This article is an adaptation from a section of Sharif Rahman’s latest book which concluded his detailed explanation on gold’s multitude of failures. His latest book is titled, “Kegagalan Emas Sebagai Matawang” and is sure an exciting read because he also took the time to explain the justice of “interest”.
Ever wonder why the money in your hand is considered valuable, even if the paper it’s printed on is just that, mere pieces of beautiful paper? Many gold bugs made the silly accusation that these pieces of paper have no value and are no match when compared to their shiny gold bars and coins. They claimed that the Ringgit’s value is simply being dictated by the government and the government is forcing the people to accept it. Thus the typical word they used to badmouth the currency is “fiat”. Fiat means decree, and a long time ago, that was the case. However today, our paper money is no longer a mere fiat currency, it is a currency that is soundly backed, and the backing is far superior to using gold as the support.
In 1971, President Richard Nixon bravely defied these gold bugs and decided to go for an entirely different backing for the United States’s Dollar. The result was a better world, a world which has achieved economic growth unparallel at any time of human’s history on this planet. Gold was relegated into the pariah of money; it is no longer needed, and is only being kept because of its shininess. Since then, the gold bugs predicted that the paper money system would crash and fail, and each time, they were proven wrong. To understand why they were wrong, one need to understand what is actually backing paper currencies the world over.
When a house is built and then the house is to be sold by the owner, money would be demanded from the central bank. This money is then printed and then given to the house’s owner, in exchange to the house’s title. This very swap powers the issued money and gives it its backing. The issued paper money is backed by the built house. Such a simple concept and straight to the point, yet why would anyone then wants a shiny useless piece of metal to sit in between of the two? Wouldn’t that bring a whole array of possible problems? What if there is a shortage of the metal? What would happen to the valuation and trade? All of these issues had been encountered repeatedly in the past under the old economic system and gold has created so much misery, that in the end it is best if gold is removed.
Each issued piece of paper money is backed by asset in the economy. These assets are far more valuable and far better than gold. Gold has no value of its own. In fact, gold was shown to steal from other objects their intrinsic values, and implanted it into itself. If you have created new wealth in the economy such as a new house or a new invention, why would the gold bugs describe your creation as value-less unless some gold is also attached to it? And if no gold could be found, your creation would be considered as “not wealth”. In fact you may not be able to trade without gold, which demeans the creation and the sweat of human beings everywhere.
Gold bugs love to say that paper money is only good for toilet paper, but do you notice that they only accept paper money in all of their gold trades? In fact they will probably clean any paper money of feces should they found some in the toilets! Who wouldn’t want free money right?
How much money was printed so far in Malaysia? To be precise, how much paper money was printed and then circulated into the economy? Based on 2013 data, there were 62 billion Ringgit worth of combined Ringgit in circulation in Malaysia. This sounds like a lot, but it is really not. On average, it is barely RM2,000 per capita and is really not that much, considering a typical monthly salary of RM3,000 or more, per capita. If everyone’s receiving RM3,000 in salary on average every single month (actual average salary is much higher as per Dept of Statistics), why there is only RM2,000 of paper Ringgit in circulation, per person at all times?
To answer this question, one must take into account the velocity of money, as it travel from hands to hands, person to person and one also must take into account the fact that most of their monthly salary is paid directly into their bank accounts, which do not require paper ringgit to be printed and circulated, until it is actually withdrawn. Not everyone would withdraw their money in its entirety the day they receive their salary; most people withdraw in small amounts, over a period of time. It is clear that money is only printed, when it is demanded, not based on statistics or other assumptions. And the swap will occur only when real asset is presented.
As long as the money sits in the bank, it will enjoy a beautiful automatic compensation mechanism. This mechanism eliminates the threat of inflation. As long as your money is connected to the banking system, it will not devalue as widely claimed. It will self adjust. When the Ringgit devalues, it does not mean you are automatically poorer by the same margin. In fact in many cases, the only portion that devalues in such an instance is the paper ringgit circulating in people’s hands, not their real assets such as houses and cars. The real assets would keep their value and adjusts upward during such an event. When the ringgit devalues, the price of goods would generally go up, but so do the value of your assets. In short, the impact can be quite muted. The performance of the economy is much more important than the mere flow of foreign hot money in and out of the country which influences the currency’s value in the daily foreign exchange markets. It may just not be significant or big enough to alter the general economy and the wealth of the people.
So what’s backing the printed ringgit in circulation?
The answer is as you have already guessed; it is you and your assets, as well as your friend and his assets, his friends’ friends and their assets. In short, it is backed by all of the real assets of the economy.
How much asset are we talking about?
There are 3,400 billion ringgit worth of hard asset, backing up the mere 62 billion ringgit of printed money. That’s a whole lot of asset, for so little money. It is just 1.9% of the entire wealth of Malaysia. This shows that Bank Negara did not issue more money than necessary (generally) and for every ringgit issued, there are more than 54 ringgit worth of asset, backing it up.
