Fiat Currency Collapse

Gold & Fiat Currency: Forty Years Later

Monday, Aug. 15, 2011, marked the 40th anniversary of the US default on the dollar’s convertibility into gold. It was the world’s de facto reserve currency and thus began an experiment with a reserve fiat currency that was doomed to failure before it began, because there has never been a successful fiat currency in all of history. Aug. 15, 1971 was just like any other day for most people, and President Nixon’s unprecedented decision to cut the US dollar’s gold international convertibility was largely ignored by the public. The majority of citizens didn’t understand the implications for their financial future. Contrast that to today, where a historic downgrade of US debt and a very public $2-trillion increase of the debt ceiling dominated headlines and the television news. Forty years later, it is a tale of contrasts between US dollars and gold. The US dollar is the world’s reserve currency despite the fact that it is being issued by the world’s largest debtor nation. Investors around the world flee to it during times of crisis, although it continually loses value through debasement. Gold meanwhile is dismissed as a viable asset, ignored by most pensions, institutions and asset managers despite increasing from $35 in 1971 to over $1800 in recent days. It is important to note that on this historic day 40 years ago, the dollar quietly ceased to be money and instantly became a currency. Money and currency are often considered as one and the same; however, there are meaningful and significant differences between the two. While fiat currencies function well as a medium of exchange and a unit of account, they fail miserably as a store of value. The US dollar has lost over 80% of its purchasing power compared to gold in the last decade alone. Gold, however, has endured as money for over 3,000 years, and maintained its purchasing power throughout that time, because it meets all of the criteria for money.

Bitcoin, gold and the demise of fiat money | papermoneycollapse.com

I am intrigued by the Bitcoin experiment – the attempt to launch a virtual currency as an alternative to the current global patchwork of local state fiat monies. Bitcoin has recently been hotly debated in the online community and among libertarians, and has now aroused the interest of the mainstream media and the political establishment.  Bitcoin’s challenges seem to be mainly operational – related to computer and internet security and cryptography, which is of paramount importance to the Bitcoin project. These are areas in which I am no expert by any stretch of the imagination. But many of Bitcoin’s monetary properties strike me indeed as highly interesting and commendable, and I am somewhat surprised by the indifference or even hostility Bitcoin has encountered from many free-market ‘Austrians’.

I cannot presently see it challenge gold, and after some recent setbacks – again, mainly of an operational nature – I am not even sure it will survive, but in terms of pure monetary economics it has considerable advantages over state fiat money, many characteristics of gold – and potentially even some unique advantages. The concepts and ideas behind Bitcoin cannot easily be dismissed.

Before I try and evaluate Bitcoin, let’s put this story into the broader context. Please bear with me for a moment as all of the following does indeed relate to the Bitcoin project.

The decline of state paper money

We are presently living in the twilight of the fiat money era. The twentieth century was the century of statism, of big state ideologies, such as communism, socialism, fascism, and, since the end of World War 2 and certainly since the fall of communism in 1989, of global social democracy — the combination of nominal capitalism (nominally private ownership of the means of production and moderately free trade) combined with a highly interventionist state apparatus legitimized by the concept of majority rule.

RT @: The coming collapse of the U.S. Dollar as a fiat currency is eminent unless we change the system and to change, we need Ron Paul.

RT @: The coming collapse of the U.S. Dollar as a fiat currency is eminent unless we change the system and to change, we need Ron Paul.

RT @: The coming collapse of the U.S. Dollar as a fiat currency is eminent unless we change the system and to change, we need Ron Paul.

RT @: The coming collapse of the U.S. Dollar as a fiat currency is eminent unless we change the system and to change, we need Ron Paul.

The coming collapse of the U.S. Dollar as a fiat currency is eminent unless we change the system and to change, we need Ron Paul.

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