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Maybe it was a ponzi scheme before 1971 in the sense that they were probably printing more bills than they had gold (even though the bills claimed that they cou

Maybe it was a ponzi scheme before 1971 in the sense that they were probably printing more bills than they had gold (even though the bills claimed that they could be redeemed for gold). But the fact that banks knew that there was a limit on how much gold they could create was in itself a good way to prevent the money supply from growing out of control. There will always be some banks who don't play by the rules. >> In a ponzi scheme you pay interest on old money with new money, that is very different from the goal of a monetary system. That is literally what they do. Why do you think a dollar is worth a bit less every year? When regular banks make loans to people, the loan money is new money that they just typed into your account out of nowhere (only limited by reserve ratios which coincidentally have been lowered to 0%), then for example, when you buy a house from someone else using that new loan money and you allow them to pay off their debt, you're just paying the person who was there first. New generations take out new loans to pay for the loans of old generations collectively.

nickik 6y ago
> But the fact that banks knew that there was a limit on how much gold they could create was in itself a good way to prevent the money supply from growing out of control. There will always be some banks who don't play by the rules. Banks are still restricted by the same mechanism as before, just that now the mechanism is not backed by gold. The central bank is in full control of how much lending can be done. > That is literally what they do. Why do you think a dollar is worth a bit less every year? Because the central banks WANTS the dollar to be worth a bit less every year. Because economist determainted that is the right way to do things. And because it is known that this happens its included in loan contracts. That is why economist stress predicitibility. In a ponzi scheme you don't have enough money to pay the interest and pay back everything, this however is not the same with fiat currency. The amount of fiat currency you can create is not limited by anything other then the choices of the central bankers.

nickik 6y ago

> But the fact that banks knew that there was a limit on how much gold they could create was in itself a good way to prevent the money supply from growing out of control. There will always be some banks who don't play by the rules. Banks are still restricted by the same mechanism as before, just that now the mechanism is not backed by gold. The central bank is in full control of how much lending can be done. > That is literally what they do. Why do you think a dollar is worth a bit less every year? Because the central banks WANTS the dollar to be worth a bit less every year. Because economist determainted that is the right way to do things. And because it is known that this happens its included in loan contracts. That is why economist stress predicitibility. In a ponzi scheme you don't have enough money to pay the interest and pay back everything, this however is not the same with fiat currency. The amount of fiat currency you can create is not limited by anything other then the choices of the central bankers.