The value of a currency is influenced by many factors. If more is printed than demanded, the value would drop. If the economy tumbles, the currency could follow suit, but not necessarily the case. For an exciting read on exchange rate, read my other article here (https://1-million-dollar-blog.com/exchange-rate-trap-ringgit-vs-singapores-dollar/)
Printed currency issued conventionally by the central bank is not to be confused by government issued money via reckless borrowing. This politician’s issued money is inherently different than the central bank issued money. The main distinction is that for new money to be appreciated and valued, it must be “asset backed”. When the central bank prints money and inject it into circulation, it is done by issuing debt papers. This can be counterintuitive, but this is very necessary for accounting purposes and often, this debt issuance leads to confusion to the general public, including many economists as well! Why would the government need to go into debt in order to issue its own currency? In reality, the lengthier version of the words of the debt for money issuance is actually, “Asset Backed Money Issued Via Debt Instrument”. This full term is more explanatory but never used in the media and books. The second distinction between politicians’ printed money and central bank’s printed money is of course, the issued money must be demanded in the first place, not simply printed and injected.
Remember the house built and swap for ringgit earlier? What if the holder of the bunch of paper ringgit would not want to hold any more paper money? In this case, the person can simply go back to the central bank and give back the money, in exchange for the original title of the house. So finally, each ringgit issued earlier will be extinguished and the system goes back to its previous state, except that the owner of the house could be a different person after it went through many trades. Money as it is, is really a medium of exchange to facilitate trade; it is frequently mistaken as a mean to store value which is not designed for (except for short term as explained in the book). So what item can be a permanent store of value? To find out, you will have to read the book!
The author can be reached via his website at http://sirikegagalanemas.wordpress.com and his books, including a free away book, can be sighted in Google Play. Sharif Rahman also is the co-author of the 259 Trillion Vs 5 Trillion series which can be obtained from Amazon.
A point of contention is whether a currency that can devalue as it like suitable to be a legal money tender. The article may say that currency is asset-backed and in itself store value of the purchased, such as property. Due to the fact currency can be printed indefinitely, the same amount of money in the form of currency use to purchased is very much different from the amount of currency get back when the asset is sold. it might be the case, the asset isn’t appreciating but the currency depreciated at a vast pace.
Currency such as the RM is a legalized money use for tender/trade nowadays which is a fiat money. Historically, money can be a currency, objects of trade or even gold and silver once in it’s lifetime. It’s just what people perceives, believes and legalize it at that point of time. There is no gold or currency bias, just that the market tries to find the right form of money.
As for Nixon’s decision of removal the US to gold pegging, it gave the economy the freedom of manipulating the supply and demand of money. Time has already shown that money printing brought more catastrophe rather than economic growth, even the growth is largely from debt and excess money printing. It has benefited group of people or organization manipulating the money, but not to the masses.
Laurent, to clear the misconception like yours, i’ve decided to write the book. I hope you will read it so you do not continue to have the wrong understanding.
In the book, I explained why money is not really for a store of value, it is mainly as medium of exchange, and it stores value temporarily. Most trades in the economy took seconds, some in minutes. How long does it take for you to buy a cup of coffee? But some trades take weeks, some, months. Buying a house for example, could take up to several months. In terms of currency devaluation, it is typically 0.2% or so in a few months period. This protects buyers and sellers. You knew full well gold devalued 30% in just a few weeks, so it is a bad money.
Again you mentioned money as being fiat. Where is the decree of the gov declaring the value of the money as fiat? In 1998, it was sure a fiat, but not anymore (since 2006). You simply claimed that people simply collectively believe, perceiving the value. Where is the calculations? Are you saying everyone’s simply believes? There is a real math into it, nobody would simply pay more than they should. Why do you complain and stop buying the 20 cent plastic bag every saturday? You spent 150 but won’t spend 20 cents for a plastic bag? I see this every week. This is not perceive value, people actually calculates that 20 cents for a plastic bag is injustice, nobody would pay. Same with currencies, people actually calculates how much it could buy (based on income etc). They don’t simply believe. Again, this is a bogus perception without proofs and logic which should be debunked.
To answer about the Nixon’s statement you made without clear proofs, i already explained it in the book. What you wrote is an insult to the people of that age and time. You never bother to read and understand why and make presumptious claim that it will fail. Contrary to what you are saying, the world thrived. In 30 yrs, we lifted more than a billion people into the middle class. That’s a billion, not million. And 50 million or more into the top 5%.
You mentioned about manipulating money, who is manipulating money? Can you provide your proofs? Again, gov are transparent and they changed the money supply for clear reasons. This is publised widely. Not benefiting the masses? Benefit a few org? Who were they? Are you saying gov is under order to devalue the currency to benefit some organizations, and some powerful and rich people? What benefit this rich people gained when their asset devalued? Your statement does not make sense.
Again, this is debunked in the book.
Don’t go around and simply claim things, you will need to understand clearly.
I welcome more comments from people like you.
Hi Mr Sharif,
Firstly, I would need to be honest I have not read your book. Misconception is a form of art. Money indeed is a medium of exchange and as I have pointed out earlier, at the age and time now, currency is the form of money used at the moment. No doubt it’s a legal tender. The terms of currency devaluation as described by you can’t be fully defined as around 0.2% as it very much depends on the economic decisions made throughout the world now by global leaders, as well as supply-demand. The same devaluation can happen for money, as well as gold. For example, the fast depreciating ringgit now as compared to early last year. Long time ago in history, precious metals such as gold, silver etc are used as the legal form of money at that point of time. Some time in history after that, currency is created as a form money backed by exchange rates to gold, silver, silk etc. But in practice, however, they could not be redeemed. This started the fiat currency till today. My contention is that currency as a form of money is flawed and comparatively to gold, it’s far worst. Reason for this is the very fact money can be printed at any amount of rate.
