Lootifer wrote:I don't see the causal link to introduction of a fiat currency and lack of purchasing power of families, can you elaborate?
(not saying you are wrong, but I don't want to read all the context)
yes I can do that for you. Sorry for taking so long, some of us gotta work.
Anyway, to understand why fiat currencies directly affect purchasing power of families (adversely) you have to accept a couple of facts first.
First fact, everything is cheaper now than ever before in human history. This may seem counter intuitive when you see the prices of things going up and up and up, but I don't need you to accept this fact on faith, I'll prove it to you.
Everything is cheaper now than ever before if you price it in anything
other than currency. I like to use gold as the commodity because we know the exact price of gold in any given year, hell any given day, for the past 100 or 200 years or even longer. So it's great to use in this proof. But you don't have to use gold to do this proof, you can use any commodity and you'll get the same results. And you don't need an economics degree, all you need to do is basic math.
So, let's take the price of gold in 1950. It was $40 an ounce. Now, let's compare it to something from 1950 to find the real price based in gold. Let's take a car, because we still have cars today and we have to compare it to something that we still use. In 1950 the average price of a car was $1500. You could buy more expensive cars or even cheaper cars, but the average price of a new car in 1950 was $1500. using gold it would take you 38 ounces of gold to buy a car. If you converted 38 ounces of gold in 1950 to dollars you'd have $1520, enough to buy an average brand new car.
Now, take that exact same 38 ounces of gold today and convert it into dollars. Today, this very day, an ounce of gold will get you $1240. If you converted 38 ounces of gold today into dollars you'd have $47,000. that's more than enough to buy an average car, wouldn't you say? Therefore, when priced in gold, the price of a new car hasn't increased, but it's gotten cheaper, The average price of a car today is about $33,000. Where as in 1950 you'd only have $10 left over after buying your car, today you'd have $14,000. You wouldn't need to convert the entire 38 ounces of gold, would you? Therefore, beyond any shadow of a doubt, cars are cheaper today than in 1950 when priced in gold because it takes even less gold to buy a car than it did in 1950.
But it isn't just gold that the car is cheaper, take any commodity. It could be coal, grain, silver, corn, tomatoes, virtually anything that has value, and do the same thing as above. You'd have to find out the price of your medium you are using to compare real prices at one point in the past and compare the same commodity with the same thing you are pricing today in today's prices and you'll find in virtually every single case it takes less of that commodity to buy whatever product you are checking than it did in the past.
Now this should make sense because we have mass production, advanced farming techniques, mass transportation, vast energy supplies. So on and so forth, so of course everything is cheaper today than in the past, especially when you compare to the preindustrial age where everything was built by artisans, master craftsmen who built one thing at a time. We have factories that can pump out 10,000 cars a week. We have farms that can produce millions of tons of food in a season. In the middle ages, unless you were rich, you couldn't afford to buy food, your ass had to grow your own. Forget about other things like tapestries, furniture, you wouldn't be able to buy those things because they'd have been incredibly expensive and time consuming to build, pre industrial age. So it makes sense everything is cheaper now when based on [i]real[/] qealth.
So, if you've done your own homework, checked it out for yourself and you accept that things are actually cheaper than ever before when based on anything other than currency, we can move on to the next fact you need to accept to understand why today's average family has to work so much harder than the average family in 1970 had to for basically the same things.
You have to accept that the rising prices are somehow related directly to the currency, because when measured in any other medium everything is cheaper, and I mean everything, houses, cars, airplanes, ships, food, boats, drink, everything. But we don't think about this, we don't realize because we aren't paid in gold, we are paid in currency, so we don't see how cheap everything has gotten, do we?
The second fact you have to accept is that inflation is not the rise in prices. How can it be? We just proved that everything is cheaper than ever before, haven't we? So if everything is cheaper than ever before in all human history, then what is inflation? If you are of the Austrian school then you already know what inflation is, it's the expansion of the money supply. Inflation is purely a currency problem. Inflation is the most insidious tax of all because it robs you of your purchasing power over time, it robs you of your hard earned sweat and labors. Your labors of yesterday are worth less today.
Now why is this important and what does it have to do with fiat currency? I'll show you-
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That vertical line you see between 1950 and 2000 is Nixon slamming the gold window, BTW and the US going full fiat currency.
Ok, we have to acknowledge that inflation has something to do with the currency for the most part. Pre 1972 the US was on the gold standard until FDR and a quasi gold standard from FDR to Nixon. Commodity based currencies, which I've said before, are far more stable than fiat currencies, and the graph shows this. Inflation did not have exponential growth during the time the US dollar was commodity based (which is what a gold standard monetary system is, a commodity based currency). There were small spikes in inflation and that's caused by scarcity which can affect inflation but not anywhere near the levels that expanding the money base causes inflation.
