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Fiat money refers to all types of money, physical currency and electronic currency. Focusing on physical currency, it does seem to be multiplying rapidly in the past 20 years. There are more dollars, pounds, yen, and euros in the form of physical banknotes than would seem to be justified by population and economic growth and inflation.
Personally, I don't see this as hyperinflation as in the past. Hyperinflation may be caused by "quantitative easing". But I do see it as a way for governments to make money off of criminal activity, drug dealing, and war lords.
For example USA has doubled it's currency in circulation since summer 2001. In the intermediate years, there has been about a 10% population gain, and relatively little inflation. Although currency is a liability on the books, it functions like a profit. Currency leaves the country, and is never turned in or switched to some other asset.
Only Sweden seems to be reducing it's currency in circulation. In 5 years it reduced it's banknotes by -14.42% in value. Like most countries it's coins are of much higher value than the USA, and are circulating at 525 krone per person (=US$82).
Fiat money refers to all types of money, physical currency and electronic currency. Focusing on physical currency, it does seem to be multiplying rapidly in the past 20 years. There are more dollars, pounds, yen, and euros in the form of physical banknotes than would seem to be justified by population and economic growth and inflation.
Personally, I don't see this as hyperinflation as in the past. Hyperinflation may be caused by "quantitative easing". But I do see it as a way for governments to make money off of criminal activity, drug dealing, and war lords.
For example USA has doubled it's currency in circulation since summer 2001. In the intermediate years, there has been about a 10% population gain, and relatively little inflation. Although currency is a liability on the books, it functions like a profit. Currency leaves the country, and is never turned in or switched to some other asset.
Only Sweden seems to be reducing it's currency in circulation. In 5 years it reduced it's banknotes by -14.42% in value. Like most countries it's coins are of much higher value than the USA, and are circulating at 525 krone per person (=US$82).
I personally think the quantity theory of money is bunk. It always ends up in the hands of a wealthy spend thrift. When that happens the money is no longer in the form that would cause a grain elevator to explode and is more like wet flat bread. . That is to say its analogous to surface area. There is more money, but its not in circulation. What if a trillionaire decided buy a continent from another owner? What would that be but continental inflation on a scale that would not impact the price of bread. Inflationary pressure must be about what ever the money is chasing.
For example USA has doubled it's currency in circulation since summer 2001. In the intermediate years, there has been about a 10% population gain, and relatively little inflation. Although currency is a liability on the books, it functions like a profit. Currency leaves the country, and is never turned in or switched to some other asset.
Only Sweden seems to be reducing it's currency in circulation. In 5 years it reduced it's banknotes by -14.42% in value. Like most countries it's coins are of much higher value than the USA, and are circulating at 525 krone per person (=US$82).
That's way off base.
Are you suggesting that Americans are the only people on this Earth of 6.6 Billion people who consume US Dollars?
I sure hope not, because that would be silly.
How many States on Earth hold Swedish Krones as a reserve currency? How many banks, insurance funds or pension funds on this Earth are held in Swedish Krones? How many States purchase Swedish Krones to buy oil and natural gas from Russia?
Like I have said repeatedly....when you crunch the numbers and get the coefficient of absorption, then you can run the formulas to determine the point at which US Dollars become "excess."
For those who have difficulty with the concept, this is a Global Economy, and the US Dollar is a global reserve currency, and also a global trade currency.
Accordingly, the US can dump $9 TRILLION to $13 TRILLION onto the global economy without causing any significant increase in Real Inflation.
You ain't nowhere near that, and that is why Real Inflation continues to remain under the historical average of 3% annually.
Circulating...
That's way off base.
Are you suggesting that Americans are the only people on this Earth of 6.6 Billion people who consume US Dollars?
I sure hope not, because that would be silly.
Accordingly, the US can dump $9 TRILLION to $13 TRILLION onto the global economy without causing any significant increase in Real Inflation.
Mircea
Thank you for your thoughtful reply. I agree with you absolutely, but I don't think those uses as a reserve currency are primarily in the form of banknotes. I don't think central bankers are moving trailer trucks full of cash.
It is a fact that at least 75% of the almost 9 billion $100 notes are in circulation outside of the country.
My point is that US or EMU currency can be used by a little Dominican grandfather as a hedge against his own unstable currency which can be manipulated by a single corrupt banker.
But statistically speaking most of these large value notes are being used by people running illegal operations, such as drug smuggling, or prostitution.
Before the change to the Euro Germany was circulating the equivalent of about 135€billion in Marks. Probably a third of that was in the 1000DMK banknote (equivalent to 500€).
