What Is Fiat Money?

Submitted by: Pooptart19 6 years ago in

Ever wonder how the rich get richer and the poor get poorer?
There are 60 comments:
Female 582
This video sees the big picture but is putting the puzzle pieces together incorrectly. Banks don`t just poof and make money. There are accounting laws that prevent you from just changing digits.

Banks don`t really "make" money at all. Investment and production do. Take the housing market, banks were capitalizing on the increased demand of a tangible product (houses). As demand rises, so does price and perceived value. As value rises so does wealth. That wealth spread to every level -- rich and poor. The problem is when the supply becomes higher than the demand and the price/value drops for the product.

The main problem with this speculative system is the fact that wealth is not standardized to any tangible supply of anything (although some would argue the closest is oil). It`s dependent upon the perceived value and credit.

The gap is widening because it`s faster and easier to make money with investment than actual wages.
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Male 525
@WobxFobxdobx: Wrong. The Federal Reserve inflated the currency and made people think that their assets (and their wealth) was worth more than it really was. That`s why the 20s "roared"; people thought they were rich, due to inflation. They looked at their stocks going up and thought "oh, I`m getting rich!" when the prices were just reflecting inflation caused by the Federal Reserve injecting money into the system. The Smoot-Hawley Tariff Act is what finally put us into the depression.

All of this wouldn`t have happened had the state and economics been separate (like how the state and church are separate).

When the free market fails because of statist government policies, the statists insist that the free market failed and more controls are necessary. Despite the fact that the Great Depression was caused by government controls, the statists use red herrings in order to blame it on the free market.
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Male 1,284
@strivejaylen they give you what they have in stock and the fed print it and eventually come back in the bank. If everybody keep their money at home then its gonna be a big problem
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Male 646
Is this more Ron Paul crazy?
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Male 196
so by what i see as the statement"banks print money" - bank of america, regions, bank of putnam county, first national bank and so all never have money from 1. deposits 2. stocks, 3. investors
and they all just make up numbers to give you, and if you ask it in cash they go to the back of the bank and print them off
and no way they can have 200 in there bank from the three things and loan 180 dollars at 10 percent interest per month so when you pay it off they now have 218 dollars.
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Male 54
[quote]The Great Depression was caused by the Federal Reserve making fiat money; this money meant nothing, but people bought stuff with it anyway. That`s why the Depression started--because people were buying things with money that didn`t exist or have value.[/quote]

Bit of history: The Federal Reserve, or Fed for short, was created in 1918. The Great Depression directly followed the crash of the NYSE of October 1929.

In 1933, the FDIC was established to insure depositors for up to $250,000 in the event of a bank failure. The reason so many banks failed during the Great Depression was because people panicked and all went to withdraw their money at once, and because of the fractional reserve banking system, NOT Fiat money, banks failed. A similar thing would have happened, gold standard or not. The banks didn`t have their investors` money when they wanted it.
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Male 54
[quote]I think what is killing us are the interest, we should ban interest, it was by all religion
[/quote]

Sure, go ahead and ban interest. So there is no longer an interest rate, so now nobody has any sort of incentive to lend money. Now, people can only buy things that they can afford with their available assets. There would be no credit.

Oh, yeah, you might as well halt all financial investment, since the only reason to invest money in anything is for the returns, and without interest, there would be no monetary return...
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Male 185
so while things cost more and more the dollar is worth less and less...
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Male 2,376
"The problem with gold:there is not enough for everybody "

sure there is. its just has to be worth more
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Male 1,284
@dang007 That what they want you to think but they are not. They keep it in bank to make more money debt

They have a ratio to respect. I dont have the number but for example they can make 9 times of debt of one deposit. So for 10k they make 90k money debt. Then the seller get the borrower`s money, they assume the seller will deposit this back to another bank. So with this they can make more money debt.

I think what is killing us are the interest, we should ban interest, it was by all religion
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Male 282
Federal Reserve = Legalized Counterfeiting = Fascism
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Male 815
Actually pfkdxius, banks (not the fed) do create money, it`s a process called Fractional Reserve Banking. The film made it appear as if they just print more money, because they don`t "physically increase" the amount, instead they increase the "money supply" by lending money that they do not currently have in their vaults to other customers or banks.

Most countries follow this system and it doesn`t exactly make since to me, but then I`m not the one creating profits from nothing.
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Male 1,284
The problem with gold:there is not enough for everybody
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Male 525
@Gerry1of1: President Theodore Roosevelt outlawed the Gold Standard in 1933.

There were a lot of things that caused the depression, but it certainly wasn`t gold. In fact, if the government brought back the gold standard, the economy would`ve recovered very quickly.

The Great Depression was caused by the Federal Reserve making fiat money; this money meant nothing, but people bought stuff with it anyway. That`s why the Depression started--because people were buying things with money that didn`t exist or have value.

