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Fiat Money vs. Commodity Money

Guest post by: Christopher Benoit

Article Overview: As the world economies have embraced fiat money over commodity money we stand on dangerous ground. United States debt and World debt have reached record proportions. This crippling debt sees no foreseeable end and the roots can be traced to the twentieth century shift of thought between fiat and commodity money.

Fiat Money vs. Commodity Money

As the world economies have embraced fiat money over commodity money we stand on dangerous ground. United States debt and World debt have reached record proportions. This crippling debt sees no foreseeable end and the roots can be traced to the twentieth century shift of thought between fiat and commodity money.

From Wikipedia; "Fiat money is money that has value only because of government regulation or law. The term derives from the Latin fiat, meaning "let it be done"; as such money is established by government decree. Where fiat money is used as currency, the term fiat currency is used.

Today, all national currencies are fiat currencies, including the US dollar, the euro, and all other reserve. This trend began with the Nixon Shock of 1971, in which the U.S. dollar was removed from being backed by precious metal."

Also from Wikipedia; Commodity money is money whose value comes from a commodity out of which it is made. It is objects that have value in themselves as well as for use as money.

Examples of commodities that have been used as mediums of exchange include gold, silver, copper, peppercorns, large stones (such as Rai stones), decorated belts, shells, alcohol, cigarettes, cannabis, candy, barley etc. These items were sometimes used in a metric of perceived value in conjunction to one another, in various commodity valuation or price system economies."

What is the answer?

The main problem with fiat currency is the fact that unlimited amounts of money can be printed without a corresponding value behind it. The Federal Reserve System of the United States can increase production of money to meet its debt obligations. This very fact for the U.S and any other fiat based economy is the increased risk of inflation or even hyper inflation.

Once President Nixon took the U.S economy off of the gold standard in 1971, i.e. commodity money, we have embarked on a system that has helped create some of the huge problems facing us today. Without anything backing our currency, unprecedented amounts of currency and debt have consumed the entire globe. The ability to increase the money supply at the drop of at hat or a push of a button creates short term fixes but long term inflationary pressure.

Doomsayers predict that on our present course only the very wealthy can withstand the coming hyper inflation storm on the horizon. Over the course of time the very wealthy have always reaped the rewards in dire times. The worlds economies need to slow or halt the incessant production of money. However, this would create increased inflation which curtails borrowing and thus slows or decreases job production.

To answer the earlier question 'What is the answer?" The governments of the world need to return to a commodity money standard. However, fiat money is very seductive and weaning governments off of fiat money seems nearly impossible in this day and age. The use of credit cards, which create instant mini loans and thus more fiat currency, cannot be seemingly reversed. The U.S as one of the largest and most influential economies in the world must take the lead to solve the brewing debt crises and money creation techniques or we will continue down a very ruinous path for generations to come.

Christopher Benoit

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Article Tags: Commodity Moneyworld economies, commodity trading, Fiat Money, fiduciary money, gold standard, inflation, world debt
Referred by: http://jaykubassek.com



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