Your fiat money (Part 2).

Your fiat money (Part 2)

by tonytran2015 (Melbourne, Australia).

Click here for a full, up to date ORIGINAL ARTICLE and to help fighting the stealing of readers’ traffic.

(Blog No.47).

1. Fiat money

Figure 1: Fiat money are paid to government employees. All citizens have to pay their taxes with that fiat money.

The simple basis for accepting the fiat money is that those who had done works for the government have the fiat money (a form of certificates) and the population at large have to exchange goods and service for those certificates to pay their own tax (those who don’t pay will be jailed) and buy some goods or service from the government.

2. Pushing for public use of the fiat money as a storage for wealth.

A government will require that its people pay their taxes and government service fees with its fiat money. They must do it or face having no government service or even face punishment.

People in that country have to obtain the money from government employees (who have been paid with fiat money) by supplying them with goods or service.

So the government has created a demand for its fiat money at the time of tax payment.

It is clear that a fiat money requires neither trust in nor support for the government nor any gold or silver holding by the government.

As long as the fiat money has NO EXPIRY DATES, the population at large may prefer keeping it even outside tax time to keeping perishable goods as a form of storing their “wealth” for rainy days.

This second step of using fiat money to store “wealth” relies (rightly or wrongly) on the belief that the government will not suddenly declare those certificates invalid (demonetize some denominations).

The pre-WW2, National Socialist (1933) government of Germany is most known for operating its economy with neither gold nor foreign currency backing using only its own fiat money called Reich Marchs.

The coupon system in communist countries is also similar to fiat currency with the difference that coupons are not freely transferable and may have expiry dates.

3. Fiat money sets its own value against goods and service.

If all government employees are self-sufficient homesteaders spending little money then the fiat money exchanges itself with a lot of goods or service from other people who need them to pay taxes. The population at large has to compete hard for fiat money in order to pay their tax!

If all government employees are like drunken sailors spending money easily then the fiat money exchanges itself with little goods or service (and the drunken sailors may then complain that they had not been paid much !) .

It all follows the rule of Supply and Demand between government employees and the population at large.

4. A government can influence the value of its fiat money.

A government can lower the value of its fiat money by reducing its tax while keeping the payment to its employees unchanged. It can also do that by offering to buy some type of goods from its citizens for government usage or government storage .

Conversely, the government can increase the value of its fiat money by increasing its tax while keeping the payment to its employees unchanged. It can also do that by selling to its citizens goods in government stores (including foreign currency) or rights to use some government resource.

However, when its tax is too high, a government risks causing a revolt by its people (as the British empire had bitterly found out with its taxes on its American colony). On the other hand, if tax is too low relative to government payments, there is a risk of high inflation and the population may try to avoid fiat money until tax time, when they absolutely need it for paying their taxes.

5. Keeping the value of fiat money constant.

It is easy to see that for an unchanged population and an unchanged economy, the fiat money has a constant value when government’s yearly payment is equal to its collected tax.

If the government’s collected tax is more than its payout (having a budget surplus) it will sit on a stack of its own fiat money. In this case, it can even use its own fiat money to buy gold from the population at large.

If the government’s collected tax is less than its payout (having a budget deficit) it will need to draw from the stack of fiat money it has saved up from previous years or it may even have to sell its gold reserve to the people to get back some of its own fiat money to make up for the short fall for spending.

So the gold reserve is just a buffer to cover for years of low tax collection.

6. The gold reserve of a country does not need to be of any fix ratio to the total of fiat money in circulation.

The gold reserve only determines the total of all consecutive budget deficits before the government run out of gold to sell to the people to uphold the value of its fiat money. (See references [4], [5] for the removal of gold backing to the dollars.)

Any government with good record of never having budget deficit does not need any gold reserve . However, some gold reserve is always kept as a precaution against multiple years of natural disasters. It is noted that a number of countries deposit their gold reserves overseas despite the risk of losing them to the keeper countries (see reference [6], [7]).

A government with reckless overspending will have to sell its gold and rights to use national resources until the day it has nothing left to sell. Then the value of its fiat money may plunge.

Leaving aside the question of whether its gold was undersold or not (see reference [8]), the British government might be right in selling its gold reserve in the 1990’s if it can be absolutely certain to always have NO budget deficit from that time, even in the face of natural disasters.

7. Borrowing from the population.

When the government want to borrow X units of its fiat money from its citizens, it may have to conduct an “auction” of one of the following two types:

a. It may offer to all of its people to give the government any each of their spare $900 now to receive $1000 in 1 year time.

