Separating The Economy From Fiat Money: Why Consumer Price Inflation leads to Economic DEFLATION – April 30, 2022,
Argentina is one of the most beautiful countries in Latin America, and although it has fiat monetary problems, the people’s standard of living there is often better than most countries in Latin America. I bring this up because don’t imagine that PERMANENT economic deflation, equates to everyone being poor, it just means that likelihood of the rags to riches stories we see quite often in the United States are unlikely to occur the larger and more influential the government gets.
Rule by fiat money is based on confidence, as an example, the U.S dollar has no value, it’s not backed by anything, we give it value because we imagine it’s backed by U.S Treasuries, meaning that we can use U.S owned assets to have some sort of influence in the U.S economy. Yes, ofcourse this is B.S and most countries figure out this is B.S when as an example, the U.S Federal government begins sanctioning the economic activities of countries its revolving door of Presidents don’t like.
Some will argue that we can’t return to a commodity standard version of money, which is utterly ridiculous. Commodity money by the way can have a fractional reserve component. The problem with commodity-based money is not liquidity, the problem with commodity money is BIG GOVERNMENT. Big government couldn’t make the promises it makes if there was commodity-based money.
As an example as I’m writing this post, I think are over 18,000 different cryptocurrencies out there, but only a handful or worth a damn, well, the same is true with fiat money, the same would also be true with a PRIVATE sector gold standard. Now, if you’re one of those people who spend all their life crunching numbers, you’ll often ignore how big of a role BIG government plays in the economy.
I know some business people who ONLY want government contracts, meaning that they’d have no business otherwise. This is something that I often ignored by people who simply look at the numbers and imagine that a commodity currency is impossible. Why I’m talking about a commodity currency is that commodities are more reflective of the economy, whereas Fiat money often creates confusion.
If I write that consumer prices are rising by the economy is deflating, the average person starts scratching their head, because how could the economy be deflating when the money supply is expanding? First of all this fiat standard is based on borrowing money, and the distribution of fiat money is often left to the private banks, which are PROFIT driven.
a private bank isn’t going to lend anyone money if the private bank doesn’t expect a return on investment. a government bank has no such hindrance, a government wants money to score political points, so the bigger the government gets, the more money it will print for itself. In this system the government doesn’t have to worry about private banks, the government goes straight to the source and this is the problem.
Because you see when the government can print money, it doesn’t think about the destruction its regulatory policies on the economy create for the private sector, which then has to adjust to new market conditions created by the government. The private sector is profit-driven and if it can not make profits from its efforts, it will often cease to exist, which creates SHORTAGES problems.
Now, because of international trade, shortage problems haven’t happened as plentifully as they would have, had we been under a commodity standard and the government was as large as it is. Instead what we have is a race to the bottom, being that the U.S dollar is the king of all fiat currencies, most countries will willingly debase their currency to the U.S dollar, to stimulate growth in their own economies.
Now, as this is happening, all the countries involved in this silliness will inadvertently be wasteful, because to debase one’s own money supply is to employ incompetence. Eventually, there comes a time when a tyrannical leader decides now is the time to change the capitalistic structure to something more equitable to mankind, and why shouldn’t the idiot politician think this? The government had been meddling in the economy for decades and the private sector managed to pick up the slack? So why shouldn’t the government take things to the extreme, right? Let’s go full Late Stage Capitalism now!
Well, not so fast, because when humans aren’t incentivized to do anything, they change their behavior. This change in behavior COLLECTIVELY isn’t immediate it’s a gradual change and during this transition, prices have to be rediscovered and the economy has to find itself, this is what leads to economic deflation.
Some think Franklin D. Roosevelt(FDR) was the greatest president ever, people like me think he was an idiot, who got lucky Japan declared war on America. FDR prolonged the great depression, but you have to remember DEMOCRACY loved him. Why did U.S Democracy love FDR? Because he was promising people something for nothing. Back then Social Security was a huge “achievement”, minimum wage laws were a huge achievement, and theft is popular in a democracy especially when the populace has a low financial IQ.
After FDR, the U.S eventually declared bankruptcy, abandoning its commodity gold standard COMPLETELY and lucky for the U.S, socialism was still popular all over the globe. Socialist American economist Richard Wolff often points out that socialism was very popular in America when he was growing up, now I’m not sure if he’s talking about Democratic or National Socialism which was obviously popular in the Jim Crow States, but nonetheless, Big Government is popular and this is the main reasons why for many it’s hard for them to wrap their heads around a commodity-based monetary system.
The confidence of the U.S dollar revolves around the belief that the U.S can and will one day pay down the debt, investor and podcaster Peter Schiff on the flipside argues, America will never pay off its debts, he is of the firm belief that the U.S is NOT borrowing money, he believes the U.S printing money and talks of an inevitable collapse of the U.S dollar system.
Now, long term I agree with Peter, but short term, there is still confidence in the U.S dollar WITHOUT a gold standard. Once you comprehend this, you’ll see why I focus on government regulations on the economy. Government regulations on developed nations, equate to U.S dollars as an example having more value internationally than they do domestically. Once you comprehend this, you’ll be a much better investor, because you’ll see how price inflation actually leads to economic deflation, and you’d know when to sell, based on the voter demand for AUSTERITY measures.
Interesting times ahead