddrives globally. My company have extensive redundancy built into their IT infrastructure,

so they will survive, if something like this happens. The question is.... will be still be here to worry about this?

Fiat money has only been around for 46 years, if you use the technical definition of 'fiat.'  State-issued money has been around for almost 500 years in the West.  Before state-issued money became fiat, it was pegged to gold or silver.

My belief is that, while the narrowly-defined fiat money might die any time, state-issued money is unfortunately going to be around for a while, until and unless the majority of the population wake up.

All the problems and evils of fiat money are really a problem with state-issued money, so if state-issued money becomes pegged to Bitcoin or gold after some financial crisis, in the long run, the same problems, i.e. a system designed to benefit top politicians and bankers, will still be here.

But, if state-issued money is pegged to Bitcoin (in one way or another,) it will make a large profit for its owners.

Yes well that was my orginial point. But i must have misinterperted your earlier post when you wrote "I think that no, the fiat money value doesn't come about via speculation. But I'm still curious how you can even imagine that."

But as you mention, the famous George Soros did manipulate the exchange with speculation, having a practical effect on the value of the currency. Thus showing that fiat money's value is heavily influenced by speculation, i am confused to where you stand on the issue now? I see contradictions in your original posts with what you write now, so please clarify if there's something i missed.
As you said earlier you had trouble even imagine how i could believe speculation being a factor, but now saying its obvious that it is?

You also wrote " I suspect there cannot be bubbles of that kind with fiat currencies. The examples you give refer to severe currency devaluations. Obviously, the latter have nothing to do with speculative bubbles, though the end result is essentially the same (i.e. dramatic loss of value)"


Well first of all, as i said earlier this was a case of hyperinflation. Hyperinflation is very connected to bubbles witch would dissprove that statement(IMO). You also mentioned earlier that Germany's case with hyperinflation was caused by them devaluing the currency. The sources i can refer to all say that Germanys hyperinflation was caused by Germany printing absurd ammounts of paper money to pay of the debt they had after WW2. Thats not really a devaluing (devaluing refers to when the government delibratly changes the price of a currency) but rather a deappreciation in my book.

You do mention the printing of money from Germany, but suggest that the money printing was a deliberate act from the government to devalue the mark. I dont't really agree with that.
How would you then define a deapreaction in respect to a devaluation? In my opinion the Germany case was a deappreaction of the mark, the England case i mentioned earlier IMO is a devaluation of the pound.
   

It largely depends on the specific currencies

We all very well know how George Soros had shorted the British pound in the early 1990's and earned something like 1B dollars on the deal. So to say that currencies are not prone to speculation would be flat-out contradicting reality, obviously. And it is still more so in respect to weak currencies like the Russian ruble, for example, which can in fact be first heavily inflated ("bubbled") by foreign investors (like what seems to be happening to it right now) and then suddenly crashed (what is known as "carry-trade"). But ultimately, the final destiny of a currency is still determined by the financial policies of the government in respect to its currency (see Zimbabwe)

Regarding practical importance of monetary theories, I don't really think that they have any such importance. As I said in my previous post, they all agree that more money means higher prices, and that's pretty much all you need to know about money at this level if you are looking for speculation and trading with currencies. You should be interested in other factors which determine the currency value (e.g. FED interest rates, reserve requirements, monetary aggregates and similar gory details). Monetary theories are for purely academic interest, not for application in trading. In other words, you could be a very successful currency trader and have never heard such names as Milton Friedman or Friedrich Hayek

As a matter of fact, as time goes by all fiat money worth less due to inflation. So, we can print more money, the wages rise, and we still can buy the same things. Who doesn't remember a time, not so far away, that you could buy something (a candle bar) much "cheaper" than today?

Hello thanks for your opinion!
How would you see this compilation? Would it be a coexistance between physical paper money and crypto currencies? Not really having anything to do with each other but can still live in peace with another perhaps? Or do you believe more in a sort of merge were they kind of become the same thing?

If it is a sort of merge you believe in, would that not basically mean that fiat money becomes crypto currency, effectively dubbing crypto currencies as the true winner, so in a sense bursting the fiat money bubble? In that sense cryptos would be the needle that burst the bubble as fiat money as we now it would stopped being produced and the value of the paper would decrease.