Too many of its citizens may accept the offer and the total amount of their money may far exceed the requirement of the government. If that is the case, it may next say No, not $900 anymore, but $910. The amount may goes up again until the acceptance has only about X units, the amount it requires.

Anti-corruption requires that the bidding process be public and transparent.

This is the idea of Treasury Bills, see [9].

If the final auction price is $970 of current money for $1000 of money in 1 year time then the Treasury Bill rate is (1000-970)/970 or 3.1%.

b. It may offer to all of its people to give the government any each of their spare $1000 now to receive a (transferable, resellable) certificate to receive $30 every year and hold it until the end of 10th year to get $30 plus the principal of $1000.

Too many of its citizens may accept the offer and the total amount of their money may far exceed the requirement of the government. If that is the case, it may next say No, not $30/year anymore, but $20/year. The amount may goes up again until the acceptance has only about X units, the amount it requires.

This is the idea of Treasury Notes, Treasury Bonds.

8. The foreign exchange value and the bond rate of a fiat currency in a growing economy.

When the economy goes strongly, there is anticipation of budget surplus and government developing more growth or adding to its gold reserve and there is more confidence in its fiat currency. Its fiat currency is in strong demand by its neighbors to buy its goods and service, hence its exchange rate may rise.

At the same time, its people feel good and want to use their existing money to set up shops or factories. The Treasury Notes auction offers are now less attractive and there would be fewer participants therefore its Bond rate rises.

The converse applies to a weakening economy.

References

[1] . tonytran2015, your fiat money, https://survivaltricks.wordpress.com/2017/01/09/your-fiat-money/, posted on Jan 9, 2017

[2]. , posted on December 1, 2016

[3]. Venezuela follows Indias footsteps in demonetization scheme, econotimes.com, http://www.econotimes.com/Venezuela-follows-Indias-footsteps-in-demonetization-scheme-445257

[4]. FDR takes United States off gold standard (1933), history.com, http://www.history.com/this-day-in-history/fdr-takes-united-states-off-gold-standard, accessed 10 Feb 2017

[5]. Nixon shock, Wikipedia, https://en.wikipedia.org/wiki/Nixon_shock, accessed 10 Feb 2017

[6]. De Gaulle and international monetary relations, charles-de-gaulle.com, http://www.charles-de-gaulle.com/the-stateman/the-modernisation-of-the-country/de-gaulle-and-international-monetary-relations.html, access 10 Feb 2017.

[7]. Germany brings its gold stash home sooner than planned, cnbc news,
http://www.charles-de-gaulle.com/the-stateman/the-modernisation-of-the-country/de-gaulle-and-international-monetary-relations.html, 10 Feb 2017.

[8]. Sale of UK gold reserves, 1999–2002, Wikipedia, https://en.wikipedia.org/wiki/Sale_of_UK_gold_reserves,_1999-2002, accessed 10 Feb 2017.

[9]. https://www.treasurydirect.gov/

Added after 2018 Feb 04:

[10]. http://www.gold-eagle.com/article/last-fed-chairman

[11]. https://venitism.wordpress.com/2018/02/23/quantitative-economics/

[12]. http://www.thedailybell.com/news-analysis/top-10-goals-in-the-communist-manifesto-accomplished-in-america/

[13]. https://us-issues.com/2018/08/12/price-of-gold-in-venezuela/

Australian debts and treasury bonds.

[14]. https://www.abc.net.au/news/2014-06-12/joe-hockey-one-billion-a-month-interest-fact-check/5478480

Alan Greenspan: “Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit. A government cannot become insolvent with respect to obligations in its own currency.”

St. Louis Federal Reserve: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e.,unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.

[15]. https://mythfighter.com/2018/11/14/the-debt-lies-just-keep-on-coming/

[16]. https://counterinformation.wordpress.com/2019/09/12/argentina-returns-to-capital-controls/

RELATED MONEY Blogs

,

fiatmoneyc60.jpg

Bankers earn more than interest margin on secured loans, posted on December 15 2016,

polymeraust100dollars

Bankers given outrageous incomes by their boards, posted on December 22 2016,

moneyd20.jpg

Gold for storing wealth, posted on 28 April 2017

Click here for my other blogs on polymeraust100dollarsMONEY

Click here go to Divider63D400Home Page (Navigation-Survival-How To-Money).

SUBSCRIPTION: [RSS – Posts], [RSS – Comments]

MENU: [Contents][Blog Image of Contents ][Archives ] [About]

Your fiat money

Your fiat money

by tonytran2015 (Melbourne, Australia).