Gold has an objective value. If we used gold, the depression wouldn`t have happened.
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Male 314
This video is very misleading. Only the Federal Reserve can create money from nothing. Your neighborhood bank obeys the normal rules of lending money they have on hand, or accumulating debt when they lend more than they have.
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Male 2,868
@HIPCAT- Yes.
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Male 666
The banks create money by lending money they don`t actually have, for example in the form of a vault filled with gold. If you go to a bank and lend money for something, they don`t give you hard currency. Instead, they give you a number in a computer file or a piece of paper which represents fiat value, or in other words dollar bills. <<


Sorry I am still missing something. Don`t banks loan out funds that they have held as deposits. i.e. I deposit $100 in my savings account. The bank now loans $80 to someone. (I recall that they can not lend all the deposits but must keep some on hand, doubt that it is 20% percent.) Regardless I do not see money being "produced from thin air"
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Male 126
Isn`t that set-up the banks use called a pryamid scheme.
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Male 135
The banks create money by lending money they don`t actually have, for example in the form of a vault filled with gold. If you go to a bank and lend money for something, they don`t give you hard currency. Instead, they give you a number in a computer file or a piece of paper which represents fiat value, or in other words dollar bills. The actual value of a 100 dollar bill is very low because it is mostly made of paper. The value bestowed upon it is 100 dollars and what you can actually buy for that 100 dollars is determined by the extremely complex international financial economy. Money as we know it today simply does not hold a genuine value as for example a pound of flour or butter did before we started using fiat currency instead of trading things we had for other things.
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Male 666
I must admit that I am a bit ignorant on this topic. I have a hard time understanding the statement "banks create money" How does this work?
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Male 6,737
Knew that shizz already. No shock.
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Male 3,076
so we live in a corupt world?
huh I dind`t know that....
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Male 105
Now I feel more poor than I already did.
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Male 4,902
Well sh*t
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Male 40,272
"Back when gold backed up money, there was no such thing as inflation"

Huh?!

Inflation has always existed. As long as there has been money prices fluctuate up and down
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Male 93
intrigid,
The gold standard didn’t prevent double-digit inflation in the US in 1917, 1918, 1919 or 1920. Nor did it prevent strong deflation in 1921 or 1922.
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Male 220
Oh dear... the fractional-reserve "conspiracy" and the gold standard. Now with "there was no gap between rich and poor!"

Except for the 1920`s, of course, when America was very SOLIDLY on the gold standard.

Please read
The Power of Gold before having an opinion on the gold standard. It`s not a panacea for money problems. If anything, it makes money problems WORSE.
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Male 15,832
If you had all the money, you could buy all the stuff. If you print more money, but don`t make any more stuff, it just takes more money to buy the same stuff.
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Male 914
"So, according to the video, if there were gold backing up
the money my salary would have gone up?

Huh?"

Back when gold backed up money, there was no such thing as inflation. And while your wages may have gone up or down, prices for things you need would have fallen as society became more productive. This is basically what happened during the entire 1800s.
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Male 914
"rather than looking at the down sides, is there a better solution?"

Back in the days of the gold standard, the gulf between the rich and poor was nowhere near what it is today.
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Male 27
rather than looking at the down sides, is there a better solution?
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Male 40,272

Wasn`t the money backed by gold when the market collapsed in 1929?

So much for that theory
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Male 936
"first the bank doesn`t get money out of nowhere"

Wrong. Bank`s do create money out of no where. Its how the whole system functions. It`s one of the main parts of it if not THEE main part.

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Male 210
The trillion-dollar defecit has caused the U.S. government to keep printing money without the backing of precious metals--and that practically guarantees the U.S. dollar will be devalued to the point of collapse.
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Male 196
first the bank doesn`t get money out of nowhere, they either had the money from before hand, investments onto them from outside source, or deposits you make
then the interest from loans people takes cause them to make a profit in turn to pay employees and there owners or there shareholders, and reinvestments onto making more loans
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Male 525
@Gerry1of1: No, that`s not what the video is saying.

The video is saying that gold has an objective value and is immune to inflation.

Because inflation strips your money of its purchasing power, your wealth just gets lower and lower since you get paid the same numerical amount but it can buy less and less. So, if we go to the gold standard, your salary`s purchasing power would be objectively defined by the free market i.e. if the market is doing well, your money has a lot of purchasing power; if the market is doing poorly, your money doesn`t have as much purchasing power. Either way, its value doesn`t exist independently of the market.

Gold represents wealth that you`ve created. The paper that you hold right now that you claim represents your wealth is actually just pieces of paper that represents nothing but what the government mandates with force.
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Male 210
condition*
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Female 105
My god, this was stupid on so many levels. A kindergarten version of a post-graduate subject. "The Fed is a private bank - BAD!" No, idiots, it`s a system of corporations owned by private entities and boards of operation, all of which must answer for their actions to a larger whole. No, that larger whole is not the Lizard Illuminati, but the American government & public.

