osan
Member
- Joined
- Dec 26, 2009
- Messages
- 16,867
A few points.
Firstly, I take endless exception to the common usage of "fiat" in this context. Fiat simply means "mandate". All gold and silver money is "fiat" because the fiat is in the Constitution itself. Once again, words matter. Nothing necessarily wrong with fiat money, if it is right money and rightly minted and managed.
Secondly, killing the Fed would certainly imbue many of us with a sense of suspiring pleasure. That, however, is not sufficient to the problem at hand.
We can have "fiat" money - no real problem there, so long as it is properly structured, meaning that it is backed. Being readily convertible would also be good, but if honestly managed (GIGANTIC "IF") non-convertibility is really not a practical problem of momentous proportion. In fact, non-convertibility can actually be a protection under certain circumstances, particularly where other nations hold large reserves of our cash and do not allow for conversion of their own currencies. Picture China, holding $1T in US M1 paper, which is a shitload, physically speaking. They ship it back home and convert all of it in a massive settlement action and whisk it away to Beijing. If, theoretically, they later came to owe us $1T, I would call it "good luck" trying to repatriate that gold in settlement of debt. Never happen in a million years, IMO, because like the rest of the world's governments (mostly, anyhow), they are a bunch of covetous, paranoid children. But I digress...
The key issue in all of this is the definition of the specific value of the gold in terms of how many dollars a unit represents. It is this ratio that must remain constant in order for the money to have any trustworthiness. If Ft. Knox has a ton of gold in it and we map 2000 printed dollar bills to it, each pound of gold then = $1. If we leave the ratio the same, the money is economically trustworthy. The purchasing power stands to change, mind you, depending on conditions but the money itself remains a known quantity. Alter that ratio by whatever means, whether it be mapping more bills to the physical specie or cutting new coin with base metals such as copper, and things begin the classical downward spiral.
This ideal does, however, expose the main criticism of materially-backed currencies, as well as coin monies: what happens when one of those 2000 dollar bills is lost? If your house burns and your cash with it, say $10, there are now ten pounds of gold sitting in a vault with zero real economic value. The theoretic value is still there, of course, because the gold is there. But the notes that give those ten pounds of gold their economic legs, are now gone and the gold sits in a wheelchair, paralyzed. This is a good argument for electronic currencies like bitcoin, were they backed by physical specie. Of course, in a mildly tortured sense they are in that they can be used to purchase and subsequently take physical possession of precious metals, so the effect would appear to be the same on some practical level. But that does not mean all is well in Camelot, for to be so the conditions must be right. What happens when the conditions go south? What happens when commercial gold is not available? Now your bitcoins have no power there, which sucks if it is gold you want. But if such currencies were backed by gold and perhaps other generally recognized stores of value and were demand-convertible, that could represent enormous economic power as real money with an electronic face. For example, I might move to add CP tungsten to the list of backing commodities. Doing so would obviate the avenue of counterfeiting that plates tungsten with gold and passes it off as the latter. If the value of W were pegged equal to the value of Au, counterfeiters would be foiled. If they want to strike W coins, let them. Let such coin become part of the economic flow, so long as they are of proper weight and purity, both which are readily determined.
Pegging all physically heavier metals such as Pt, Rh, etc. to higher values other avenues of fraud in that any such attempts would lead the perpetrators to diminish their net holdings thereby. If I attempt to pass Pt off as Au or W, I'm screwing myself. If I try to pass Au or W off as Pt, the volume to weight measurements will give the fraud instantly away.
Note there is nothing here speaking of absolute value of the materials, but only of the relative values - the ratios of value one to another. I grant that this carries certain potential problems WRT supply/demand pricing, but I am not convinced those would ever likely become real problems of any significance. When weighing the benefits v. the risks, it seems the former far outweigh the latter. I might also add that the ratio of values could have two slots - one as money and one as commercial commodity. That might account for the potential hazards out to six+ sigmas, in which case I would have to call it good.
Think of it - gold-backed bitcoins. You have 1btc - you convert it to physical specie, the "paper" is then "retired" before the community, as it were, and placed into a pool of inert coins. When another unit of gold is deposited, a retired coin is taken from the bitpool and reactivated as valid currency to the depositor, who may then employ it in the customary ways through economic transaction. That could actually be pretty sweet.
Normalized value systems for economic transactions are easy to concoct. Designing one that is practically impervious to the various hazards such systems face... that is a very different issue. But our current states of data technologies appear to offer some potentially viable practical solutions. I would, however, raise the warning that the rise of the first truly practical quantum computer (there are commercial units now available or near to availability, but not sure they yet pose a real threat) may place the encryption technologies upon which e-currencies heavily depend into the dustbin. I have read that even the most brutishly built encryptions will likely be broken by quantum boxes in matters of single-digit machine cycle times. That would suck for privacy. OTOH, "government" would face the same problems from anyone with such a device and sucking on the data pipes to see what funtoys might drop into their eagerly awaiting laps.
Swords often cut two ways.Just another plugged-kopek's worth.
to some stinking mythical 'gold standard' they will have--long beforehand--turned their illion$ of FRN'S into gold, mines, etc..