Click here for a full, up to date ORIGINAL ARTICLE and to help fighting the stealing of readers’ traffic.

(Blog No.46).

You need to know about your money in order to understand the many actions of your government.

1. Fiat money

Figure 1: Fiat money are paid to government employees. All citizens have to pay their taxes with that fiat money.

Nearly every country in the world uses money issued based on its governing power. Such a money is called fiat money.

A fiat money is not guaranteed by any goods such as gold or silver. A fiat piece of money is just a certificate of some amount of work done for the government by some of its employees and those certificates can be used by anyone to pay taxes to or buy some goods or service from the government.

Refusal to pay taxes results in jail terms. Therefore the population at large have to exchange their goods or service for those pieces of fiat money from government employees so that they can have fiat money to pay their taxes to avoid jail terms or to buy goods and service from the government.

It is quite risky to keep too much of any fiat money. The threat of demonetization alone can make the holders of the money suffer and submit to whatever oppressive demands from the issuer of the money if they don’t want to lose all its value. (Even China has been under US pressure when it owned about $1200 billions US in debt in 2016.)

Some people can manage to keep just only enough of fiat money to pay their taxes and daily expenses and so they can survive any devaluation or demonetization.

References

[1]. How Much US Debt Does China Own, about.com, http://usgovinfo.about.com/od/moneymatters/ss/How-Much-US-Debt-Does-China-Own.htm., accessed Jan 10th, 2017.

[2]. Tyler Durden, US Treasury Gives Explicit Warning To China, Germany And Japan Not To Devalue Their Currencies, zerohedge.com, http://www.zerohedge.com/news/2016-04-29/us-treasury-gives-explicit-warning-china-germany-and-japan-not-devalue-their-currenc, Apr 29, 2016

[3]. , posted on December 1, 2016

[4]. Venezuela follows Indias footsteps in demonetization scheme, econotimes.com, http://www.econotimes.com/Venezuela-follows-Indias-footsteps-in-demonetization-scheme-445257

RELATED MONEY Blogs

,

fiatmoneyc60.jpg

Bankers earn more than interest margin on secured loans, posted on December 15 2016, 

polymeraust100dollars

Bankers given outrageous incomes by their boards, posted on December 22 2016, 

moneyd20.jpgRELATED MONEY Blogs

Click here for my other blogs on polymeraust100dollarsMONEY

Click here go to Divider63D400Home Page (Navigation-Survival-How To-Money).

SUBSCRIPTION: [RSS – Posts], [RSS – Comments]

MENU:  [Contents][Blog Image of Contents ][Archives ] [About]

Preparing for cashless trading.

Preparing for cashless trading

by tonytran2015 (Melbourne, Australia).

Click here for a full, up to date ORIGINAL ARTICLE and to help fighting the stealing of readers’ traffic.

(Blog No.35).

#banking, #barter, #cashless, #credit card, #demonetization, #Indian.

Cashless trading may come after the collapse of the ruling government or even when declared or indirectly created by the goverment. To survive, you need to be prepared.

When you have no cash and you want to pay someone 5 dollars worth of goods. You can:

1. Write a personal cheque. If it bounces then both the issuer (you) and the receiver who deposits it at a bank lose on the huge bank fines (commonly between 10 and 50 dollars, in Australia) for using a dishonoured (bounced) cheque. Who risks taking it?

2. Buy a Bank cheque of 5 dollars with an additional bank fee of about 7 dollars to pay the other party. This advertizes your status !

3. Use your credit card and submit to the torturous financial rules on paying HUGE FEES and FINES to the credit card company. This usually results in you paying the average price of about 0.5 dollars for using their “convenience”. If you violate any of their torturous “rules” you may lose up to one month (it can also grow to one year) of income if you are in a poor country!

4. If you have been trapped with buying useless things by credit cards, you have to pay the debt off before you can continue to use the credit cards. You do not have the right to wait for the rulings of Courts and Consumer Protection Organizations on the validity of the debts.

5. Form your own bartering group or join some existing ones and settle your owings on your payday.

6. Do direct bartering using locally produced goods and needed items. For examples, five lemons or five oranges or two chicken eggs for one dollar, a spark plug for 2 dollars etc…Bartering items are to be valued close to their current cash prices.
7. Use gold, silver, copper rings of known weights made by reputable local jewelers as precious metal standard local currencies.
8. If gold can be legally owned, it is the best cashless trading medium.

Figure: Vietnamese gold slabs for trading.

However, gold user should know that their governments may suddenly take away their gold [6].

The future does not hold bright for poor Indians at this moment. If the government can demonetize once, they will do it again and again.

