Ask HN: Can someone explain these documentaries about USD or fiat money to me?

14 points by Crazyontap 3 years ago | 14 comments

There are a lot of documentaries (1) (2) on Youtube I'm seeing since 2020 which keep saying that our money (specifically USD) has become worthless ever since Nixon removed the gold standard in 1971. Is there any truth to it or is just clickbait spam?

I would reckon it's the later since the claim sounds like a Flat earth claims, but recently I saw the same claim from a creator I really trust and follow for a long time and so I'm asking here as I see if anyone more knowledgeable can explain this.

tldr:

1. The fed reserve prints money and asks treasury to print IOU. People buy these IOU essentially giving loans to the US govt. The govt then pays these loans back by printing more money by creating more IOUs and so on and so forth.. so they are saying it's like a Ponzi scheme.

2. Previously there had to be gold equivalent but since 1971 this was removed. Now all other currencies are based on USD, yet USD which was once based on gold isn't anymore..

3. There are more points like these govt trying to decrease price of gold, inflation, etc but don't understand economics too well and skipping it for brevity.

But surely there is more to it? Can somebody ELI5 this? Is there even a morsel of truth to these theories?

1) https://youtu.be/cTMna_vYDJg?t=667

2) https://www.youtube.com/watch?v=mQUhJTxK5mA

constantcrying 3 years ago |

The central question here is "what is money". The general argument you are laying out is not some "crackpot theory", it is one alternative of how you can conceive of money. And in fact that conception of money is the one which has been dominant throughout nearly all of history. If you think of coins in history, they were valuable because they contained valuable materials, they had inherent value. This concept of a "gold coin", which is valuable as a piece of gold, translated into paper money as a piece of paper representing the inherent value of that piece of gold.

This is quite different to the modern conception of money which does not represent anything besides itself. The reason a banknote is valuable is not because it represents something actually valuable, but because the government enforces it as a means of exchange and you are thus able to use it to purchase goods and services.

None of these theories are "wrong" or "absurd", they are both valid ways to look at money. The reason people care is because in one scenario the government clearly has more control over it, if you imagine yourself as the central bank of the roman replublic, the only way you can create new gold coins is by actually acquiring gold to make them. You can inflate the currency by reducing the amount of gold in a coin, but this obviously does not affect the gold value in already existing coins. With modern currencies things look very different. Creating new money is trivial, the government can create it from thin air. And thus the government has to be far more responsible with its greater power.

The whole thing gets infinitely more complex, but at the core is a debate about the question of what money actually is.

PaulHoule 3 years ago |

Those people want to be

https://en.wikipedia.org/wiki/Goldfinger_(film)

when they grow up. The USD is backed by the "full faith and credit" of the US government which has the power to tax the productive capacity of our farms, mines, manufacturing, service and financial economy. Gold is limited in supply, I grant it that, but the existence of gold is not linked to the existence of productive capacity for anything else people want.

The best argument for gold is that the demand for gold has existed for a long time, I read somewhere that a Roman might have been paid a few pounds of gold a year which is about what an American might get paid if they got paid in gold. The best argument against it is that there is not enough gold in circulation to support a modern economy without the value of gold exploding to the point where you'd have a very hard time measuring it out. That's why goldbugs are really betting on the collapse of civilization, like that guy in the Bond movie.

david927 3 years ago | |

You're right in some places, but it's more complex than that.

Yes, the USD is backed by the "full faith and credit" of the US government but the Petrodollar's global reserve status is fading. Saudi and Russia are both gearing up to trade oil to China in Yuan, for example. America's debt has passed 100% of its GDP and it has entered a period of high inflation. If the BRICS countries introduce a common PM-backed currency, it could present a better store of value than dollars and that could mean the end of the dollar's good run.

> gold is not linked to the existence of productive capacity

Industrial demand and investment demand are two different things. Silver has high industrial demand but that doesn't make it any better or worse a choice than gold for backing a currency.

> The best argument against it is that there is not enough gold

I'm not sure that's an argument against it. Also maybe it could be silver, or a basket which includes both.

mikewarot 3 years ago |

In 1960, a US quarter bought about 0.80 US gallon of gasoline.

In 2022, a US quarter will buy you about 0.06 US gallon of gasoline.

In 2022, a 1960 US quarter's melt value will buy you about 0.95 US gallon of gasoline. (Gasoline production is more efficient, despite higher taxes)

Hard currency limited how much money could be added into the money supply through lending. Now the value of the US dollar is largely the result of our military leverage forcing oil producing countries to price their oil in US Dollars.

This makes us the "Global Reserve Currency", and "more stable" than the rest of the similarly floating currencies.

johnrgrace 3 years ago |

There is nothing in these theories.

If you want good information you don't go to youtube videos. There is a huge crossover between gold standard videos and a lot of other fringe and hate group ideas so I'd really suggest you don't watch them.

Just the wiki article on the Gold standard is going to be much better https://en.wikipedia.org/wiki/Gold_standard

If you really want to understand read any editions of economics by samuelson from after 1980 that textbook has been in print and updated since 1948.

boppo1 3 years ago | |

I'm not a gold-bug, but LIRP & ZIRP have been catastrophic for the economy. Theranos, Crypto, WeWork, Housing bubble, "big tech" i.e. advertising, Meta and it's 'verse', ridiculous VC ESG greenwashing, the list goes on. Meanwhile companies delivering value now have had to compete with these "growth" companies for capital, so they've gotta shrink margins for higher returns.

I agree most of these 'documentaries' are bunk, but there are legitimate criticisms of CB policy and the mainstream macroeconomics that advocate interest rate intervention. An equilibrium interest rate and its predictable boom-bust cycle honestly seems preferable to what we have now. You watch bloomberg and it seems like everyone and everything hangs on the next rate decision as if we were in a centrally planned economy. Wait a minute...

