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fiat Money - Chronology from 50 A.D. to Present

"I am afraid that the ordinary citizen will not like to be told that the banks can and do create and destroy money. And they who control the credit of a nation direct the policy of governments, and hold in the hollow of their hands the destiny of the people."
Reginald McKenna

The Historical Facts

Every fiat currency since the Romans first began the practice in the first century has ended in devaluation and eventual collapse, of not only the currency, but of the economy that housed the fiat currency as well.

fiat Money Roman Empire - the Denarius
They just kept decreasing the Silver content of their Currency from initially 94% to 85% - 43% - 0,05% and finally 0,02%

Although Rome didn’t actually have paper money, it provided one of the first examples of true debasement of a currency. The denarius, Rome’s coinage of the time, was, essentially, pure silver at the beginning of the first century A.D. By A.D. 54, Emperor Nero had entered the scene, and the denarius was approximately 94% silver. By around A.D.100, the denarius’ silver content was down to 85%.

Emperors that succeeded Nero liked the idea of devaluing their currency in order to pay the bills and increase their own wealth. By 218, the denarius was down to 43% silver, and in 244, Emperor Philip the Arab had the silver content dropped to 0.05%. Around the time of Rome’s collapse, the denarius contained only 0.02% silver and virtually nobody accepted it as a medium of exchange or a store of value.

fiat Money China with its Flying Money
Switching from Copper to Iron Coins

When the Chinese first started using paper money, they called it “flying money,” because it could just fly from your hands. The reason for the issuance of paper money is simple. There was a copper shortage, so banks had switched to the use of iron coinage. These iron coins became over-issued and fell in value.

In the 11th century, a bank in the Szechuan province of China issued paper money in exchange for the iron coins. Initially, this was fine, because the paper money was exchangeable for gold, silver, or silk. Eventually, inflation began to take hold, as China was funding an ongoing war with the Mongols, which it eventually lost.

Genghis Khan won this war, but the Mongols didn’t assume immediate control over China as they pushed westward to conquer more lands. Genghis Khan’s grandson Kublai Khan united China and assumed the emperorship. After running into some setbacks with paper currency, Kublai eventually had some success with fiat money. In fact, Marco Polo said of Kublai Khan and the use of paper currency:

“You might say that [Kublai] has the secret of alchemy in perfection…the Khan causes every year to be made such a vast quantity of this money, which costs him nothing, that it must equal in amount all the treasure of the world.”

Even Helicopter Ben would be impressed. Marco Polo went on to say:

“This was the most brilliant period in the history of China. Kublai Khan, after subduing and uniting the whole country and adding Burma, Cochin China, and Tonkin to the empire, entered upon a series of internal improvements and civil reforms, which raised the country he had conquered to the highest rank of civilization, power, and progress.”

That's not all bad about fiat money. Wait, wait, here is Marco Polo's account of China’s paper money experiment:

“Population and trade had greatly increased, but the emissions of paper notes were suffered to largely outrun both… All the beneficial effects of a currency that is allowed to expand with a growth of population and trade were now turned into those evil effects that flow from a currency emitted in excess of such growth. These effects were not slow to develop themselves…The best families in the empire were ruined, a new set of men came into the control of public affairs, and the country became the scene of internecine warfare and confusion.”

This leaves one to wonder if Keynes read Marco Polo’s experience with Chinese fiat currencies when he said that the US government should just bury bottles full of money in old mine shafts to spur economic growth.

fiat Money France
From Napoleon's Gold Franc to the Paper Franc to Waterloo...

...Battle lost & currency collapse one following the other.

The French have been particularly unsuccessful in their attempts with fiat money.

John Law was the first man to introduce paper money to France. The notion of paper money was greatly helped along by the passing of Louis XIV and the 3 billion livres of debt that he left.

When Louis XV was old enough to make his own mistakes, he required that all taxes be paid in paper money. The currency was backed by coinage…until people actually wanted coins.

The theme of the day: the new paper currency rapidly became oversupplied until nobody wished to own the worthless junk anymore and demanded coinage for their currency.

It looks like Law didn’t think that anyone would actually want coins ever again. After making it illegal to export any gold or silver, and the failed attempts by the locals to exchange their paper currency for something of actual value, the currency collapsed.

John Law became the most hated man in France and was forced to flee to Italy.

In the latter part of the 18th century, the French government again tried to give paper money another go. This time, the pieces of garbage they issued were called 'assignats'. By 1795, inflation of 'assignats' was running at approximately 13,000%. Then Napoleon stepped on the scene and brought with him the 'gold franc'. One of the good things that Napoleon realized is that gold is the way of a stable currency, and that’s what pretty much ensued during his reign.

After Waterloo had come and gone, the French gave it another go in the 1930s, this time with the paper 'franc'. It took only 12 years for them to inflate their currency until it lost 99% of its value. History has proven that the French are very talented at making worthless currency.

fiat Money Germany
featuring The Weimar Republic's Money-Printing Press

Or, how Germany made good use (albeit ending up as a total disaster) of one of their native Son's greatest inventions. Coincidentally, Johann Gutenberg was also an accomplished goldsmith! Post-World War I Weimar Germany experienced the most massive period of hyperinflation that ever existed. Germany had to make punitive financial war reparations imposed by the Versailles Treaty. The sums of money to be paid by Germany were so huge that the only way it could make repayment was by running the printing press.

