Several decades ago, the French manufactured, and with a straight face sold, a car. It was called the Fiat. Or at least that’s what I thought. I’ve since been gently but firmly told that the Fiat is made by the Italians. It should have been French, darn it! Why? Because Fiats were motorized garbage cans on wheels, rattling and sputtering down our roads, causing great amusement to everyone except the owners.
Hmmm, perhaps their poor quality had something to do with them being called Fiats.
The word fiat means: by decree, or authorization. For example, a king may, by fiat, declare the opening day of fishing season a holiday (and he should do so).
Or Congress might vote, then get a bill signed by the President, that bans all golf in the United States. So, Congress has the authority to forbid golf by fiat. Incidentally, this also would be a good thing.
Rush Limbaugh should be fishing.
Why am I concentrating on the word fiat?
Because in this country we have fiat money.
What is fiat money?
Worthless dollars, similar to the old Fiat automobile – neither worth a bucket of warm spit.
You should now ask, “How could fiat currency be worthless? I can still buy stuff.”
Only because the Federal Government by fiat, has declared that dollars have worth.
Allow me to explain by contrast:
There used to be another kind of money in the big wide world. Do any of you remember the silver certificate?
There was a time, several decades ago, when anyone could take dollars, which at that time were silver certificates, walk up to the Federal Reserve window and say, “Gimme silver.” You would be handed a small bag of silver in exchange for your silver certs.
Not any more.
So, in economics there are two kinds of money: fiat money and commodity money.
The problem with commodity money is you have to have the commodity, exactly as with the deed to a house, you have to have the house. A deed to a house would be worthless without the house to back it up, or the guarantee that you will get a house.
“Well gee!” you should now say in wide-eyed innocence, “Why would our beloved government with its honest, loving, hard-working bureaucrats and politicians want fiat money? Shoot, they’ve even removed the silver from our dimes and quarters. Why?”
Because dollars backed by gold and silver (called a gold and silver standard) are impossible to inflate – you can’t print silver certificates with wild abandon to pay bills.
And get this now, if the money supply can’t be inflated, bureaucrats are left with only one other option: raising taxes.
And that goes over about as well as Karl Rove at a Hillary for President pep rally.
Raising taxes cost GHWB his re-election bid, remember?
Okay, so are you beginning to understand this a little bit? If you are, it’s beginning to slowly dawn on you that with fiat currency, the Fed has created inflation over many decades, inflation being exactly and precisely the Fed printing more dollars causing each dollar to become worth less.
“Goodness!” You might say. “How could they have gotten away with this?”
Simple – you didn’t understand it. When anyone even breathed the word economics your eyes glazed over. So as our federal government has steadily grown (it’s now the biggest employer in the country) it has quietly inflated our currency to finance itself, counting on you not to understand, or care.
This is real easy stuff:
A commodity based currency cannot be inflated.
A fiat currency can easily be inflated.
So what’s wrong with a little inflation?
Perhaps nothing if you’re rich, aren’t on a fixed income, or like the taste of dog food.
Grimgold