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Fiat money is backed by something - the majority of the time it's backed by real estate, or other real property. Does that mean I can redeem my dollar for a sp

Fiat money is backed by something - the majority of the time it's backed by real estate, or other real property. Does that mean I can redeem my dollar for a specific amount of land or real property? Or do you mean it's 'backed' by such property to the extent that I could trade it for such property, maybe -- in which case the value of everything I own is 'backed' by a diversified portfolio consisting of basically every other asset in the universe. Fiat money allow the value of property to be represented as cash. Any currency allows this. If you have a currency backed by gold, or barrels of oil, or heroin futures, you can represent the value of a house in terms of that currency. In fact, you can represent the house as a single unit of a currency denominated in houses. On the other hand if we use gold, then if I create value - a house - you can't also create more gold to match it, so instead I just deflated the value of the gold (i.e. the ratio of value of real propery vs the value of all the gold just changed) - that's bad. Why is a declining real price level bad? It rewards saving, keeps interest rates low, and makes people want to accumulate productive assets rather than natural resources, property, or other hedges. Also, why do we trust people not to print up more fiat money? I can certainly trust gold miners not to 'print' up more gold -- the market is just too inelastic. Please spread the news: the anti fiat money/anti federal reserve/anti fractional reserve banking meme's are dead. I'm sorry the meme is are dead. It has lasted a surprisingly long time, what with the long history of governments' responsible stewardship over printing presses, banking systems, and the like. Why on earth would anyone think that a fiat system does anything other than adjust, like clockwork, to the size of economy? Why doesn't someone just tell them that $1 in 2008 can buy about as much real estate, food, or clothing that $1 in 1908 could? The dollar is a pretty stable currency, and it hasn't faced any serious crises. So shouldn't its ability to hold most of its value be a great argument in favor of fiat currency? I bet people would even consider your ideas sensible if the dollar had only lost a modest amount of its value -- 5%, 10%, maybe 15%. So, ars, how well has our tailored-to-the-economy, modern, anti-meme fiat currency done during that time period?

lackbeard 18y ago
It rewards saving, keeps interest rates low, and makes people want to accumulate productive assets rather than natural resources, property, or other hedges. People won't accumulate productive assets, they'll horde money, which will contribute further to declining prices. This will put an economy into a deflationary spiral.
petercooper 18y ago
Does that mean I can redeem my dollar for a specific amount of land or real property? Or do you mean it's 'backed' by such property to the extent that I could trade it for such property, maybe -- in which case the value of everything I own is 'backed' by a diversified portfolio consisting of basically every other asset in the universe. That's the whole meaning of money. Money allows us to trade without having to barter with or for things we do not want or do not have access to. Fiat money is only backed by one thing - people's trust in the ability to trade with that money (which, in itself, is usually backed by the government). No more than this is required, though, since if you can trade fiat money for goods and services, why does it need to be physically backed by gold or similar? Fiat money can vary in value, but that's not a bad thing as long as the variations in this value are controlled properly via interest rates and fiscal policy.

lackbeard 18y ago

It rewards saving, keeps interest rates low, and makes people want to accumulate productive assets rather than natural resources, property, or other hedges. People won't accumulate productive assets, they'll horde money, which will contribute further to declining prices. This will put an economy into a deflationary spiral.

petercooper 18y ago

Does that mean I can redeem my dollar for a specific amount of land or real property? Or do you mean it's 'backed' by such property to the extent that I could trade it for such property, maybe -- in which case the value of everything I own is 'backed' by a diversified portfolio consisting of basically every other asset in the universe. That's the whole meaning of money. Money allows us to trade without having to barter with or for things we do not want or do not have access to. Fiat money is only backed by one thing - people's trust in the ability to trade with that money (which, in itself, is usually backed by the government). No more than this is required, though, since if you can trade fiat money for goods and services, why does it need to be physically backed by gold or similar? Fiat money can vary in value, but that's not a bad thing as long as the variations in this value are controlled properly via interest rates and fiscal policy.