What I really want to know is how Greenspan went from writing 'Gold and Economic Freedom' to playing fast and loose with easy money.

jtode 3 years ago |

The existing responses are already covering the up-front question quite well, and they're even pointing out that there is crossover to much more obviously questionable stuff in the distribution channels where you find them.

On a more basic level, I generally require a documentary to present coherent ideas in a coherent way, and call me an egotist if you must, but if I come away from a documentary feeling like I'm not understanding an idea, I chalk that up to a failure on the part of the documentarian to present correctly, rather than a failure on my part to understand.

A failure, or in many cases, an attempt to exploit personal insecurities as a memetic vector for bad social ideas. If you can be made to feel a strong sense of mental inadequacy before a very complex system that is show real problems in the world, you are just a step away from being convinced that even worse ideas than those currently in play are somehow the solution, or at least, that enacting those ideas is less worse for you. Video art in the hands of skilled manipulators can help make entire nations do horrific things.

quickthrower2 3 years ago |

> USD has become worthless ever since Nixon removed the gold standard in 1971.

This is verifiable by looking at inflation figures. But of course the question is was it caused by coming off the gold standard, and was coming off the gold standard a bad idea? I am not an economist or historian, so I don't know. I can see the argument for having "control" over your nation's money rather than rely on some fluctuating commodity. Also would a gold standard cause gold wars? On the other hand, if you peg to Gold, there is less scope for a nation to "cheat" it's citizens.

These films and in general the ideas, such as calling money "Fiat" as an insult, talking about creating money from thin air, and so on have been around for a long time. Often they leave out important details. Yes you create money from thin air when a bank lends you money. But they create equal credits and debits, take on risk, and need to fund the operations of the bank, and perhaps pay interest in an almost guaranteed way (with no guarantee of the loan being repaid). So the bank is providing a lot of value there, and is no different to a bakery creating bread out of ingredients and taking a profit.

I think I ready once that the inflationary effect of the new money is countered by the interest obligation, so it doesn't tend to lead to hyperinflation. And by setting the base rates, central banks can try to contain inflation.

I think it is a bad idea to keep money long term as cash. It is designed to lose value over time. I am sure I will lend my kids or grandkids a million dollars in the future. Not because I am rich. Maybe just enough to buy a car :-).

I kind of think you should see decent assets, as defined by your research, as "money" and dollars and cash as "a convenient but expensive tool to do trade with", if that makes sense.

manv1 3 years ago |

Let's take a step back and go back to the three pillars of currency. The consensus is that for something to be a currency it needs to be:

* a store of value * a medium of exchange * a unit of account

You can stake another step back and say "what does value mean?" If a currency is "shells" then presumably it's that way because everyone values shells. If you don't value shells then the currency is worthless.

In short, value is what everyone agrees value is.

Now let's go back to when the gold standard was in effect. Back in those days you could exchange your USD for some amount of gold. Great! But so what? Today you can also exchange your USD for some amount of gold - it's just the amount is variable depending on market conditions instead of fixed.

So what's the difference between the two scenarios? Nothing, really. The "fiat currency" people try to argue that removing that fixed peg suddenly invalidates a currency. In reality the value of a currency is pretty much (and has always been) determined by how useful other people believe that currency to be. All of the "full faith and credit" etc are there to provide a foundation for that belief. For example, the US government has never defaulted on its debt obligations, including the pre-colonial debt obligations. That provides holders of the currency with a pillar on which they base their belief in the USD. In addition, the USD is used in trillions of dollars per day of transactions, bolstering its mindshare.

Digital currency is sort of the ultimate evolution of that idea of value being belief based, because there's literally nothing behind digital currency except belief...period. There is no "full faith and credit." Nobody stands behind it. That's why it's amusing that digital currency fans try to denigrate real currency by calling it "fiat currency." Digital currency is the ultimate fiat currency, in that its value is completely based on belief.

As an aside, hyperinflation occurs when people basically lose faith in the value of their currency, so the government tries to print more currency...which reduces the perceived value...which causes people to lose faith...etc. It becomes a death spiral.

The US is unusual because it seems to be able to print as much money as it needs without ill effects. If other countries behaved as the US does they would have the IMF at the door and debt markets abandoning it.

david927 3 years ago |

I don't know if it's easy to explain but history is certainly filled with examples of monetary policy gone off the rails.

The Nixon Shock in 1971 set off a chain of dominoes that can be seen here: https://wtfhappenedin1971.com

Detaching from a base allowed for central banks to print their way out of financial setbacks but that only delays the effects and makes them worse. The US Dollar survived for a long time because of its attachment to oil (the Petrodollar) giving it special status but that's all eroding now.

Up until recently the world used to revolve around the US Dollar, but now the world is slowly becoming multi-polar, splitting with BRICS economies on the other side. What will happen next is anyone's guess.

> Is there even a morsel of truth to these theories?

In my humble opinion: Yes. More than a morsel.

fedeb95 3 years ago |

If you think about it there's not much difference between fiat money and something pegged like a gold standard. Rich people and the government control it. According to "standard" economists having the gold standard was bad because you couldn't print more money than the total gold around, thus making for an inefficient system (that's the way I got it). Today the theory that fiat money is worthless is pushed by people deeply invested in crypto, because lot of crypto have a fixed market cap. Whether something is better or not I don't know; just think that in both worlds there's people profiting off their theory acceptance, so be careful out there

hiworld15987 3 years ago |

Check out the book “Money: The True Story of a Made-Up Thing“ by Jacob Goldstein. It explores this topic and more.

HappySweeney 3 years ago |

Not to say the other takes here are incorrect, but I believe this is the opening of an anti-semetic funnel.