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Most of the world's currencies don't have backing these days. Even when they do have some kind of commodity backing them the governments don't tell people how

Most of the world's currencies don't have backing these days. Even when they do have some kind of commodity backing them the governments don't tell people how much backing is there (The U.S. Government for example won't tell people how much gold they have in reserve). Backing isn't relevant if you don't know how much of it there is. All a currency really needs to be valuable are two people who have faith in it and who have resources they want to trade with each other. Also for the record the only reason backing is important at all is because backing means there's a finite amount of currency that can be created. Bitcoin has, in theory, an equally valid limiting factor

gnaritas 15y ago
> Most of the world's currencies don't have backing these days. Not true. They have the backing of their government's tax payers. Backing doesn't need to be a hard asset like gold, it can merely be the full faith and credit of said government. > Also for the record the only reason backing is important at all is because backing means there's a finite amount of currency that can be created. Again, not true; backing is important because you want to know your money is safe, not because it's impossible or difficult to inflate.
jerf 15y ago
The real backing that a US dollar has is not its gold. It is the fact that the US government has declared itself obligated to accept tax payments in terms of US dollars, and it will not accept anything else. That's the dollar's base case, and the reason why coming off the gold standard didn't bring the house down is that was really always the true value of a dollar. The gold was an illusion, suitable for an era in which people couldn't think abstractly enough to understand what the true backing was, but one that we can now be rid of. The recursion of the value of government fiat money does indeed have a base case. This is why a government is so tied to its currency. In some sense it isn't a true cause and effect relationship, both the stability of a government and the stability of its currency is tied to the same third factor, its credibility. "All a currency really needs to be valuable are two people who have faith in it" Which is an equivocation game, in that "have faith in it" must itself be motivated by something at least locally rational or it won't work. I have faith in the ability of a dollar to buy off the men-with-guns who will come and take all my stuff and ruin my life if I don't pay my taxes. All government fiat currencies are thus in fact backed by something real. I don't entirely disagree with the BitCoin community that that is a more tenuous backing than one might abstractly like, but I do not see anything in practice that would be better; value stores are intrinsically ephemeral and there is nothing you can do about it. The reason why BitCoin is crashing is that it was built on the false premise that currencies have no backing, so we might as well create a cryptocurrency with no backing. But that's false. BitCoin is actually special in having no backing of any kind, and that is why failure is and will continue to be inevitable. The whole thing was built on a false foundation.
- icebraining 15y ago
  What about gold itself? Sure, it has some real world usages, like semiconductors and such, but it's priced way above it, simply because people have faith in it as a currency, nothing more.
  - jerf 15y ago
    It's a speculative bubble too. It has a base case of value, as you observe, so it probably won't collapse to nothing and will remain an industrial commodity for the forseeable future, but I'm pretty sure the value will collapse to something more like its actual industrial value (with a bounce to below that value) as soon as it is clear that the economy has recovered. (Which on sufficiently long time scales is quite probable, but I make no claims about what may or may not happen between then and now.) I've considered a strategy of buying gold post-collapse on the grounds that on the 30-year business cycle, gold will probably be spiking again in the next financial crisis at right about the time I'd be retiring, but that's 100% pure speculation, not buying for "intrinsic" value... but then, I scare quote the term since there really is no such thing. I also think investing in gold in the case of total collapse is a bit bizarre, because in the event society totally collapses, the only gold that will be worth anything is the stuff in your physical possession, not numbers in your bank account, which the government trivially confiscated (shortly before it discovered that doesn't prevent collapse either, because the government's problem was never having enough numbers in computers). (They can confiscate physical gold too, of course, it's just not trivial.) I know that's not the motivation of every gold bug, though.
  - TomOfTTB 15y ago
    With all due respect I think you both misunderstand the principle of Gold as currency (or bitcoin as currency for that matter). Currency at its most basic level is a representation of the value generated by the society it is used in. So the number of U.S. dollars represents the entire value of what U.S. citizens produce at any given time. What makes commodities valuable as currency is they are finite. There's only so much Gold, Silver, and Bitcoins in the world. Since all these commodities can be used as currencies (i.e. they can be converted to paper currency) they represent value beyond just its practicality because it stays consistent as the amount of each fiat currency available grows. So Gold goes up in value because it isn't really going up in value. Everything else is going down.
andrewla 15y ago
A purely factual correction: the U.S. Government does tell the people (if the IMF count as people) how much gold they have in reserve, http://www.imf.org/external/np/sta/ir/IRProcessWeb/data/usa/eng/curusa.htm http://www.imf.org/external/np/sta/ir/IRProcessWeb/data/usa/...