The ensuing inflation got so bad in this period that German citizens were literally using stacks of Marks carried away on hand carts to heat their furnaces. The four year timeline how the Mark compared with yesteryear's exchange rate of one US$ looked like this:

April 1919:12 Marks
November 1921: 263 Marks
January 1923: 17,000 Marks
August 1923: 4.621 million Marks
October 1923: 25.26 billion Marks
December 1923: 4.2 trillion Marks

Germany had enormous amounts of unpayable debt. Just wonder what the solution in the US will be.

fiat Money More Recent Times

fiat failures have become more common occurrences. For the sake of time, extensive details of the following international currency examples of paper money failures have been skipped, because there are so many:

In 1932, Argentina had the eighth largest economy in the world before its currency collapsed.

In 1992, Finland, Italy, and Norway had currency shocks that spread through Europe.

In 1994, Mexico went through the infamous “Tequila Hangover,” which sent the peso tumbling and spread economic hardships throughout Latin America.

In 1997, the Thai Baht fell through the floor and the effects spread to Malaysia, the Philippines, Indonesia, Hong Kong, and South Korea.

The Russian Ruble was not the currency you wanted your investments denominated in 1998, after its devaluation brought on an economic recession.

In the early 21st century, we have seen the Turkish Lira experience strokes of hyperinflation similar to that of the Mark of Weimar Germany.

In present times, we have Zimbabwe, which was once considered the breadbasket of Africa and was one of the wealthiest countries on the continent. Now Mugabe’s attempts at price controls, combined with hyperinflation, have the nation unable to supply the most basic essentials such as bread and clean water.

fiat Money US Dollar 1690-1971
Lessons to Be Learned

The scary thing is that the US currency has some of these above-mentioned characteristics. There are many consistencies from these stories that led up to the eventual collapse of the currencies. Here is a brief look at the US attempts with paper money in its rather short history.

The first attempt with paper money came in 1690 with the issuance of 'Colonial notes'. The first 'Colonial notes' were issued in Massachusetts and were redeemable for gold, silver, corn, cattle and other commodities.

The other Colonies quickly jumped on the paper money bandwagon and began issuing their own paper currencies. Like a broken record, the money quickly became over-issued. The lessons of John Law and others were definitely not learned. It is not good enough just to say that a currency is backed by commodities. It actually has to be backed by commodities. Essentially, it was still fiat money, and in a short period of time, 'Colonials' were not even worth the paper they were printed on.

The next experiment came during the Revolutionary War. Big surprise, the issuance of paper money was used to finance the war efforts. This time, the currency was called a 'Continental'.

The crash of the 'Continental' was spectacular, and the phrase “not worth a Continental” was coined. This brought on a large distrust for paper currency, and until 1913, paper money in the US wasn’t used. Enter the infamous Federal Reserve and its monopoly on money and interest rates. Now we have the greenback.

Although the money was “officially” backed by a gold standard until 1971... it really wasn’t a true gold standard. When the government found it inconvenient to have a gold standard, it just made it illegal for US citizens to hold gold or exchange dollars for gold. Under Franklin Roosevelt, it was made illegal to own gold. On March 11, 1933, he issued an order forbidding banks to make gold payments. On April 5, Roosevelt ordered all citizens to surrender their gold. No person could hold more than $100 in gold coins, except for collector’s coins. He also made it unlawful to export gold for payment abroad, unless done through the Treasury. The penalty for defying Roosevelt was 10 years in prison and a $250,000 fine.”

fiat Money and the Official Demise of the US Dollar - quo Vadis?

as locked into place in 1971 when “Tricky Dick” Nixon completely severed all ties between the dollar and the gold standard. During the decade that followed, the US experienced some of the worst inflation in its history, only matched by today’s US monetary and fiscal irresponsibility.

The US has all the characteristics set in place that have led to the collapse of every other fiat currency money in history.

The US is currently at war, and the financing of this war is extremely inflationary. In fact, if you look back at US history, since 1914, the US has engaged in 16+ military conflicts. The US has been involved in some form of violent international intervention in 44 of the past 93 years. The overwhelming majority of military conflicts result in monetary inflation.

The US has a debt similar to that of Weimar Germany. Although the reasons for the debt are completely different, it appears that this gigantic amassment of IOU's is going to be impossible to pay back. Well, the US could just print 10 trillion dollar bills and hand them out, but the implications of such actions are obvious.

Fact is:

  • The US is currently increasing the supply of dollars at a rate of 13+% per annum. This over-issuance of a currency has been the leading indicator of a currency on the brink.
  • The People Printing The Currency Are Inflating The Stock Market. Western stock markets are pushed upwards via central bank money printing. So the idea that central banks are directly holding equities is no surprise. The size of these holdings is phenomenal. A report published by the Official Monetary and Financial Institutions Forum (OMFIF) confirms $29,1trillion in market investments, held by 400 public sector institutions in 162 countries.
  • The Secrete JFK Dollar...

So What’s in the Future for the fiat greenback?

Why would it be different in the US? Well, it hasn’t been. In fact, in their short history, they have already had several failed attempts at using paper currency. Today’s dollars are no different than the 'Continentals' issued during the Revolutionary War. The preceding historical record is evidence enough that fiat currencies have not been successful, and the only aspect of fiat currencies that have stood the test of time is the inability of political systems to prevent the devaluation and debasement of paper money by letting the printing presses run wild.

The fiat curreny USD - the US dollar has already failed. It has lost over 92% of its value since its initial issuance in 1913As a result of this, the US dollar has already failed. It has lost over 92% of its value since its initial issuance in 1913. After the revaluation in 1934, the dollar dropped another 41%. For the above-mentioned characteristics, which are alarmingly similar to the circumstances that led up to the eventual collapse of the dollar’s paper predecessors. This is  only the tip of the iceberg of the dollar’s inevitable path.

Draw your own conclusions


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