Fiat and Freedom
When someone asks you to define fiat money; the answer is very easy. In simple terms its money that is backed by nothing other than lies or fake promises that a given country will pay all, it’s debts.
The danger for emerging markets, which often rely on short-term foreign capital, is that they’ll end up scaring it away — and reviving inflation — by flooding the system with newly created cash.
Already this year, developing economies have seen outflows surpassing the 2008 global financial crisis, with Brazil’s real and Mexico’s peso among currencies to plunge more than 20%. Such losses, in turn, make it harder for governments and business to pay debts fixed in dollars.
In short, the risk is that these countries trigger a financial meltdown as they try to contain the economic one they’re already in.
“We can expect a larger number of emerging markets abandoning their fiscal straitjackets as the Covid cases mount and recession deepens,” said Chua Hak Bin, a senior economist at Maybank Kim Eng Research Pte. in Singapore. “Monetizing their fiscal deficits will risk a sharp currency sell-off, which can spark a deeper crisis, given their dependence on external and foreign-currency financing.” https://yhoo.it/3bURiwM
The rest of the world cannot duplicate America’s deadly ability to create money out of thin air with almost no consequence. Before you start to say, look at how Gold is acting; if one looks at it closely, it has yet to test its old highs. In the interim, the money supply has almost tripled since it topped in 2011. We are hard money fans, but we are not gold bugs or hard money fools. The masses have been conned, so the idea that Gold will soar to the moon is plain rubbish. It will trend higher, but it’s not going to outpace AI stocks and a host of other sectors.
Furthermore, deflation is going to be the factor focus on going forward as companies replace humans with machines. The coronavirus pandemic has already resulted in a host of new technologies being tested, and when the testing is completed, a host of jobs will be eliminated forever.
The Fed has pulled a Houdini, flooded the markets with money and triggered demand destruction in several sectors. Fear is a powerful tool to employ, and the top players have used it with insane precision. It’s terrible news for the crowd but good news for the astute player. Sadly, everyone cannot win when it comes to life and investing in general. There is a good chance that the Euro could end up trading not only on par with the dollar but well below the dollar, but that is a discussion for another day. Just remember though, all of this free money comes at a price. What’s the price, you say? Personal freedom; Gestapo type forces start to emerge when the printing press runs amok. So given this trend, the US and many of the so-called top retirement places will continue to lose rankings. Fiat money and freedom are not a happy couple.
This chart indicates why housing prices will continue to trend upwards in the long run. Ultra-low-interest rates fuel bubbles, and there is a good chance that rates could head into negative territory. If you want to define fiat money in another way; it is an instrument that has helped fuel every bubble since we got of the gold standard and it is the sole reason why the rich get richer while almost everyone gets poorer.
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