References (updated Feb 03, 2017)

[1]. India rupee ban: Ex-PM Manmohan Singh rubbishes Modi crackdown, BBC News Services, http://www.bbc.com/news/world-asia-india-38088177, 24 November 2016.

[2]. Neha Sharma and Shalu Yadav, The Indian village that has returned to bartering, BBC News Services, http://www.bbc.com/news/world-asia-india-38180075, 5 December 2016.

[3]. Patrick Bodenham, Will Spain’s coal belt survive through online barter?, BBC News Services, http://www.bbc.com/news/world-europe-38731808, 2 February 2017

[4]. James Melik, Haggling and bartering gain appeal, BBC News Services, http://news.bbc.co.uk/2/hi/business/7883050.stm, 12 February 2009.

[5]. Mark Lowen, Greece bartering system popular in Volos, BBC News Services, http://www.bbc.com/news/world-europe-17680904, 12 April 2012.

[6]. https://mishtalk.com/2017/08/16/india-bans-gold-exports-without-a-valid-reason/

Added after 2018 Oct 23:

[7]. https://wolfstreet.com/2018/10/26/nirp-fades-swedens-central-bank-makes-u-turn-on-cashless-society/

[8]. https://riggedgame.blog/2018/10/28/swedish-central-bank-makes-u-turn-on-cash-as-nirp-is-ending/

RELATED MONEY blogs

crystalballc70.jpg

Gold for storing wealth, posted on 28 April 2017

Click here for my other blogs.

divider43.jpg

polymeraust100dollars

Click here for my other blogs on SURVIVAL

SUBSCRIPTION: [RSS – Posts], [RSS – Comments]

MENU: [Contents][Blog Image of Contents ][Archives ] [About]

Demonetizing in India robs the poors.

Demonetizing in India robs the poors

by tonytran2015 (Melbourne, Australia).

Click here for a full, up to date ORIGINAL ARTICLE and to help fighting the stealing of readers’ traffic.

(Blog No.32).

#black economy, #corruption, #demonetization, #India,
As a money sovereign, the Indian government issues its own fiat money (which has values only by. acceptance by the issuing goverment to pay its tax, fines and to buy government supplied properties and service).

Now the same government declares that the money in high denomination (80% of issued money) will expire at the end of the year 2016.

1. The justification of avoiding counterfeit is not acceptable as counterfeits can be detected with more care by money users. Old money notes should be orderly and gradually removed from circulation with no sudden date of demonetization.

What may happen to someone who is oversea and cannot come back in time to exchange his notes for new one?

2. Saying that high valued cash money are mostly illegal money is unacceptable.

Is the government prepared to receive all its taxes, fines and fees in small valued notes?

Poor people have no way to store their saving except using cash. Does the government expect them to store the saving in bulky, worn out low valued notes?
Rich people don’t need to keep high valued notes: They can buy gold, land, houses, business, oversea investments. The value of a business, its good will, is enormous and no one can assign any precise legal value to a business! Rich people will take advantage of this.

3. Fighting corruption should be principally executed by rendering government processes transparent. Corrupt officials are too clever to be caught with the simple trick of demonetization.

So all this business of demonetizarion seems like a way to make a cashless India. On the way, the government robs people of their savings but retain their debts to the powerful.

The lessons for the future:

1. The poor Indians have to convert their saving into goods (such as gold, food) and hoard the goods.

2. Alternatively, they may need to take the I Owe You notes from their local reputable businessmen. The local businessmen may also form a trust that owns the hoarded goods on behalf of the poor.

This may lead the people back to the finance systems of the previous few centuries.

3. The government has done it once, they will do it again. Indian people should only swap their goods into Indian money prior to time to pay taxes!

Reference

[1]. India’s cash crisis explained, BBC,

http://www.bbc.com/news/world-asia-india-37983834

Added after 2018 May 05:

[2]. http://www.thedailybell.com/news-analysis/top-10-goals-in-the-communist-manifesto-accomplished-in-america/

[3]. https://www.bloomberg.com/view/articles/2018-09-02/indian-demonetization-failed-even-to-create-a-savings-culture?srnd=premium

[4]. https://counterinformation.wordpress.com/2018/11/08/a-well-kept-open-secret-washington-is-behind-indias-brutal-demonetization-project-2/

Click here for my other blogs

divider43.jpg

polymeraust100dollars

Click here go to Divider63D400 Home Page (Navigation-Survival-How To-Money).

SUBSCRIPTION: [RSS – Posts], [RSS – Comments]

MENU: [Contents][Blog Image of Contents ][Archives ] [About]