Ink + Paper Doesn't Equal Value: Prechter on Fiat Money

By: Elliott Wave International

My dad will turn 84 this year. When he was born, you could walk into a Federal Reserve Bank or the Treasury and redeem your paper money for gold. It actually said you could on every piece of U.S. paper currency:

"Redeemable in gold on demand at the United States Treasury, or in Gold or lawful money at any Federal Reserve Bank."

You can't do that today, which helps explain why my dad is so grumpy.

But, seriously, I mention my father to make it personal. The move away from the gold standard did happen in the lifetime of some folks who are still around. Is that such a big deal?

Well, it is a big deal when the government unilaterally changes all economic and financial transactions, from having a basis in something, to ...

... A basis in nothing.

Now, a discussion of what money is -- and how society can have a convenient way to exchange goods and services -- gets abstract in a hurry, so I'll save that for another day.

I will use one not-so-common word, which is fiat. It sort of means what happened when God said "Let there be light." Out of nothing comes something.

But in the story of our currency, what we have is fiat money. As in, the Treasury and Federal Reserve put ink on paper and say, "Let There Be Value!"

The problem is: You can't create value from fiat.

Here's some context: The Federal Reserve Bank was created in 1913. The idea was to keep the financial system from hurting itself.

Did it get less pain? Well -- less than 20 years later -- "hurting itself" only begins to describe the pain of the 1929 crash and Great Depression.

The depression is why President Franklin Roosevelt and Congress moved away from the gold standard in 1934.

Was fiat money a real solution? Mind you, the government didn't make this huge change all at once. In truth it took about 35 years. (When things move slowly, fewer people notice.)

The real question is: Are we better off with fiat money?

Bob Prechter just published a full-blown reply to this question. He dedicated his entire March issue of The Elliott Theorist to answering it.

Please know that Bob doesn't write dry boring history -- because he's not dry & boring. He does connect the dots to today's banking system and economy.
Read the entire issue for yourself -- for free -- by starting your complimentary Club EWI Membership >>

This article was syndicated by Elliott Wave International and was originally published under the headline Ink + Paper Doesn't Equal Value: Prechter on Fiat Money. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

4 thoughts on “Ink + Paper Doesn't Equal Value: Prechter on Fiat Money

  1. PRECHTER? Jesus. Come on get serious. Bearish all the way up from dow 1,000 in early 80's to 11,000. At least Michael Metz gave in which gave a serious sell signal on the markets.

    Elliott wave: The absolute worst form of technical analysis there ever is or was, giving the rest of the field a bad name.

  2. Remind me how many times Prechter has predicted the forthcoming market collapse.

  3. Lol. This article reminds me of a joke.

    "What's the difference between a far-left liberal and a far-right conservative?"

    A far-left liberal lives in a delusional world where we could all have twice as much consumption by merely putting twice as many dollars in the hands of people who consume. Of course we all know that you really just get price inflation. On the other hand, a far-right conservative lives in a delusional world where we could have twice as much capital infrastructure by merely putting twice as many dollars in the hands of people who save. Of course we all know that you really just get asset inflation in that case.

    So which brand of delusion is ruling the country? It's simple. Look at the price of bread and milk vs 30 years ago, and the price of stocks, real estate, precious metals, and bonds vs 30 years ago.

    E very asset class in existence has swelled in price over the last thirty years while growing in "value" (based on earnings utility) at the slowest rate since 1933.

    In 1929, we had similar levels of inequality to today but the difference was we were on the gold standard. We all saw how that turned out. We will not have a normal economy until we reverse the massive income inequality that we started building rapidly in 1980. But at least we have been able to forestall Great Depression II to give us more time to collectively get our act together.

    1. "More time to get our act together"

      Sorry buddy, that time has long gone by. You mentioned 1980. That was also the year when the U.S. morphed from being the world's largest creditor nation ever, to the largest debtor ever.

      It's been all downhill from there.

      You don't recover from that, or "get your act together" until all debts are wiped clean off the slate, the HARD way. It's far to late to "fix it" as the GOP says, it's far too late to tax it, spend it away, or anything else away. The parabolically growing debt is an out of control monster.

      Go see "Godzilla" at the theatre and maybe it will turn on a little light bulb.

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