By the end of 2004 the circulation of the Euro was currency and coin was 501.26€billion of which 153.1€ billion was in the form of 500€ banknote.
You might argue a four-fold increase in currency made sense as the EMU has four times the population of Germany. But most of these countries had much smaller GDP and considerably less currency circulation. They also didn't have huge value banknotes.
Equivalent value in Euros for largest banknote of some countries absorbed in the EMU.
€29.35 Greek drachma
€31.96 Estonian kroon
€34.17 Cypriot pound
€41.73 Slovenian tolar
€46.59 Maltese lira
€49.88 Portuguese escudo
€60.10 Spanish peseta
€63.49 Irish pound
€76.22 French franc
The largest banknote of the Italian lira was worth €51.65, but the government released a banknote in 2007 worth€258.23 only two years before the exchange rate with Euro was fixed.
So suddenly every illegal drug operation in Southern Europe had ready accessibility to large value banknotes.
I realize that a very sophisticated criminal operation can work in any world currency, diamonds, even antiques. But everything must be transported, fenced, valued, and laundered. It just makes life easier to have a universally accepted currency where you put a large amount of value in a small carrying case (or in a body cavity).
In Aug 2013 the figures are 919€billiion in Euros in circulation and 288€billion in the form of 500€ banknotes.
I am in favor of Precious metals backed currency, rather than fiat.
Thank you for your comment. I think that ship sailed in WWII when large amounts of currency were printed to fight the war and governments went into massive deficit spending.
But it is helpful to use the price of gold as a gage. Gold is currently selling for $43 per gram ( or 31.8 euros, or 26.6 GB pounds). One banknote weighs about 1 gram. So the highest denomination banknotes are worth considerably more than their weight in gold.
It is another measure of how ludicrous it is to have a 500 Euro banknote.
Thank you for your comment. I think that ship sailed in WWII when large amounts of currency were printed to fight the war and governments went into massive deficit spending.
But it is helpful to use the price of gold as a gage. Gold is currently selling for $43 per gram ( or 31.8 euros, or 26.6 GB pounds). One banknote weighs about 1 gram. So the highest denomination banknotes are worth considerably more than their weight in gold.
It is another measure of how ludicrous it is to have a 500 Euro banknote.
Germany , having no gold at all anyway, was off the gold standard. So they created fiat currency to pay directly for industry , particularly their war making capability. That differs from our banking credit fiat that pays directly for asset inflation. See the difference? In Hitler's Germany, you work at a factory and the government prints money for the work. Here , you own some dirt, and the bank lends you money for the dirt. In one cause money is directly tied to production and the other not at all with industry being side effect.
In addition to this what happens when a country on a gold standard is attacked by one with an industrial currency? Same thing that happened in WWII, go off gold or lose the war.
Same thing that happened in WWII, go off gold or lose the war.
Sure, in WWII the government was spending way more than it was taking in. It also had to print much more currency than it could ostensibly back with gold. But after the war it went back to paying off the debt reliably and reducing it systematically throughout the 1950's and 1960'a.
We are now approaching the level of deficit spending in WWII in peacetime, along with massive Quantitative Easing. Doubling our currency supply since summer of 2001 is a kind of extending a liability with the hope that no one will switch to another currency.
There are already more $100 banknotes in circulation than $20's. With the new gold c-note being released next week, eventually I predict there will be more c-notes in circulation than $1 notes.
Sure, in WWII the government was spending way more than it was taking in. It also had to print much more currency than it could ostensibly back with gold. But after the war it went back to paying off the debt reliably and reducing it systematically throughout the 1950's and 1960'a.
We are now approaching the level of deficit spending in WWII in peacetime, along with massive Quantitative Easing. Doubling our currency supply since summer of 2001 is a kind of extending a liability with the hope that no one will switch to another currency.
There are already more $100 banknotes in circulation than $20's. With the new gold c-note being released next week, eventually I predict there will be more c-notes in circulation than $1 notes.
Its all from debt deflation. When banks lend money lots of money circulates . Prices rose to adjust to all that bank credit. So now that it all went bust the only thing to even prop up price levels from deflation is a public deficit. Call it the Great Sub Prime War. I alway ask people to pick one, bank credit, deficits, or depression.
Its all from debt deflation. When banks lend money lots of money circulates . Prices rose to adjust to all that bank credit. So now that it all went bust the only thing to even prop up price levels from deflation is a public deficit. Call it the Great Sub Prime War. I alway ask people to pick one, bank credit, deficits, or depression.
Of course our broad middle class has chosen more debt these past few decades, especially as their wages haven't kept up.
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