Economist: civilization may not survive "death spiral"

[richardhutnik]

justinian said:

Kasz216 said:

Or to better explain why you need a fiat money... lets look at it this way.

Say we live on an island, with 6 people...

we use sea shells to represent our currency like someone might use gold.

Now imagine the population doubles...

but the amount of currency, mostly stays the same, with fewer sea shells being found... this is a problem. So we need to also use a second source, or everyones prices have to go down, just like they would in a fiat system anyway.  So we use snail shells or something.  This keeps going.

Eventually we run out of stuff with which to back our money, and we're hoarding everything of value in government vaults just so the money keeps its worth... and eventually it's going to fall apart anyway.

Had we not gone to a Fiat based money system, our economy would of never grown so prosperous and we would have already faced the hyperinflation we're worried about today.

The gold and other precious metals wouldn't of increased enough to represent the massive improvenents in the economy created by things like computer programs.

Besides, at the end of the day, while money is just paper.  Gold is just a rock.

 

Gold may just be just like rock but it is globally respected as hard currency that will never fail. It's value may vary but in crisis times people always fall back to it and in these said crisis times it's value rises, often significantly. 

In extreme times of crisis, say a war, if a country wants to trade it's not the potential worthless piece of paper that other countries take into account. It's the gold reserves first, other precious commodities after.

You can keep your piece of paper, I'll always take the piece of rock.

Back to the money. 

I uderstand (and agree) as you pointed out that gold, for example could not possibly last as the currency in a modern growing economy.

I am not saying fiat money was not the way to go forward. It made sense that's why Benjamin Franklin was pushing for it in the US. 

I cannot remember who it was, maybe Franklin himself , that however said in generations to come it would be doomed to fail. 

Gold is just a rock, that people ended up valuing because it is pretty, resists decay, and is scarce, and others believe people want it.  It functions as currency well, if people choose to go with it.   But, if things go real bad, sinking to Mad Max level, the people will want things of practical value to survive, over gold.  Tangible assets people need, and the capital that produces them, is of greater value.  And tangible assets, and commodities are good hedges against inflation, because they are real.

A problem with have today, a large problem, is even beyond fiat currency.  We don't just have fiat currency, we have debt based currency.  These are IOUs that require more IOUs to service it.  There is a debt spiral, without sufficient funds to pay it off.  The currency is not pegged to goods and services produced, but its own animal, which is a dangerous thing.