10/01/2012 Inflationary money – let it be done (fiat) « A Serious Look At Life

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A Serious Look At Life A Serious Look At Life
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ure In process oI dev eIopIng u wIoIe serIes oI LecInIques wIIcI wIII enubIe LIe conLroIIIng oIIgurcIy wIo Iuv e ure In process oI dev eIopIng u wIoIe serIes oI LecInIques wIIcI wIII enubIe LIe conLroIIIng oIIgurcIy wIo Iuv e
uIwuy s exIsLed und presumubIy wIII uIwuy s exIsL Lo geL peopIe Lo Iov e LIeIr serv ILude. (AIdous HuxIey ) uIwuy s exIsLed und presumubIy wIII uIwuy s exIsL Lo geL peopIe Lo Iov e LIeIr serv ILude. (AIdous HuxIey )
Inflationary money – let it be done (fiat) Inflationary money – let it be done (fiat)

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Owl was telling Kanga an Interesting Anecdote full
of long words like Encyclopædia and Rhododendron
to which Kanga wasn't listening.
Unlike Owl I always have a problem spelling Tuesday - my shortcomings here saved by a spellchecker, google, and
an intuitive notion that something doesnt look right. When extraordinarily large valuations are put on artifacts, it
simply doesnt look right, especially when the artifact being purchased appears to be trivial, like a comic book. But this
of course misses the point, which is that the investment in artifacts can be a means of hoarding wealth. This also
means that large exchanges of money for artifacts has to take place. However: regardless of the price that an artifact
may sell for, in a world where the medium of currency exchange is fiat money, any sum of money becomes irrelevant.
With fiat money, there is no need for money to exist in a form that requires its physical exchange. The ability to buy a
Renoir, Buggatti, Louis Quinz, or the first issue of the Superman comic, incurring large financial transactions, relates
more to a credit rating than the actual ability to produce the money required. The first issue of the Superman comic
sold recently for a record $2.16m and its highly unlikely that the buyer attended the sale with a suitcase full of money
or even attended the sale at all, being able to make the purchase by telephone or some other electronic means. For a
comic issue published in 1938, originally costing just 10 cents, $2.16m is a good return. In 2010, the relative worth
of $0.10 from 1938 was:
the worth of 1938 $0.10 cents
$0.28 $1.51 using the Consumer Price Index
$0.28 $1.22 using the GDP deflator
$0.58 $1.44 using the unskilled wage
$0.61 $1.74 using the Production Worker Compensation
$0.76 $2.42 using the nominal GDP per capita
10/01/2012 Inflationary money – let it be done (fiat) « A Serious Look At Life
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$1.21 $3.61 using the relative share of GDP
When the United States closed the commodity based link between gold and the dollar in 1971, the world entered a
new age of fiat currency . Fiat money is supported by nothing more than peoples faith in their governments
issuance of banknotes and coinage and foreign investors having faith in a governments sovereign credit rating. Post
1971, most of the major trading currencies became fiat money, which floated in a market environment, this being
in a world with a history of paper money defaults. Historically, no government has had the discipline to maintain its
currency, fiat or commodity based, without resorting to the printing of money for political gain and financial loss. Those
who invest large sums buying artifacts and investing in commodities such as gold, do so because of an innate distrust in
the long-term value of any paper money. For example, if we take a 1938 $0.10 cents as the reference point, then
measuring its worth using the CPI index in the above table would seem to indicate that introducing fiat money in 1971
was inflationary. In the thirty-two year period up to 1970 the original $0.10 cents became a requirement to spent
$0.28 cents to have the same buying power (all things being equal). In the forty-year fiat money period up to 2010,
this $0.28 cents now required the spending of $1.51 dollars to have the same buying power (all things being equal).
The thirty-two year period 1938-1970 has a multiplier of 2.8 and a thirty-two year period from 1971 to 2003 has a
multiplier of 4.5. The increase in the multiplier over the fiat money period suggests that money is inflating at a greater
rate than during the earlier period. However, the 72-year multiplier for a 1938 Superman 10 cent comic book is 21
million (that is: for a 10-year-old who bought the comic in 1938 and sold it in 2011 at the age of 83)!
Facts are meaningless. You could use facts to prove anything thats even remotely true!
Oh, people can come up with statistics to prove anything, Kent. 14% of people know that.
If you really want something in this life, you have to work for it –Now quiet, theyre about to
announce the lottery numbers!
Just because I dont care doesnt mean I dont understand!