Currencies being fiat money is very much stated in the currency note defining the legal tender value of the piece of paper. I do not know much strong decree besides that. For the perceived value or I should say inherent to us, you are looking rather microscopically. In any form of money, being currency, gold, digital money etc, people will calculate the value of the exchange. In it’s any (money) form, it’s used to purchase asset and goods. I’m not sure your justification since 2006. Each government issued fiat, an official declaration, that the paper notes were worth a set of amount. Increasing the notes supply uncontrollably, led to a precarious scenario which the notes slid in value. Movement in either direction needs to be controlled, if not it only serves to self-reinforce. Once public sentiment erodes, the value of the fiat currency is no longer centralized. In the end of it, faith in the currency is needed (the perceived/inherent value). Once that’s gone, the government’s rules are gone as well as the decree. We have seen historically currency or a form of money being replaced by another , in Malaysia the Banana money, while in US, the Confederate dollar. Both of them have their own perceived value at a certain point in history.
On your comment about Nixon, I cannot reply to what you have covered in your book and your clear proof if any. It’s not an insult as I’m merely explaining the fact this event produced a pure fiat currency and the dollar subsequently plunged by a third during the stagflation of the 70s. Following your claims of proof, I would like to ask the same for your statement lifting a billion people into the middle class. Do realize in terms of inflation, a thousand ringgit before makes a person middle-upper class, but a thousand now makes a person lower-middle. Imagine what’s it going to be in the future. If you are still referring to the currency as a form of money, it didn’t bring us to the middle class.
Again, the statement of proof, which is very much evident in the context of this country. The mere excessive printing of money by the US, Japan and even EU now are the very evident proof of money manipulation. No doubt QEs around the world has help a lot of companies from going under, including bailouts, as well as allowing the economy to float a little while longer. I’m not entirely sure whether you feel the RM, as it’s in it’s own depreciating mode now, consider benefiting to the masses like us.
It’s good to find you as a positive backer of currencies, although I’m curious on why but I do hope it will prosper. What I’m trying to say is there isn’t a clear distinguish between which one is better, gold or currencies. As we are finding out the past few years, currencies are becoming more problematic than gold, creating bubbles and inflation around the world. Saying this is better than gold is a long stretch. Lastly, replying this note doesn’t require going around and probably it’s just a simple claim but it needs to be understood clearer.
You are welcome.
Dear Laurent,
Thank you for your valuable feedback. In order to sort through the arguments, I normally would use maths and with the help of a good friend, this is rather easy. A computer simulation will definitely help. First the evidence, let me line it up for you:
1. Number of middle class
In 1975, after the removal of gold, number of middle class of the world was 809 million. In 2015, it is expected to be 2.3 billion. Numbers for the world’s poor, is even better. All of these are miraculously performed while the world’s population grew by more than a billion. This can never and has never been achieved before in the entire history of the world. Check the writing of Bill Gates for 2014 and also Franklin Templeton, who displayed the data.
Why using our present monetary system and currencies made this possible, saving the planet trillions every year? You will have to read the book.
2. Gold’s flaws were itemized in the book. It is far worse than paper money. Really, really bad. With charts and lots of data, you will get tired reading it! But I know, for some people, no matter how much data is given to them, they will never accept. They are hooked on their shiny metals, nothing much we can do. They even willing to kill, this is also mentioned in the book. You seemed to be very open, so for you book 2 of the 259 Trillion series will be very good.
3. You mentioned inflation many times. Now what you don’t realize is, it actually matters little. Read book 1 and then book 2 of the Siri Kegagalan Emas. It is all in there. Even the fall of Turkish Lira does not impact the classes much. In fact, even in Malaysia, this is clearly proven in 1998. [The 2006 refers to the removal of the peg of the Ringgit, now it is floated again, thus becoming paper money again.]
Regarding decree on fiat currencies, many people mistaken the word “fiat” and today’s paper money. They are not the same. A fiat is a decree saying a currency must worth xx of say silver or gold. That’s pre 1974. When say a new currency is created, it is given a value based on the asset backing it. The moment in enters circulation, it is free floated. There are no decree decreeing its value anymore. Therefore you will not find such decree for Ringgit or Dollar for example. The people set the value. This is post 1974. So now what you have been saying is actually for gold backed money, which is decreed and essentially a true fiat money! Sorry to spoil this to everyone out there …
Defining legal tender, how do they defined it? Can you imagine now for once, create your own currency and issue it. You can set the original legal tender value, up to you. Then float it. You will understand it. No decree.
You mentioned about “Movement in either direction needs to be controlled,”. That is very correct. Why it requires control is well explained in the book. I am sure you have some basic understanding of it. In case of gold backed money, too much gold, too much problem. Too little, too much problem still. Please imagine that. This is proven throughout history, time and time again.
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Banana money is mentioned in the book. Reading it will give you more understanding about money and its purpose.
The creation of paper money saved trillions for us, every year. Before creation of paper money, people barter. How much does it costs to barter? Check a barter center, people are charged more than 15% of their trade’s value. Have you heard of barter center? Then paper was used, and gold is used to back it. Gold will tax up to 85% of each issued paper money, to be paid to gold dealers, before the money is issued into the economy. These days, this is not done anymore, and saved us trillions all right since bartering days.
