How Macro Can You Go? – Part 5

Fiat money 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 money” 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.

It’s important to remember that the actual money we hold in our hands has “no intrinsic value” and more or less serves as a “marker” for the exchange of some kind of good or service. Essentially “fiat money” is only worth what a given person feels he/she can exchange it for that “is” of some material value. The control of the “production” of this money is in the hands of Central Banks NOT a given government, and It’s herein where the true problem lies.

In the United States for example, each time the Central Bank prints a U.S Dollar and then “loans” that dollar to the U.S government ( by way of purchasing a U.S Bond which pays the bank a small rate of interest in return) more and more government debt is created!

Someone already “owes interest” on the newly created dollar bill before it’s even hit the street! As the entire system from the absolute top down ( as when your own local bank lends “you” money that they don’t really even have ) is created for the sole purpose of “creating debt”!

Why on Earth you ask? Would a government give the power of the “control / production / creation” of money to an outside / independent bank? A bank whose sole purpose is to create profit for its own  small group of investors? A bank that essentially sits “above” the actual government itself in creating money from out of thin air and then demanding interest be paid?

He he he…….we may come full circle here – as you recall the previous reference to “us humans” as little ants. If things are starting to fall into perspective now …how macro can you go?

12 Responses

  1. timfrec July 26, 2013 / 8:29 am

    soo Kong … everything is actually debt. If the Fed and friends (others central bank) inject world financial system with money printing .. again and again, what will happen to global money supply ? probably its effect will create more and more inflation. And if the Fed still do QE ahead, how this event will make other central bank feeling ? is PBOC feeling creeps ? then sell its US treasury holding then make USDx go down. The chain of event behind price action i’m interesting in before it materialized on charts. To ‘predict’ USD index direction, is it right that we (as day trader) better to visualize first how global central bank are thinking about its USD reserve holding. What most important question himself ask first ? because other country CB at the end will only care about their domestic monetary stability. Sorry if it seem to be my fantasy … i just make it. Wait your opinion .. Kong

    • Forex Kong July 26, 2013 / 8:51 am

      Yes – The entire “current western” banking system (as it’s been mirrored and replicated since the Rothchild’s) is entirely based in the “creation of debt”…here by allowing the Central Bank ( and its small clan of investors) to essentially “enslave” a population – having the majority of people drowning in debt ( as credit is / no “was” very quickly offered right? – the mortgage crisis??) with no other option now but to find work for lesser and lesser pay ( or at the expense of their purchasing power being crippled by endless money printing) and for what it’s worth – “going to work every morning just to pay the bank”.

      The PBOC is the largest player sitting across from the U.S as the holder of US Debt as well as with it’s own initiatives to move the Yuan to a globally convertable currency.

      Top of the ladder – The IMF. Who unfortunately has voting procedures that are greatly influenced by the countries with the largest contributions.

      Guesss who sits at the top of “that” ladder?

      You guessed it – Ben Bernanke and the U.S dollar.

  2. timfrec July 26, 2013 / 8:48 am

    other question : is risk on-risk off theme ALWAYS prevalent in currency market ? hope it is true because i just learn to build this phenomenon into my analysis thinking.

    • Forex Kong July 26, 2013 / 8:57 am

      This is a tricky question (as it really depends on the specific currency pair) but in general I would have to say “yes”….as a valuable question to ask yourself every single day before sitting at your computer.

      Is the current environement “risk on” and people are feeling confident about investment OR – hmmmmm… this environment “feeling” risk off?

      Its a great thing to “consider” every day / week, and when things are “unclear” – then your analysis has served you well! Trade smaller!….take fewer trades… on other aspects of your trading etc….until you feel better about your “macro analysis”.

  3. Jworthy July 26, 2013 / 9:32 am

    Hey Kong,

    Thanks for another outstanding post. This one really got me thinking.

    While I’ve been investing actively for years… and of course I’ve read “Ascent of Money”… but… the way you introduce this “currency dimension” up close and in real time, is relatively new to me.

    It sounds naive when I write it out. But I’ve never really considered who owns central banks. Eye-opening, right?

    Can I ask you one question?

