Fiat Currency – Paper Money Is Debt

Fiat currency is money that derives its value from government regulation or law. The term fiat currency is used when the fiat money is used as the main currency of the country. The term derives from the Latin fiat (“let it be done”, “it shall be”).

The term fiat currency has been defined variously as:

  • any money declared by a government to be legal tender.
  • state-issued money which is neither convertible by law to any other thing, nor fixed in value in terms of any objective standard.
  • money without intrinsic value.

While gold or silver-backed representative money entails the legal requirement that the bank of issue redeem it in fixed weights of gold or silver, fiat money’s value is unrelated to the value of any physical quantity. Even a coin containing valuable metal may be considered fiat currency if its face value is higher than its market value as metal.

Another interesting point, when we consider how money functions” in our society as a “debt instrument”.  The Central Bank creates money out of thin air, then exchanges that “new money” for  “interest bearing instruments” such as Government Bonds.

You purchase the bonds with an expectation of making some kind of return on that bond (and where do you imagine that “extra few %’ points” come from over time?)

Your taxes go up – that’s where.

Round and round we go as governments keep spending – and you keep paying for it.

It’s been a slow week here and I apologize for the “lack of interesting copy”, but when I’ve not actively trading there usually isn’t a pile to say. I imagine things will pick up here again soon.

14 Responses

  1. schmederling April 10, 2013 / 7:55 am

    Hey Kong,

    As you know I have been long the AUD/USD pair forever now…. LOL…. the weekly squeeze has been running for 24 weeks now and setting up to fire on the positive side. The monthly has aslo been running now for 12 months – should this fire positive, this is going to be a very nice move also driving Gold & the PM sector much higher. 🙂

    I suspect that we could see this fire early to mid next week……

    • Forex Kong April 10, 2013 / 8:02 am

      Yes I’ve got my toe in the pool long AUD/USD as well Schmed, as well short USD/CAD – looking at other pairs and watching markets carefully.

      If all does go “accordingly” perhaps this IS FINALLY the low in gold, and the magical ride to the moon can finally begin.

      Alot of things playing out in markets now , have challenged many long standing correlations so, Im optimistically cautious – once things “settle in” Gold will finally have its day here in coming months.

      • schmederling April 10, 2013 / 8:26 am

        Yeah I hear you – talking “HEADS” GS talking gold down this morning…. LOL they continue to try & pull out the stops. Along with the Fed minutes from last month call an end to money printing by end of 2013 & and early as mid-year. What a joke – that’s all they have left. This will not hold much value any longer – the ” boy who cried wolf” has happened too many times in my opinion.

        Cheers Schmed.

        • Forex Kong April 10, 2013 / 8:43 am

          Im with you 100% – as it is impossible for the FED to stop printing (I believe they will actually INCREASE relatively soon), equally hilarious those who believe it. Gold still grinding it out here near the bottom.

          I’m watching closely to plan entry as close as humanly possible to this thing making its turn.

  2. schmederling April 10, 2013 / 4:09 pm

    Hey Kong,

    Sorry, Jumped in on this post with a no-relevant post this morning.

    As for fiat – this is a very, very ,very dirty game & only a few have the rule book or cheat sheet in my opinion. History has proven that ALL & yes I am saying ALL fiat currencies eventually return to their intrinsic value which is zero. In essence all money is created out of Debt also Un-backed currencies such as we have today across the globe are worthless pieces of paper.

    From the moment Nixon removed the backing of Gold in 1971 so followed all nations into the debt based system with no limits for some 43 years & counting. Over this period of time the purchasing power of the currencies have & continues to lose their purchasing power. To me prices or costs of all items, commodities, services etc. do not change, what changes is the value of tool used in these exchanges currently fiat.

    Mistake number one, I personally have the point of view that the larger blunder took place 1913-1914 when the Federal Reserve was formed in the US ( A non-governmental organization…. private bank) empowered to freely create FIAT currency out of thin air & then lend it out to the governing bodies of the United States with interest of course.

    Unbelievably this system we are currently on continues to function on the most simplistic elements which is confidence by the masses. Should this alter on a large scale ( which I am of the opinion it will) human nature will kick in will an excessive transfer to hard assets. ( Land, PM’s etc.)

    There’s a phrase I picked up while doing some light reading last night. ” Gold is the money of Kings, Silver is the money of a Gentleman & Debt is the money of slaves.” The perpetual creation of debt is that which keeps a firm grip & the current economic system going.

    Cheers Schmed,

    • Forex Kong April 10, 2013 / 5:22 pm

      Great info Schmed – as my lil post barely scratches the surface.

  3. JB April 10, 2013 / 7:17 pm

    Money is unique just from the standpoint that it simultaneously represents an asset and a liability.

    • Forex Kong April 11, 2013 / 7:06 am

      You’ve suuuure got that one right JB. A pain living with it – but you can’t live without!

  4. tio April 10, 2013 / 8:34 pm

    Gold, S&P 500 and USD could go higher together this time, can we ? is it possible ?

    • Forex Kong April 11, 2013 / 7:05 am

      That might be a stretch Tio as money has to “come” from somewhere so…all these going up at once would raise the question – where the hell is all the money coming from from?

      Of course anything “is” possible…but…the odds are certainly against it.

  5. schmederling April 11, 2013 / 9:28 am

    AUD/USD pair looking realy good here from my view – daily looking to firs which should push the weekly squeeze forward….. need to break & hold the RES level….. the 23 week squeeze on the weekly is of major interest…. this should be the trigger to break the shackels from the PM sector. If not in lock-set then shortly after……

    • Forex Kong April 11, 2013 / 9:39 am

      It’s interesting to consider your system on such long term time frames as weekly, as for the life of me – I still can’t see anything of consequence looking back 23 weeks – short of “ranging between 1-01 and 1.06 ish – even back an additional 15 weeks!

      Obviously the charts are bullish, and I am as well long the pair – but man! – this squeeze you speak of!

      In the face of significant USD downside ya man – this will be a great trade with eyes up there around 1.10 at some point. I’m trading it moreso as a breakout after 1.05 – on smaller time frame, and will be more than happy to see action push through 1.06 – then the moon.

      Whatever you’ve got goin Schmed – if it’s working for you – go man go!

      • schmederling April 11, 2013 / 10:19 am

        Well – LOL I am a weird one…. enjoying the winter weather we have received on the beautiful April morning….. SNOW!!!

        Should this set-up fire on a positive side I could very well see a range to 1.08 to 1.10….. by the June to early July time frame….

        Cheers Schmed,

  6. WhiteOwl April 12, 2013 / 7:34 am

    Great Topic! May your all your trades be prosperous!
    “paper is poverty, that it is only the ghost of money, & not money itself”. Thomas Jefferson to TO EDWARD CARRINGTON May 27, 1788.

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