What`s next? "Building houses takes wood. Birds live in trees. Therefore, house builders all kill the pretty birdies. See how construction companies are bad!" This is carefully cherry-picked information to serve a purpose and to lead the viewer to a predetermined conclusion.

I love how it`s the very wealthy (like certain wannabe leaders) spoonfeeding this to the poor & saying, "Tsk, tsk, how awful, but don`t worry, I certainly haven`t any ulterior motives for shaking your faith in the current powers-that-be. It`s not like I`m running for president or anything
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Male 210
Bankers, big business and curropt poloticians (government) have worked together to eradicate the middle class worldwide.

They have accomplished this by sending manufacturing jobs from North America and Europe to to third world countries.

The world bank uses highly paid agents to the cheat countries out of trillions of dollars through fraudulent loans for infrastructure development they don`t need.

These countries have no way to repay and are indebted (enslaved) to the bankers and big business.

Ron Paul is the ONLY candidate who is willing to turn us away from our path toward economic collapse and chaos. All of the others offer more of the same failed polocies. All of the other candidates offer us the very UNREAL idea that government can fix our lives and give us all a fair tale life. Ron Paul is the only one grounded in reality. Lets support the one that accepts the reality of the Constitution and that freedom is the only solution to the human con
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Male 40,272

So, according to the video, if there were gold backing up
the money my salary would have gone up?

Huh?
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Male 934
People will watch this and still think Ron Paul is insane for wanting to abolish mercantilism and bringing back an arbitrarily backed currency.
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Male 374
@Boboda: I`m an economist; I understand how the Fed works. The open market operations you describe increase the monetary base. Hence, my statement: Inflation doesn`t result because the money is fiat -- it results because the Fed increases the limit on the amount of fiat money banks can create.
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Female 21
@AntEconomist

The Federal Reserve doesn`t increase the limit of money, it`s the actually government. The government pays the FR in treasury bonds and in return X amount of money is printed. This adds to the debt of our government. Inflation is caused because the banks only need to possess 10% of the money they lend out.EX - If they have 10 dollars they can lend up to 100. Creating this money out of no where is what causes inflation. The money that originally started with the government is backed by treasure bonds. So the government can create as much money as they like, but their debt goes up and eventually will be inflated from Fractional Reserve Banking.
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Male 9
Isn`t the Federal Reserve just another private bank though, AntEconomist?
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Male 689
Klamz - there are so many things that can deter the outcome. working hard USED to be the way but now its not enough. in the blink of an eye you can lose everything you worked for. if you start out poor your screwed.
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Male 374
The growth in the money supply has nothing to do with it being fiat. Yes, banks can create money. But they can only create up to a limit that is set by the Federal Reserve. Inflation occurs when the Federal Reserve increases the limit. The gold standard doesn`t solve the problem. When someone finds a new vein of gold in the ground, you get the same increase in the money supply that you get when the Fed increases the limit on fiat money.
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Male 936
banks do just create money.
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Male 688
This video tells quite a few lies actually.

I really get tired of the debates these videos create. You wanna be rich? then do it, doesn`t take a genius to work hard and accomplish things.

You`re lazy and hence you`re poor.
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Male 2,790
soooo your saying we should kill all the rich people?...i`m game...
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Male 525
I really liked this video.

Ok, there was a bit of misinformation in it (e.g. banks "create" money), but the rest of the video and the point it was trying to make is excellent i.e. money has no objective value anymore and the government is the cause of inflation. Gold is needed to fix the problem and the government and banks should not be allowed to the fiat money supply.

Another really great think about this video is that it encourages the working class to get mad and insist on going back to the gold standard and lassiez-faire capitalism. By complaining that the corporations have all the wealth, the working class are unintentionally arguing for the gold standard and capitalism and helping the banks, corporations and everyone in general.
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Male 1,284
bartering seem like a good idea now?
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Male 1,540
Does this mean there`s going to be another LA Bank Robber shoot out soon?
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Male 25,416
Wow... banks create money! Cool....
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Female 812
Well, interest IS the problem of this crisis and the money ended up with the rich so...
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Male 985
So... how do we stop it? I`ve tried yelling at them, I`ve tried screaming at them, but it doesn`t work!
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Male 40,272

Yes banks earn interest. This is news?
It`s not the banks fault your salary hasn`t increased in 15 years.

biased tripe
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Male 541
Lets go back to bartering
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Male 184
Yes
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Male 771
so.. i should rob a bank?
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Male 2,440
Link: What Is Fiat Money? [Rate Link] - Ever wonder how the rich get richer and the poor get poorer?
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