–Homer Simpson
Apart from any hedonistic desire to own such artifacts, there is no doubt a pragmatic view that it affords the best
protection against ubiquitous inflationary money and especially fiat money. The extraordinary appreciation in the value
of artifacts and the post 1971 upward trend of gold prices, could be considered to represent:
1. Increasing discretionary incomes in favour of those able to invest in artifacts and gold (the rich are getting
2. A shift in capital investment in favour of investment in artifacts and gold (the hoarding of wealth)
3. A better indication of monetary inflation than any published government figures.
4. The possession of insider information by those who really understand money markets.
Whilst this appreciation in the value of artifacts and gold may represent any combination of the above, investors simply
moving their wealth out of fiat money fits them all. Those wishing to hoard wealth are aware that fiat money is not a
suitable vehicle for doing so, it never holds its value. Historically, fiat money has always been the most inflationary
currency medium. Those who are able, always convert large sums of their discretionary fiat money into commodities
(gold) and artifacts (treasures). An activity that accelerates as confidence in the stability of fiat money declines, to the
point at which there is a run on fiat money and a financial crisis.
Monetary scholar Edwin Vieira claims that every 30 to 40 years the reigning monetary system fails . The
10/01/2012 Inflationary money – let it be done (fiat) « A Serious Look At Life
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following graph on the price of gold would seem to support Vieras analysis. The price of gold over the period shown in
the graph below, would suggest a link between the value of gold and the global introduction of fiat money in 1971.
The unusual peak in 1980 is coincident with the Russian invasion of Afghanistan which caused investors to trade dollars
for gold when fear gripped the market (another indicator of the inherent instability of fiat money). Despite a calming of
the markets, the upward trend in the price of gold that began in 1971 never returned to its 1971 value. It did remain
relatively stable during the period 1982 -2005, if averaging approximately $335 ± 33% per tro ounce can be called
relatively stable. It is suggested that 2005 was a pivotal ear for gold prices, as the price of gold has increased year
on year since then and shows no sign of abating. It remains to be seen whether or not the seemingly exponential
increase in the price of gold, post 2005, marks the end run for the life cycle of fiat currencies and the end of relatively
stable mone.
The foregoing would suggest that there is always likely to be a de-facto commodity and artifact currency standard, set
in markets where they are traded and where the values cannot be easily manipulated by governments. However, its
difficult to believe that governments will return to a commodity standard for currency. There is no political will for
honest mone and there is always pressure to on governments to inflate their way out of debt. Its safe to assume
that the long-term deterioration of all currencies will continue indefinitely and that people who have wealth in the form
of currency will pursue an investment program to preserve their wealth. Forcing governments to manage their
currencies honestly to achieve a stable mone suppl requires honest, politically active, and economically aware
citizens. Fortunately for governments, citizens actually encourage their governments inflationary policies. Citizens want
their discretionary income to increase, they want to realise a continually increasing equit in their home, and they want
stock market equities keep on rising in value. If this means that the money becomes worth less, then let it be done.
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5 Repone o Inflationary money – let it be done (fiat)
Aramina December 13, 2011 at 20:06 (Edit)
Im still reading Peter.
Im not sure we really do actually want inflationary policies, and rising property prices is only attractive to those who
think about the house they live in as an investment. It is not, and now perhaps they will figure this out. I doubt it
though, a few years of increasing house prices and they imagine that it will go on for ever, despite evidence to the
Peer Barne December 13, 2011 at 22:53 (Edit)
Hello Araminta
Im sure that people want stable money, but suspect that the vast majority of ordinary people dont
understand what is needed to achieve this. I do not share your optimism that they will figure it out (as with my
picture of Owl – its all rather boring). I think we both agree that as long as the media keep drip feeding them
with the good news of increasing house prices and stock market equities inflation will continue unabated.
Missing the point of course, that the two real benificaries of this inflation are the bankers and the government.
At the moment its interesting me. Im trying to follow a logical path, but every stone upturned reveals
something unpleasant beneath it.
Dogbert the Megalomaniac & Ratbert the Consultant
Economics, Opinion, Political Austrian, bonds, budget, budget deficit, cpi, currency, debt, deficit, economics,
equity, fiat money, finance, gdp, gilts, Ludwig Von Mises, politics, research
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10/01/2012 Inflationary money – let it be done (fiat) « A Serious Look At Life
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Araminta December 13, 2011 at 22:59 (Edit)
Doesnt it just, Peter. Im not sure that logic is applicable, but I admire your persistence!
It is just so difficult to understand, but please do carry on your research. Im at least stumbling my way
through, but Im not sure our various leaders understand what is going on either, sadly.
ueta December 8, 2011 at 15:53 (Edit)
Dear Peter, If you wish to leave a comment on “Ashkenazim” then please do so!
Peter Barnett December 8, 2011 at 21:10 (Edit)
Thanks – have done so.
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