For QE, it is money printing. But it is printed for a reason clearly stated by the central banks. It is not a bail out of corporations or banks. Please read an article in 259 Trillion Blog for an understanding of QE. Currently, ECB of Europe embarking on QE. They stated why they are doing it very clearly. The ultimate beneficiary are the many citizens of Europe, and the ultimate losers are assets owners, albeit for short period and temporary. Similarly, Japan is doing the same. Only one problem with QE I would like to state. It encourage the gov to borrow a lot more, which is not good for the economy. This is proven over and over in Japan.
Before I end this reply, I want you to think a little bit about GDP. It can be greatly misunderstood, especially by economists themselves. Imagine the numbers for GDP when electricity production and consumption is based on 100w light bulbs. Say it generates 2000 GDP. Imagine when LED bulbs are used, with only 8W. Now the GDP for electricity production and consumption will shrink by 92%. Tell me, is this good or bad? GDP down by 92%? Please ponder it and think about what is happening in our general economy as new techs making us ever more efficient.
Thank you for your comment.
Dear Shahrif,
Good to have the feedback items sorted. I have differing
or opposite views to what you described. But in the end, there are a lot of camps with different beliefs. In reply to your feedback:
1. A point to ponder whether the increase in the number of
middle class is directed due to the present monetary
system. The value of money is shrinking due to the
excessive amount in circulation. As I have implied before a millionaire previously is consider rich, a millionaire now is consider comfortably rich and probably a millionaire in the future is consider poor. All this because of the currency becoming worthless as a form of money and storage of value.
2. Don’t get me wrong, I’m no gold fan. Just that paper
money is getting more and more worthless now. As for your
statement that “A fiat is a decree saying a currency must
worth xx of say silver or gold”, this is not the right
term. From investopedia, Fiat money is “Currency that a
government has declared to be legal tender, but is not
backed by a physical commodity. The value of fiat money is
derived from the relationship between supply and demand
rather than the value of the material that the money is
made of”. The currency we are using now is based on just that, supply and demand, not of any asset backed. As it is, holding asset like property for example and to a certain extend precious metals, is a form of wealth storing while currency is losing it by devaluing more and more (which is in stark contrast of your statement that the ultimate losers are asset owners). Any form of currencies are used as a legalized entity of trading at a certain point of time in history, as in banana money etc.
3. Regarding QE, no doubt there are reasons for the money
printing. In this round, to buy up all the debts in the
form of bonds and to make it magically disappeared.In the
end there are ulterior objectives of performing QE, but in
all the times in history when this happened, excessive
amount of money printed is not retracted back as it’s
supposed to, retaining the devalued money in the system and
inflation that caused by it. And soon come the next round.
4. You are right about new techs making everything more
efficient, which come into mind that eventually paper money
ceased to exists and being replaced by another. Probably
digital in nature.
Well, I’m no writer of any books as you try to promote, but I do found out a recent one which is eye-opening such as I would pretty much recommend to read “Second Chance by Robert Kiyosaki”. Peter Schiff, Marc Faber, Marc Mobius, Jim Rogers to say a few have provided their own comments as well. In the end, a lot may brush off the items as conspiracies or half truth, but eventually a lot is what’s happening now.
Dear Laurent,
Please read the Siri Kegagalan Emas for full understanding. It is in Malay however, I hope you can read it. I explained at length, why inflation will not matter much.
Answer this, the USD has devalued by 95% since 1913, meaning holders of the original USD will be 95% poorer. Yet, today America is the richest country in the world. The poor in America is the rich of other countries. They live like kings, with airconds, tvs, cars etc. How can Americans become the richest in the world, yet the currency devalued by 2,000% (in reverse negative term)? I don’t buy this silly argument of devaluation due to inflation. If you can answer my simple question here, then you will know why it never matter.
For your point number one, you didn’t show the data. I have shown this data extensively. It is also available for free in 259 Trillion blog. Perhaps you should read it first. What you are saying is the millionaires are not rich enough due to inflation. But the real fact is, the millionaires are far richer today then before, and the prices of goods are far cheaper too. Contrary to your understanding that the money cannot buy as much, actually it can. In fact it can buy much more. Just a few years ago, you can’t buy 3,000 MB of storage for a thousand dollars. Today you can buy it for a hundred dollars. TV? A few yrs ago you can’t buy 60 inches without selling your house. Today you can. Yet the pixel quality is as if you install FOUR 60 inches television in front of you, for get this, cheaper price! Handphones? No need for me to elaborate, it is so cheap today. Cars? Same as well. So too many other items out there.
Therefore the argument that our currency is dropping in value is not clear cut. There is something nagging..right? There are fuller explanations in the books. If you can’t read Malay, you can go for the 259 Trillion series. It is longer, but it will quell your thirst, I am sure.
For your point no. 2, that’s the confusion regarding the word fiat. This is just like the word “gay”. Today it means differently everywhere. Fiat is a Latin word for “let it be done”, which is a decree. Long time ago, rulers ruled by fiat. They can put value on their currencies and decree it be so and so. Today however, it is simply not the case. Today we have paper based money, backed by assets. It is not fiat. Your typical text books also will mention that currencies are issued by debt, by it is not the whole case, due to misleading terms.