gnaritas 15y ago

> Most of the world's currencies don't have backing these days. Not true. They have the backing of their government's tax payers. Backing doesn't need to be a hard asset like gold, it can merely be the full faith and credit of said government. > Also for the record the only reason backing is important at all is because backing means there's a finite amount of currency that can be created. Again, not true; backing is important because you want to know your money is safe, not because it's impossible or difficult to inflate.

jerf 15y ago

The real backing that a US dollar has is not its gold. It is the fact that the US government has declared itself obligated to accept tax payments in terms of US dollars, and it will not accept anything else. That's the dollar's base case, and the reason why coming off the gold standard didn't bring the house down is that was really always the true value of a dollar. The gold was an illusion, suitable for an era in which people couldn't think abstractly enough to understand what the true backing was, but one that we can now be rid of. The recursion of the value of government fiat money does indeed have a base case. This is why a government is so tied to its currency. In some sense it isn't a true cause and effect relationship, both the stability of a government and the stability of its currency is tied to the same third factor, its credibility. "All a currency really needs to be valuable are two people who have faith in it" Which is an equivocation game, in that "have faith in it" must itself be motivated by something at least locally rational or it won't work. I have faith in the ability of a dollar to buy off the men-with-guns who will come and take all my stuff and ruin my life if I don't pay my taxes. All government fiat currencies are thus in fact backed by something real. I don't entirely disagree with the BitCoin community that that is a more tenuous backing than one might abstractly like, but I do not see anything in practice that would be better; value stores are intrinsically ephemeral and there is nothing you can do about it. The reason why BitCoin is crashing is that it was built on the false premise that currencies have no backing, so we might as well create a cryptocurrency with no backing. But that's false. BitCoin is actually special in having no backing of any kind, and that is why failure is and will continue to be inevitable. The whole thing was built on a false foundation.

icebraining 15y ago
What about gold itself? Sure, it has some real world usages, like semiconductors and such, but it's priced way above it, simply because people have faith in it as a currency, nothing more.
- jerf 15y ago
  It's a speculative bubble too. It has a base case of value, as you observe, so it probably won't collapse to nothing and will remain an industrial commodity for the forseeable future, but I'm pretty sure the value will collapse to something more like its actual industrial value (with a bounce to below that value) as soon as it is clear that the economy has recovered. (Which on sufficiently long time scales is quite probable, but I make no claims about what may or may not happen between then and now.) I've considered a strategy of buying gold post-collapse on the grounds that on the 30-year business cycle, gold will probably be spiking again in the next financial crisis at right about the time I'd be retiring, but that's 100% pure speculation, not buying for "intrinsic" value... but then, I scare quote the term since there really is no such thing. I also think investing in gold in the case of total collapse is a bit bizarre, because in the event society totally collapses, the only gold that will be worth anything is the stuff in your physical possession, not numbers in your bank account, which the government trivially confiscated (shortly before it discovered that doesn't prevent collapse either, because the government's problem was never having enough numbers in computers). (They can confiscate physical gold too, of course, it's just not trivial.) I know that's not the motivation of every gold bug, though.
- TomOfTTB 15y ago
  With all due respect I think you both misunderstand the principle of Gold as currency (or bitcoin as currency for that matter). Currency at its most basic level is a representation of the value generated by the society it is used in. So the number of U.S. dollars represents the entire value of what U.S. citizens produce at any given time. What makes commodities valuable as currency is they are finite. There's only so much Gold, Silver, and Bitcoins in the world. Since all these commodities can be used as currencies (i.e. they can be converted to paper currency) they represent value beyond just its practicality because it stays consistent as the amount of each fiat currency available grows. So Gold goes up in value because it isn't really going up in value. Everything else is going down.

andrewla 15y ago

A purely factual correction: the U.S. Government does tell the people (if the IMF count as people) how much gold they have in reserve, http://www.imf.org/external/np/sta/ir/IRProcessWeb/data/usa/eng/curusa.htm http://www.imf.org/external/np/sta/ir/IRProcessWeb/data/usa/...