Perhaps calling it a bubble is a bit dramatic, but my definition of a bubble is short and sweet that something gets a value without a real correlated physical value (speculation). Fiat money fits into this (IMO), so does tulips, internet services etc...

But please elaborate your view on how you think crypto and fiat will work together or against one another, really interesting! =)

And sorry for spelling, just took a wake & bake, a bit fuzzy in the brain....

I dont agree with the statement that there is a fiat bubble and that bitcoin is the needle that will pop it. This will not be the case and bitcoin along with other cryptocurrency will not going to go against the fiat currency but rather they will complement with it. Bitcoin will complement fiat currency and will carry its value to the digital realms that fiat currency has never been before.

Hello!
Learned a new word now, interlocutors haha had to google that one

Yes history truly shows that fiat money is unstable imo. We as a society always have had a hard time learning from our history. We do have a tendency to repeat the same stupid mistakes over and over again...

Didn't now about ticincoin, gotta check that out! Perhaps a adoption between the current fiat money and the crypto money could be possible. Ticincoin seems to be somethings similiar, a "regional cryptocurrency" if im not mistaken?

As i said in a earlier post, Bitdollars and Biteuros are perhaps in our future. Every country with their own local crypto currency, avaiable for exchange to other cryptocurrencies (like today's fiat money) but no bank or government controlling demand/supply etc.. Is this basically what ticincoin aims to be?

Could you please give me some good links that gives info on ticincoin? Having trouble finding info on english just found some websites writen in swiss haha

Thank you for your response. Some of the sources i already knew off, but i actually can't remember reading about the quantity theory of money (shame on me). So thanks for that one, and thanks for giving serious responses, i really feel like i am learning something from you.

But do you think after a few discussions that you atleast understand me more in my view of fiat money as containing elements of speculation? Even if you don't agree it would be fun if i atleast made it possible for you to see my point of view.

Do you think that the quantity theory of money can be used to practically predict changes in the currency market, or do you just see the theory as a general means of explaining what should move currencies?

In this discussion, many interlocutors have already given many proofs that previously in the past, money used by some countries has become worthless, because some different and better currency have taken its place.

In my opinion we will see exactly the same thing about fiat money now, i think that the cryptocurrencies will have a really big chance to replace such a strong fiats as USD or GBP, with support from a big part of society.

We already have seen incoming creation of ticincoin, which is going to be used in the specific region of Switzerland.

Well 2000 years of existence yes, but fiat money certainly have had its crashes during this time, so to speak of this 2000 year old time as a stable period is wrong. I dont really have the time to go into details, but since the beginning fiat money have lost their value and failed again and again. Just because we continue to use a failing system it does not mean that it makes it a good system.

• The denarius, the roman currency, one of the earliest fiat money ever in usage basically lost all value.
• When china first adopted paper money in the 11th century, where the chinese government emitted so large quanties the value just went away.
• France adopted paper money, locking them to coins at the time. They emitted to much paper money that was not backed up by coins, and so the money went useless. They acctually did this more then one time, the second time the paper money was called assignats. The end effect was the same, inflation to high rendering the fiat money useless as it has no true substansiable backup.

So if cryptocurrencies would take over and render fiat money value useless, it would certainly not be the first time fiat money loses its value, but perhaps the one with the biggest impact. Ill advise you to do some research on the 2000 years of "working fiat money".

I dont really see time as a factor here to be honest. Who cares if one system is 2000 years old, and one is 9 years old? you want to use the one thats best for you not the age of it. I mean torture is 2000 years old, but lie-detectors are only a few years old, the world adapts and old systems disaappear. Its the nature of the world

I think cryptocurrency is a really good long term investment, but time will tell. Thanks for your response m8. =)

No one can accurately predict the existence of any currency, it all depends on the user. If people stop actively using some currency, then it will simply disappear. To disappear bitcoin enough to create a global war or create some kind of digital currency that will be much better than him.

Now that you mentioned about the 2008 crisis and the creation of bitcoin i have some questions for myself.
Is it really conincidence or Satoshi seems to make a use of that incident while everyone is defenseless and just thinking about their losses.
Perhaps, he used that opportunity to bring in bitcoin then suddenly the price went up. Isnt that a little fishy.