You are certainly wrong on the point that money is based on supply and demand, not asset backed. If you think that is the case, please print some beautiful money for all of us, and let’s see whether people will accept it or not. Try decreeing it so as well. Nobody will accept your paper money for whatever worth you want to put it on, unless you have one thing with you. Can you guess what is that? In fact, I can print you several pieces of paper money right now and issue it to you, and it will instantly be valued, if I have something with me. What was that thing?
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For your point no.3, this has been predicted in the last 5 yrs, nothing happens..this is a wrong assumption because the reasoning for the QE and the actions of central banks today are different than a long time ago. Like you, I have doubt that the central banks will retract the money, therefore it is safe to bet that they will let inflation go to a higher end of the acceptable limits..maybe 4 to 5% for prolonged period. They can take leisure time in retracting it.
For your point no.4 only one word from me. DITTO!
For R. Kiyosaki, he became rich for using leverage and loans from banks and then become richer selling his method of getting rich to other people thanks to central banks and paper money, but then he went for “technical” bankruptcy for failing to pay a promise as declared in a court of law. Kiyosaki uses banks and paper money to get rich and so does his followers. So, without paper money and banks, his method would be rather useless (for real estate that is). Unfortunately, many of his followers failed to get rich. So many people, including him, are now blaming paper money for not getting rich. They forgot that you can’t get rich simply by leveraging to the hilt. To be really rich, you must create real and useful wealth.
Paper money is efficient and a very good system. People managing it may or may not be good and economy backing it too, may or may not be good. So don’t go blaming paper money for all the ills of the world. Paper money can be misuse by some people, Zimbabwe for example. Paper money is managed by human beings, some by greedy and stupid managers no less. This is one reason why the Federal Reserve is out of the reach of the common politicians, despite congress having the power to appoint and decree. But paper money is way better than gold, one which is so open to manipulation, it will make for a disastrous money.
Kiyosaki hated the Federal reserve after being burned in the financial crisis, but he is barking up the wrong tree. Therefore to balance your perspective, you really should read my books.
Peter Schiffs, he predicted gold will reach USD5,000, but he did not understand why the price of gold was at $2000. I did. I predicted back in 2012, gold will go down to $1250. I even mentioned what were the preconditions for it to occur. People laughed. Now they don’t laugh anymore. I did it by calculating the supply portion and also the production costs of each gold mine, plus a few other things. Tough and meticulous, but it was the right call. Ask Peter Schiff to calculate why gold will be $5,000. He can’t do it, but yet he predicts it so. Anyone can predict anything. But predictions with maths, can be checked and double checked.
Marc Faber is also a gold proponent. I wish I can explain to him better about central banking. Marc Mobius is a great guy, and so is Jim Rogers. They are good investors and can find great bargains, but they don’t like QE much. Well, even I don’t like it, and I know you don’t as well, but central banks are under a lot of pressure. You will have to understand their predicament as well.
I dedicated the books for people like you, to enable the readers to fully understand how the system really works. I and my co-author has made it as simple as possible. There are people who complaint about high debts of the Federal Reserve, there are people who think interest is like a leech (not true) and there are many type of assumptions out there. Use the information in the book to sort things out, you will come out a winner and happier like many other readers of my books do.
There is no conspiracy, to steal from the poor, that is for sure.
Dear Sharif,
From our little debate here, I would have pretty much get what you want to convey.
1. You are right in pointing of the USD devaluation but USA being rich is not because of it’s currency. There are a lot of factors USA became the biggest economy of the world, surpassing UK, the once powerhouse. USA housed the biggest financial institutions around the world, great talents pools, exceptional products, engineering pioneers, best educational universities, etc. All this provided the supply which people around the world demand of. This brought the riches to USA and very soon China. Currencies are just a form of money use for the supply and demand, the import and export. With continuous demand, it’ll bring continous riches. In your examples of consumer products getting cheaper to purchase are not due to the value of currencies but the cost of producing became cheaper due to increased technology. You can’t say the same for property, I hope I can buy more cheaper properties, food which i hope it can be cheaper and so to many other items as well.
2. Again, I’m not sure why you still described currency as asset backed based on the asset purchased. Currency is used as a form of money to trade. For example, if I purchased a property with RM100k, 2 years down the road, how much currency value i got back if I sell it? Most may suggest the property appreciated in value and I managed to get RM150k, as an example. The value comes from the asset and it make us wealthier, not the currency. As I’ve mentioned before, currency is a legal tender, governed by law and accepted by the masses due to the ruling. But what you said about self printing currency isn’t exactly wrong, any community can print some form of currency as long as the community accepts it. This forms the decree. In year 2009 when US is in recession, USD was hit very hard. Small towns actually printed their own currency to be used within their towns, within their community. What’s the asset backed by this currency? (Google search: “Struggling US towns print their own currency”)
3. Question is will the excess money get retracted ever, which is a long bet. By the time it has the slightest heart it will, another QE is needed.
4. Bravo.
On Robert Kiyosaki, he made use of the methods legally, not necessary right, to achieve his wealth objectives. But doing it the smart way is what paper money and the system allow us to do. I know Peter Schiff and Jim Rogers have always been a proponent of gold. During 2012, gold had been going up strongly and it’s been on an uptrend for a very long time. A correction of sort or crashing down is bound to happen. I do not feel there is a need to predict. Eventually when it’s low enough, it’ll go back up again due to various reasons, and here people will made the buy call again which people aren’t expecting at such low levels. The supply and demand cycle continues.
Thanks for your comments but we have differing views on the first 2. Any form of money has it’s weakness (currency isnt short of that), the main store of wealth is eventually assets.