    (And, sorry in advance if it comes across as uneducated)

    But what role do you think the military plays in currency stability?

    I remember this post by The Fly, where he cited drones as a means to stabilize the USD. If things ever got too far “out of balance” and a real threat was perceived, couldn’t our American friends eliminate said threat (as if it were an ant-farm)?

    Thanks for your ongoing insights. I’m learning a lot. And sorry again if my questions come off as silly or unrealistic.


    • Forex Kong July 26, 2013 / 10:08 am

      Yo Jeff….all the questions are great – don’t ever hesitate to just flat out ask man.

      I too have made mention several times that the U.S Military sits extremely “high” with respect to the U.S dominance in almost “any and all things on Earth”. If not for that – I can guarentee you 100% the currency world would be quite different.

      This military force is really the last thing left, although opposed to picking up guns and sending in airplanes – I feel China has effectively won the war with finiancial and technical instruments already (now with gold reserves bursting etc)…I can’t imagine the need for weapons.

      Ive actually a different view when it comes to drones. I feel they are primarily going to be used “domestically” as over time the U.S population FINALLY comes to realize what’s come of them. Once the currency implodes, then the guns are taken back from citizens, as well their Gold – you’d “have to think” we’ll see some civil unrest no?

      As well with respect to Fly’s generally racist view on China lets keep something im mind….

      They could send “a million soldiers” across to the the U.S and lose them all……then send “another million” and lose them all…..then “another million” and “another million” and yet ANOTHER million”! As the population is just so large in comparison. Let alone the advances being made with their own weapons programs…and – can you imagine what the Chinese are “really” doing with respect to space?? Imagine!

      • timfrec July 26, 2013 / 10:56 am

        thanks Kong .. need more clarify about RORO market theme: what best way to analyze/judge that the market is currently in risk appetite or risk aversion mode, i mean what markets ( or indicator) we need to look at in order get better estimation. My own list are JPY index, USD index, SP500, TLT and AUD/USD, is these close enough ?
        And about intermarket dynamics as we see in real time, i got confuse about its dynamics on hourly time frame because what IS happening often don’t have relation with what WILL happening ?

        Thanks for telling it like it is as always,

        • Forex Kong July 26, 2013 / 11:51 am

          I watch all the same indexes / markets yes – all good there, although – in order to really gauge USD strength / weakness but AS WELL AUD stength / weakness – you’ll need to watch each of these currencies against a number of others as well.

          A good example being….a few weeks ago AUD was making quite a fall – but SO WAS USD……its not always as “point blank” as one up the other down.

          I made great trades “short USD” – but NOT against AUD….as AUD weakness was EVEN GREATER than USD.

          “relative strength vs weakness” takes some time – but the more pairs you study..the clearer things get.

  4. Jworthy July 26, 2013 / 11:14 am

    Thanks for the response Kong. It definitely clears things up. And I appreciate your patience with me!

    Your point about domestic drone use hit me like a big “D’UH” … I guess I should have seen that one coming 🙂

    Thanks for giving me so much to think about.

    • Forex Kong July 26, 2013 / 11:37 am

      All good Jeff – and hey……I’m just another guy with an opinion right?

      What’s important for me is to encourage others to “dig a little deeper” or “work a little harder” at this stuff as to be able to form opinions for themselves. I can say without question – I know I give the ol U.S.A a hard time – she’s tough, she can take it.

  5. schmederling July 26, 2013 / 9:59 pm

    all fiat currency is created out of debt….. even worse these loans are magnified as they are processed through the fractional banking system…….. as they only need to hold 10% in reserve….. so in reality the money lent out is multiple times greater then what is being posted or I should say the DEBT is much higher…… example a bank receives loans of 100K….. 10K is left as reserves & 90K is loaned out & then again & again & again….. fiat created out of thin air…… sick system which is on the verge of major changes…. the laws of the universe will apply here & correct things if we like it or not…. simple facts here…

    Cheers Schmederling

  6. FA July 27, 2013 / 1:24 am

    Agree with everything you say Kong. The stock game has been impossible from the pessimist side. Could currency make some sense? Whatever that means. Looking forward to your take. Like the blog. Also like the winning. Being right is the bottom line.

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