>>232315>That doesn't explain why the common arguments for fiat currency are wrong, isn't the value derived from the political and economic stability of the US government. Wasn't the gold standard abandoned because having money value fixed to gold meant the money supply was too limited? If there is only so much gold then can't your economy only support so much wealth?
Value is derived from how much people consider the thing to be valuable. Some people value chips highly versus dollars and will pay $5 for a bag of chips; others value them lowly and will pay only $0.50. Because there are lots of people buying chips and lots of people making chips, the price tends to equalize around the amount which people would purchase and producers would sell.
The problem with fiat is that it is utterly arbitrary and can be changed willy-nilly. Contrary to what mainstream sources claim, currency is not the source
of wealth but only its measure.
It doesn't matter how much money is in circulation because there is a fixed supply of real resources.
With a relatively fixed supply of currency, prices will remain stable or will slowly drop as money will be worth more in relation to a growing amount of goods. This encourages saving and investment. Keynesians consider this disastrous. They and the other side of the (((economic dialectic))), neo-classicals, want the money supply to be controlled by a central bank.
The central bank can adjust the money supply in three ways. Mainly, though, it buys or sells bonds on the open market. It buys treasury notes from the (((member banks))) in exchange for free money. The goal is to provide "liquidity" to the market. However, what happens is the (((banks))) use the new currency at current prices, reaping full benefits. The next one who had received the currency in exchange finds prices to be slightly higher, but still has a net benefit. And on and on, until the prices have risen in response to the injection, and after that point the rise in prices will have outpaced any individual benefit. Average consumers get shafted because by the time they see any increase in income (such as in wage increase), they've already had to deal with higher prices for some time.
A Fedkike explains how it works himself: https://www.youtube.com/watch?v=XX2_vel-i5I
>So the government is paying interest on money the fed is printing for it? How so?
Whenever the government goes into debt (which is all the time) it issues a treasury note (https://www.investopedia.com/terms/t/treasurybill.asp
). It's a bond, meaning in exchange for money now
, it will pay the complete amount in a specified amount of time plus interest. Individuals, corporations, and even governments can purchase these notes. When the Federal Reserve "prints" money, it's simply taking these notes and exchanging them with credit which can be exchanged for cash. This has the side effect of lowering the interest rate because there are fewer bonds in circulation and therefore less competition to get people to pick them up.
>That sounds about right, but didn't the pre-fed era have its own problems? I always hear bank runs being mentioned during the era. I don't know if the fed has anything to do with that or if it was fixed by instating the FDIC. Sure the 1880s were good but the depression of the 1870s was almost as bad as the Great Depression. Ideally how would the system work without the fed? Same as the old system but with some of the post depression laws like the FDIC still in effect or something entirely new?
People tend to forget that states had their own banks which engaged in similar practices to the modern Fed, albeit in a far less sophisticated manner. Here's a pretty good rebuttal for your argument. https://tomwoods.com/ep-418-the-truth-about-one-of-those-pre-fed-depressions/
t. economics major