I got your message to buy your book, with no conspiracy, but I will politely decline. Anyway, best of luck. Signing off.
Thank you for your good message. I suggest you dig down and perform a computer simulation of a currency. From initial issuance, to extinguishment. Draw it on a piece of paper. Any community that prints it own currency will bound to fail, unless the currency is backed by real asset. This is the keyword. Anyone can issue their own currency, as long as it is asset backed. Cheque anyone?
Regarding food, Americans merely paying roughly 5% of their incomes on food. If the price of food goes up by 20%, it is a merely 1% increase in the overall scheme of things. If their income goes up by 4%, they will beat the 20% food inflation without a problem. I suspect you, I and the rest of us in the world, is also experiencing this. This is the reason why you can afford to buy more food. Even the poor in Malaysia is obese now. Really poor people, they are skinny. Today, it is not easy to find skinny poor people. In fact, Malaysia is the most obese country in SEA right now.
I hope you will ponder clearly on a piece of paper the issues I pointed to you.
1. GDP going down by 95%, so what is the impact? Good or bad?
2. There are more and more, middle class in the world today. In fact in the USA, the problem is slightly different. The middle class is shrinking, not because they are getting poorer, but because they went up.
3. Why paper money saves trillions? Try trading using different currencies, please actually try it and you will see it. Digital money is of course, even cheaper.
4. Inflation matters very little, and you did agree to your point no.1 above regarding the USD losing its value.
5. Today’s paper money isn’t fiat, it is asset backed, and free floating, meaning the people is setting their own collective decrees on it.
6. There are no conspiracies to enrich the rich, or the bankers, or the elites or whatever. In fact governments the world over is taking money from the rich, to be given to the poor. Why would the elites allowed QE and devalue their own assets and currencies? Does not make sense, and it is.
All the best to you then. I hope other readers stand to gain from our mini conversation here.
As a final note to you Laurent, we all need to be rational. We have achieved a lot in this world in the last few decades, which amazingly, coincides with gold’s removal. And maybe one day in the future, money will not be needed at all. I know reading the doom and gloom books can be fun, but they can distort realities and facts.
Please read the book Rational Optimist by Matt Ridley. It is ok if you don’t read my books, I just want you to be happy with your life, not stressed out with doom and gloom things. I am writing to teach, not to make money off of people, I am well off already by myself, following my own principles. In fact my books are very cheap, people who bought them obtained higher satisfaction and value. Nevertheless, I would like to extend a free copy of the book by Mr Ridley, to you. Are you able to buy directly from Amazon? I can gift the book to you for free. Otherwise, give me an address which I can deliver it to. You may email me in private at my private email.
Being a pessimist (doom and gloom, optimist and realist are 3 different categories. Does the economy now allows us to be an optimist, for me personally is a big doubt. Points of differing views are your perspective of paper money value or asset-backed, terminology and perception of fiat money and the perception of inflation. I agree USD is losing it’s value, and inflation is caused precisely from that, when the amount of money to purchase a product increase.
It depends on your stand of the description given by Matt Ridley in Rational Optimist. Some find the facts distorted, with numbers and statistics being used to describe specifics at a certain narrow angle and not in it’s correct basis. In a way, it’s still an art depends on the interpreter.
Any case, you know what I’m trying convey by now. Cheers.
Mr Ridley presented hundreds of facts in his book. Of course some people like to cherry pick things and point out things, which in my opinion, is quite clear, easy to argue. This is very much a human tendency. Mr Ridley decided to publish those data anyway, and took sides. This is quite normal. Like you say, everyone took a view of their own. But the message is rather clear. Out of several hundred, a few bad facts, or even overturned facts, would not matter much to the message. So what group are you in from the three you mentioned?
BTW you also mentioned that people are free to create their own currency and value it anyway they want. So why Peter Schiff and other gold proponents keep making noises about paper money? Why won’t they create their own currency, to be used by gold loving people? In fact i know for sure, gold proponents kept giving excuses of decree, legal tender and many other inconsistencies, while for a fact, they can create one. For paper money, there are no decrees.
I noticed that you did not acknowledge the fact that the world is getting better, and we are all getting richer, even so for the poor. The ‘demon’ inflation does not matter, as illustrated by my example above. What matter is how good your standard of living is. You mentioned once again about food, which is perhaps only a few percent of your income, but the rest are declining heavily. Everywhere, costs are declining at the moment, even including food. We are now in a second period of negative inflation.
Statistic is always open to interpretation. For example, an increase of 25% in the ability to get education to 45%, can be viewed negatively as 55% of the people weren’t able to get any education. One is positive and one is negative. For doom and gloom, they hype on the negative. For example, bill gates in his annual report say, 2billion people moves out of poverty, but for doom and gloom, they will say, there are more than a billion people living in poverty still. Remember the half filled or half empty glass? People look at it differently.
So that’re some “distortion of numbers” which as I know, you seems to only read the negative reviews and not the positive reviews of the book. Therefore you probably haven’t read the book.
More examples from the book: McDonald’s cheeseburger requires 30 min of work’s salary to buy, today it is just 3 minutes. Where is the demon inflation? It is not there at all, and it does not even matter. For lighting, it will cost you a mere one second of work’s salary to pay for, compared to several hours a century or more before. It is so cheap, it is mind boggling.
