Fiat money turns 40, the tragedy goes on
Forty years ago, on Aug.15, the US dollar became backed by a promise from the government instead of gold. It was a mistake that's not too late to remedy.
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Fiat money attempts the miracle of turning stones into bread or, rather, of exchanging paper for cars, electrical appliances, and luxury clothing. It's the wonderful feeling of spending and consuming without the necessity of producing. Through fiat money, the richest and most powerful countries have also become the most indebted.
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This is the institutional blog of the Ludwig von Mises Institute and many of its affiliated writers and scholars commenting on economic affairs of the day.
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Unlike the 19th century, when the dominant power (Britain) accumulated surpluses, and the emerging nations ran into debt, now just the opposite happens. The United States' external deficit and his twin brother, the public deficit, absorb the bulk of world savings, while emerging countries, most remarkably China, lend to them. And it seems that China — the largest single holder of US government debt, with more than 25 percent of all foreign-held US Treasury securities — is not resigned to stay passive while the value of its holdings is decreasing.
The United States — even when it was born in 1776 from a libertarian revolution against the arbitrary despotism of a British state that wanted to impose taxes without consultation — has in its DNA the genes of public spending and unlimited government growth. Today's United States of America has nothing to do with those of Thomas Jefferson. The founding principles were forgotten a century ago with the creation of the Federal Reserve in 1913, the explosion of government spending, and the consequent increase in taxes and debt.
Conclusion
We can continue the journey started on August 15, 1971, or acknowledge that it was a tragic error of dire consequences.
Defenders of unlimited Leviathan advocate additional doses of quantitative easing and the creation of a single currency controlled by a world central bank.[2] Along this line, major central banks could take unified and oligopolistic action under the pretext of coordinating monetary policies. This would mean total disaster and the ultimate triumph of the system that has led to the current crisis.
The alternative is a return to sound money, a restoration of the true currency, spontaneous creation of the social order, and a rejection of the meddling of governments and central banks.
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