What is FIAT 'money'?

desib0y2011

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Watch this to know:

[video=youtube;hx16a72j__8]http-~~-//www.youtube.com/watch?v=hx16a72j__8&feature=mfu_in_order&list=UL[/video]
 

amish

Star gazer
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I always kept on asking people this question.

If India wants to become richest country, why not just print few TRILLION rupees?

Some people answered its not possible, but nobody has ever given me convincing answer on why it can not be done?

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Look at USA.. it just bailed out so many companies/banks.. how did they do it? Simply by printing money right?
 

agantuk

Bhatakti Aatma
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If just printing big notes was the mark of a rich country, Zimbabwe would be the richest country in the world now. Currency notes / coins can only be introduced based on the actual currency reserves, and not randomly. If a country does intend to mint more currency than it actually has, the value of that currency goes down.

To give a very basic example - and not entirely covering all the intricacies - let's say a country has reserves of 1000 units. Let's assume that those 1000 units can get you 1 kg of gold in the international market. Therefore, 1 unit can get you 1 gram of gold. Now the country goes ahead and prints currency worth 2000 units. However, since they don't actually have that amount of money, those 2000 units end up being nothing but a representation of those 1000 units it actually has. Which means, to get the same 1kg gold, one has to shell out 2000 units of the currency, effectively meaning, 1 unit can now only get you 0.5 grams. So the value of the currency has come down, without changing anything else
 


amit_dp

Regulars
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770
I always kept on asking people this question.

If India wants to become richest country, why not just print few TRILLION rupees?

Some people answered its not possible, but nobody has ever given me convincing answer on why it can not be done?

----------

Look at USA.. it just bailed out so many companies/banks.. how did they do it? Simply by printing money right?

US bailed out companies by giving them relief in terms of Taxes .. they didnt supply them with a truck load of money .. so the companies had less amount of taxes to pay .. and the Govt. took the burden on itself ..

For printing money .. AFAIK .. you need to keep equal amount of Gold deposit for the currency you are printing .. otherwise the value of your currency will go down .. as agantuk pointed out .. otherwise pak would have made India the richest country by printing "near real" fake Indian currency.. the logic of fake currency works in similar manner ... more curency in circulation without Gold reserve against it .. so the value of real currency comes down causing problems in country's economy
 

xred

Regular
Messages
113
I always kept on asking people this question.

If India wants to become richest country, why not just print few TRILLION rupees?

Some people answered its not possible, but nobody has ever given me convincing answer on why it can not be done?

----------

Look at USA.. it just bailed out so many companies/banks.. how did they do it? Simply by printing money right?

Let me try and answer this. If we print a hell lot of money, we will probably end up being the poorer country than today. The reason being-

[*]If we print too much of money, then the availability of money with people increase, so they will consume more which will lead to very high inflation, called hyperinflation. So in real terms the available goods will become damn expansive. e.g. if you are buying a bread at rs 25 and you print 10 times the current price. So the same bread will become Rs 250. For more on this you may read-Hyperinflation - Wikipedia, the free encyclopedia
[*]The investor will not be buying the bond issued by the government, which will significantly increase cost of funding for government. So if any government just prints money to pay back its debtors, which will lead to hyperinflation, the government will be in no position to finance its deficit.
[/list]
 

experience

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Yea, when I was in my higher secondary school, I asked my Social studies teacher the same question.He said, every country has to deposit some amount of gold to print notes, something like that, Can't remember clear answer.
 


amish

Star gazer
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Well, how can anyone verify if government has printed money equivalent to resources/gold/etc?Its impossible. What if some politician is getting money printed backdoor?How will anyone ever know that money in market is more than money that shud be available?
 

kickass

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Well, how can anyone verify if government has printed money equivalent to resources/gold/etc?

Its impossible. What if some politician is getting money printed backdoor?

How will anyone ever know that money in market is more than money that shud be available?
The world used to follow a gold standard(meaning currency backed by gold) till a couple of decades back. However usa broke the standard and since then we are living in a fiat world(currency backed by absolutely nothing). which is as good as worthless paper. the only reason u don't see insane inflation in usa is bcoz its a global currency and accepted means of payment by every country. Others have to accept usd for their goods/services coz other currencies are just nto good enough or they are not easily available.
the total amount of currency available in the circulation in the form of notes/coins,deposits etc is released by the govt in the form of m1,m2,m3 stats which are showing an exponential rise in past couple of years. Don't go by the govt statistics of inflation. they are designed to keep it low and thus suppress the interest rates. check the actual stats at shadowstats.com and u will realise it has shot through the roof.
the reason why u can't print unlimited money is that the excess money will move into the system thereby devaluing the monetary base. When the supply of anything exceeds dramatically its value falls hence u will need more money to buy the same. If u contineu the process of printing, the devaluation reaches an escape velocity wherein it gets devalued exponentially resulting in hyperinflation. Hyper inflation is basically the loss of faith in a currency. when people no longer have faith in a currency they try to get rid of it as quickly as possible thereby increasing the pressure and it goes into a vicious loop.
As things stand now u wud be foolish to believe the stats the indian govt puts out regarding inflation. The true measure of the strength is when u compare a currency with gold. People do not realise that the value of gold remains the same. it is the currency that has depreciated making gold look expensive. The end result of all this madness is going to be a complete loss of faith in these currencies. they will collapse. History is a testament to the fact that any currency without gold backing fails eventually right from the roman empire(when the started debasing coins) to modern times. Those in power will tell this time it is different.... ITS IS NOT.
 
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