Matt Ridley wrote his book not because he is optimist all the time, but because he thinks that too many people believe they are living in a worse condition than their ancestors did. Same in the economics realm, some people kept badmouthing paper money, without understanding much what the old gold money did to their ancestors.
His stats are derived from various studies; studies can be contested, and changed over time. It could be right at the time of press, but after that, it is a different story. That is normal.
If you want to remain badmouthing our current financial system, then it is your choice…but you can’t destroy other people’s lives because of your beliefs. If you don’t like paper money, create other forms of money and trade among your doom and gloom groupies. Talk is cheap, I wonder when it will be created since nothing is stopping you and your friends to create your own currency as you yourself pointed out. If your invention is good, it will be adopted by the world. No need to destroy anything. When gold was removed, it was done in that manner. Nobody missed it, except gold bugs. In my book, I showed how inflation can easily be reversed, just for the nostalgic feeling. If you, I and the rest of us here want to leave a better world for our children, we must be responsible and not to destroy our own world. Send me a private message for your free book. I enjoyed these exchanges with you.
Well, hope you are not referring me as badmouthing the paper money 🙂 Like I’ve have said before its open for interpretation. You are favoring paper money as the best invention there is for the financial market, and what I’m trying to say is there wouldn’t be a perfect monetary system. Paper money has its weakness as in all the chosen monetary systems in history before. The same thing you said about gold.
Answering your 2 questions. First I feel I’m a realist and the second whether the world is getting better, my answer will be it’s still good on the surface as we are sweeping all the ugliest under the carpet . The time for it to implode I’m not sure, I hope it can still remain hidden. For the printing of currencies, it’s a collective decision to have one formed.
Although I mentioned the weakness of the paper money, it doesn’t reflect that gold is good and that I’m a gold proponent.i believe your summary of what I’m saying is totally wrong. For one, I understand of your one sided bias to paper money. As you have said it, talk is cheap and I would say words on paper are cheap as well. I don’t believe I’ve the power to destroy lives. Dynasties old are gone with a new one formed or being form. The same goes for currency use as money now. People used silver long time ago wouldn’t have known paper which was just invented then will become a form of money in their future. I feel my comments here to all the readers actually fore warned them of potentially what’s coming and be thoroughly ready, bracing them. As this sounds, this is for the better than rely just on one belief that currency will save them. Storing money in deposits aren’t actually helping, which is thoroughly wrong as all found out even with their EPF holdings now. All this are facts.
Please reliaze also what’s our weak currency bringing to our community now, does it instill better purchasing power, better lives? Besides the rich which has a lot of money to spare, generated from their assets, inflation is nothing to them. To a lot of us, we are choosing the cheaper alternatives of the same thing to buy and it’s not getting better. As you have notice by now, gold has rebounding quite a bit. Having money or gold is good? Again it’s not a message that one is better than the other, but it’s more like there isn’t one that is thoroughly better indefinitely.
I guess our mini conversation here has ran it’s course. As I’ve mentioned before, the readers know the message I’m conveying, as well as yours. They are smart and can decide for themselves. Cheers!
Dear Laurent,
Yes you are badmouthing paper money. You made quite a number of claims. It is open to interpretation, but one must present facts and numbers. This is presented in my books. If you think the system is not perfect, you should explain why and where, in numbers. What you think can always open to interpretations, but what the numbers say, is quite different.
Paper money is the best invention out there on this day and age. Like you’ve said, maybe digital money will take over, but the essence is still exactly the same.
As a realist, you thought everything looks good on the surface, but we are hiding things under the carpet. This is not really correct. It is more like kicking the can down the road in my opinion.
We need governments that’re prudent, citizen who are responsible, etc etc to make things work. Fortunately, it has little to do with the monetary system. Don’t blame the knife if someone got killed.
You said I am bias to paper money? I checked each sides of the story with thorough calculations. I am siding with the best system, not bias on opinion basis. If you can bring me something better, I will jump and join you. What are you gonna bring to the table? If you only talk about gold, then that don’t cut it. Bring something much better please.
You are warning the people to be worried about their future, the coming collapse. What you should be doing is to educate people, including yourself, to know exactly how the monetary system works. This is what I am doing. Anyone can predict a future collapse. You think you are helping the people, but you are not. I suggest you change course. Very few understand how the system works.
You say storing in the EPF is bad. Presumably due to inflation. But you have yet to read my explanation on inflation. Stop scaring people and understand the real issues at hand.
Having money is 10times better than having gold. Even you who went through the crash previously can attest to it.
Our conversation cannot be finished and completed because you made many statements without facts and proofs. I furnished many facts and proofs. You also failed to present a better system. So if you have nothing to offer, so why go on and say paper money is not the best? It sure is the best if the rest are far worse.
Of course readers are smart, but many times they don’t have enough data and facts and cannot find them in time in order to act. This is where I assist. You will need to upgrade your arguments and bring real facts and numbers in order to further converse with me, and in the meantime, good luck and all the best in your quest.
Dear Sharif,
I felt unperturbed by your offense. I concur again the comments I made on the paper money and as I’ve stated before and again now I do not agree with your explaination of inflation and it’s unimportance. The mere fact a money can be printed indefinitely causes inflation. The same amount of money we have in our wallets now are not better off than a few years ago. If this is such simple matter as you have claimed, please help advice the country leaders on how to resolve the inflation problems we have in food, consumer products, houses etc.