No body know the future. But not so sure about bringing down over 2000 years old system. LOL. 2000 y/olds system  vs 9 y/olds system  . Yes, the trend bullish for now, but in trading something fly too high will see below the bottom. Many theory prove this, Fibonacci, Ganns. Once this cryptocurrency reach it saturation stage, i can't image what will happen with all coins. Too expensive, in this realty world supply and demand most important thing for business. If no body can afford, then get ready to close your shop.

I think cryptocurrency good for short term investment 1-3 years. Please do some research before making any decision to invest your money.

As I know it, currencies in these countries were deliberately devalued by excessive printing of money that led to hyperinflation. I'm not much interested in what happened in Zimbabwe (I mean specific details, but it looks like they had incompetent and corrupt government). Germany was obliged to pay out heavy reparations after it had lost in WWI, which it simply couldn't physically pay out (and which it didn't pay out in the end), so hyperinflation caused by massive devaluations of the German mark was an expected outcome. You may want to read The Economic Consequences of the Peace (1919) by John Keynes where Keynes predicts the economic chaos in Germany which was going to follow the Versailles peace treaty of 1919


Basically all monetary theories claim that

They agree in general that the increases in the quantity of money lead to higher prices. But you may look specifically into the quantity theory of money (so-called the Chicago school of economics also known as monetarism) which uses the Irving Fischer Model. Apart from that, it directly follows from the concept of money, i.e. the input of excessive amount of money into the system will cause the prices to rebalance at a new, higher level. Competing theories (e.g. monetarism vs keynesianism) differ in how the new money propagates through the economy and in what degree it affects the economic activity and unemployment (see the so-called "Treasury view" to get an idea)

Good point.

Such a situation would be extreme and call for extreme measures. Value probably in such a situation would return to the basics, food, shelter etc...

Exciting to see tough witch currency will hold the most value the longest, IMO fiat money is pretty weak in that regard if you compare to other resources that currently hold value the same way fiat does.

I wouldn't say no currency would have value in this situation, but at one point their will be something that rises above all the be worth something, the gold companies will say its gold, silver companies will say its silver, and so on and so forth.

But yes, at some point all fiat-currencies are going to have to crash and we just have to wait for this to occur. I think that by the time this happens we're not going to even be able to use Bitcoin as we've entered a time where the internet and infrastructure has been destroyed (this is if fiat dies too)

Well it's to bad you didn't read it you could have learned someting, it isnt that long like Germany and Zimbawe never had a devaluation, but hyperinflation, kind of important fact you got wrong and you can always learn something!

Could you please give me your sources that show that goods and money circulation have been the deciding factor for currency value? I have to say that i am almost daily discussing currency moves with banks and hedge funds, and i have never acctually talked to someone that believes these factors truly determine currency value in the practical world, perhaps it works in theory but i am speaking of what ACCTUALLY happends with the value, not what should happend.
I have tough read quite a few that prove them wrong, i would recommend Engels research work, ill return with the exact papers and provide you my sources that i base my opinion on, mostly swedish unfortuntly but for now i'll just show the english one's..

If currency value truly is free of speculative impact, this correlation you describe should be relatively easy to prove with a econometric model as goods, services and money supply are pretty easily followed(GDP etc). If this were the case, predicting the forex market would be quite easy.

I am always open to learning and can easily accept when i am wrong, but i need more proof then you just saying it like a fact and not a opinion as i have read very much on the disappoving of currency value being solely effected by goods, services and money supply.

I also recommend you read what i wrote earlier, no point discussing if you wont even read the discussion, and please dont forget to supply your sources, thanks m8! =)

My sources i recommend you check out. I have more i just plucked the most recent ones i read that speak against your theory of money supply, goods and services.

Jean-Philippe Cayen, Donald Coletti, René Lalonde, Philipp Maier What Drives Exchange Rates? New Evidence from a Panel of U.S. Dollar Bilateral Exchange Rates, June 9, 2009

Jeannine Bailliu,Michael R. King What Drives Movements in Exchange Rates?, 2005

David Hauner, Jaewoo Lee, and Hajime Takizawa, IMF Working Paper: In Which Exchange Rate Models Do Forecasters Trust?, 2011

Neroli Austin and Geordie Reid, RBNZ: NZSIM, A model of the New Zealand economyfor forecasting and policy analysis, 2017