Pre 1972 the money based expanded very slowly, the only way to expand it was to dig more gold an silver out of the ground and that takes time. new money is introduced into the market slowly. This controls inflation because of obvious reasons, money is scarce, so it is more valuable. That's why gasoline was only 18 cents in 1950, we had a completely different monetary system than we have today, namely not a fiat currency.
With the advent of fiat currency large amounts of currency and credit are dumped into the market very quickly which lowers the value of the currency and we experience inflation. If inflation gets too high you have to remove currency and credit from the market thus raising the value of the currency, deflation.
You can't do this with a commodity based monetary system, at least if you are following the rules of the system. It should be obvious now why the 1970 family didn't have to work as hard as today's family, the 1970's family's work was more valuable because that work was priced in a commodity backed currency. Our work today is priced in a fiat currency which lowers in value every time a new dollar is introduced into the market.
Now this should answer your question and you are welcome to research this on your own to confirm what I am saying, I encourage you to do so because it's a rabbit hole that will open up a whole new way of thinking about the world.
But until then, let me let you in on something that's gonna make you mad, and illustrate one of the bad consequences of fiat money. You see, the market doesn't react instantly. When you introduce new money into the market it takes some time for the market to adjust and and reflect the lesser value of all the money in the market as a consequence of the new money added. What is going to make you mad about this is that the way new money is introduced and who benefits from it. You see, as Armati said I think, new money most often comes in the form of fractional reserve lending. When a bank loans money it doesn't have that money on hand, it literally creates that money out of thin air and it's legal. A bank in the US only needs to hold 10% reserves for all the money they lend out. Now when the bank creates this money the market hasn't seen this yet and so it hasn't been priced in yet. Thus, whomever it was that got the loan gets the full value of that new currency and buys things at a rate that is less than after the market adjusts to the new quantity of currency. Poor people aren't getting loans, are they? Yet, it is the little money poor people have that get hurt the most when the market prices in this new money and the poor people all of a sudden have less purchasing power than that meagerly had before. This is the so called "wealth disparity" we all hear so much about. It is the rich who take out loans and buy up stuff before that new currency suffers from inflation.
It's just how the system works, and it's a fine system is your goal is exponential growth, but we already know from basic math classes that exponential growth of anything is unsustainable, and this includes fiat currency.
What's worse is the Fed has a target inflation rate of 2% a year, and as we already know when you have some like "x% growth over a given period of time = exponential growth". Thus, you see the effects on the above graph. And that's just the Fed's target rate for the macro economy, when you look at specific industries you'll find more disturbing inflation. Armati is correct, 2% growth a year equals a doubling of the price every 35 years. But if you look at the healthcare field you'll find 6% inflation, which doubles the cost of healthcare every twelve years when you use the rule of 72 which is a quick way to calculate how quickly exponential growth doubles what ever it is that is growing.
College tuition exploded when the US Government dump $1 trillion into the student loan market in an effort to get everyone to go to college. That's what happens when you dump a whole shitload of credit into a relatively static market. You can pump a trillion dollars into something a lot quicker than you can build colleges and train professors.
Housing prices exploded before the crash in 2008 and that was because large amounts of money were being diverted into speculative buying of properties which raised the price of houses which further induced more speculative investment. Those mortgages were bundled as securities and sold on the open market which further inflated the price of homes until the exponential growth, which was whopping because it crashed hard by 2008. Historically homes rose in price very slowly, but in about a decade and a half of exponential asset values was unsustainable and imploded with dramatic effect.
And all the while average people who don't know how to take advantage of the fiat system suffered the most. Homes prices rising priced average people out of the market, made rents and mortgages rise and who was it that made the most money from it all? The investment banks who were pumping cheap money into the industry.
The list goes on and on, fiat currency systems will always be used by the most elite to better their own position because not only do they know the system so well, they run it. That's why it's so important to try and learn about how the currency system works so that you can benefit from it, and anyone can given the right knowledge, time resources and will.
The currency system we use is the medium in which everything is priced, including your labor, your assets, your debts. It is the very foundation upon which everything else we call "society" is built upon. Not understanding the system is like not understanding the very ground you walk on. It's that important to at least know about. But people don't think about, politicians don't talk about it and we all roll right along blissfully unaware for the most part to the point a majority of people just don't understand why they can't make ends meet. It's just the system. It is what it is and not understanding it just opens one up to be steamrolled by it.
Sorry for the long post, but if you made it this far, hopefully it was enlightening to some degree.