You seem to be obsessed with numbers as a form of proof but not the facts or state we are facing now, such as the one previously stated. Anyway, I do not have a helper to help me churn out the numbers for me like you. But then again, there are a lot of articles and videos about them which has. You just have to ‘google’ it out. I don’t think posting articles links here are appropriate although it might be from “the economist” website. Still, you have the right to say the articles are open for misinterpretations as well. It seems, so far (although I’ve realized it much earlier), of your comments here, there isn’t any solid facts mentioned by you that back your claims, except “refer to my book”. I try to ‘google’ it out as well, but probably I can’t find the right search term for it as there aren’t any that back your claims, except a small excerpt by Ben Bernanke saying paper money is better than gold to solve our financial problems. The earlier book I mentioned from Mr Kiyosaki has a lot of facts, numbers, statistics, history etc in it as well. Similarly, you may say your numbers are better reflected, I won’t argue on that.
Does the state of our world economy now allows the government to be prudent? and that country’s government makes a responsible citizen? The very fact the flexibility is there for people to misuse (by printing money) brought the inflation problem we are in, as history has recorded it as well. A knife is a good tool if it’s being used by a responsible person. Is the person responsible now?
As a realist, we need to understand the economy surrounding us and the system that we are in as much as possible. Foreseeing or believing in it, is something relative we are doing almost everyday. I do feel I need constant education and knowledge as a lot of things are dynamic and new. I don’t want to be someone frozen in ice for the last 10 000 years. What I’m commenting is to make people realize the state of the monetary system and the system now is not getting better. Is it such as hard fact?
Please refer to various articles in our local news daily that states the amount EPF holdings of a majority working class people nearing retirement can only survive them for 3 years. This is a fact. We need more avenues in the form of assets to lock in our values, not in deposits.
Again you are stating your claims of paper money being better than gold, even 10times. I do not feel gold is as valueless as you claimed. I would bluntly repeat this again that data, numbers and statistics are subject for interpretation. Yours included. You may argue and put claims on your subject based on a preset statistics at a certain range in history to put bias to your point, but a well educated reader will spot otherwise. Eventually, you are the one selling a book, not me.
Good luck.
Dear Laurent,
In your 2nd para, your comment is fair. For your 1st para, the crux of your belief is that the mere fact that papers can be converted by printing them into money indefinitely will lead to inflation. This sounds logical, but currently the world is grappling with deflation. It is being fought since 2008, already six years. And central banks are printing trillions to balance things out. What I am pointing out to you and other readers is the fact that money printing is based on sound data. Printing is done as needed. Otherwise, we would have rampant inflation right now, but how could we be having rampant deflation instead? You will need to rethink your understanding on money creation will lead to inflation.
In your 3rd para, the problem you described is not the problem of paper money. It is the human controlling it. Install a better human, with a better system, sounds like the better solution. We can’t have no knife, since it is still the best invention for cutting things up. What you want is no paper money, but it is the best money out there. One day, we can cut things up with lasers, no knife, but then people will still go on and hurt others using lasers instead. The solution is very clear isn’t it? So why you want to throw away the knife and change into ‘stones’? People can still hurt others even if stones are used as tools for cutting.
In your 4th para, you mentioned the monetary system is not getting better? I think you will need to really wake up and look around you. It is seriously getting much better. Money can be moved and send to where there are needed most, in an instant, among the many improvements made. I remember older times, the system was terrible. If you have not lived during such times, perhaps you would not understand, so I don’t blame you.
Regarding EPF holding, you will really need to take such data with a big pinch of salt! People nearing retirement, has probably worked 45 yrs or more in their lives. Many older generations only started contributing to the EPF in the later part of their lives. Many of them also have pensions. These older generations retiring in the next few years are in fact older than the EPF itself. It is not surprising to see that the money in their account does not seem large enough. Further, some of them may have retirement savings elsewhere. Whatever the facts, you will need to look at and dissect the data carefully. This is what I do and I do this daily. I publish it for others for their benefit. I do not simply take what others say. So I hope you will do the same. Maybe one day I will publish my analysis on EPF savings of Malaysians.
You wrote about need to lock in values, not in deposits. You are confused between money and asset. This is a big issue which many unable to distinguish. Money in the EPF is no longer in the form of money or deposit. It has been converted into other types of assets. Real assets to boot in many cases. Similarly with FD in the banks. This is explained in my book 🙂
Good Luck again! 🙂
This article is so dumb. Clearly the writer has no basic understanding of economics.
– He is confused between purchasing power and nominal price. Dumb statement – “When the Ringgit devalues, it does not mean you are automatically poorer by the same margin.”
– He has a poor grasp of Malaysia’s supply of money. Assets backing printed money in circulation?
– He has fails to show clearly what kind of assets are ‘backing’ the ringgit. Today, the majority of these so-called assets are debt-based with counterparty risks. Fiat currencies are only backed by confidence.
– He is spouting nonsense about the Nixon Shock. No explanation of how the U.S agreed with the world that the U.S dollar was redeemable in gold which gave countries confidence to hold it. The de-link from gold was essentially a default.
It would be best for this blog to delete this post. Otherwise, it really tarnishes the credibility of this blog.
Such a dumb post…
This only true when we are a super economy, still remember during 1997 when we were hit by the currency crisis, what happened? Currency is important by everyone needs a bot of portfolio management or risk management…