posted on Sep, 28 2015 @ 10:38 AM
a reply to: Kester
Well, all money is fiat even gold. What gives it value? The only true value gold has is for industrial and jewelry uses and those are fairly minor.
Instead I would argue that no currency is fiat, what backs currency is the fact that you can trade it for another persons labor. Lets say for a
moment that there's a currency collapse (I'm going to use the US for my example but it's equally applicable to the UK) and the dollar ceases to be
worth anything. People are still going to work. At first it will be just the grocery stores because they have food. But if there's no currency,
then how do people buy food?
The answer is that they barter, but the stores aren't going to be interested in your goods... they're going to be interested in your labor and each
food item is going to be priced at different rates, steak will be more expensive than ramen. The problem though is that the store only needs a
limited amount of labor to keep the store running and soon they have for example pledges of 3 hours of fence repair work sitting in reserve.
From here the bankers step in and start pricing this labor. They (and the labor market) determine the 3 hours of fence work is worth 30 credits and 1
hour of the electricians work is worth 60 credits and from here you once again have a full fledged fiat monetary system.
Now with fractional reserve banking, let me explain it this way because it's not something that only bankers can do. Lets say you have $100,000 to
invest and you put it in gold. Now you turn around and use that $100,000 in gold as collateral for a loan to make $100,000 in business investments.
This is called leverage and your leverage rate is 1:1. What happens in this scenario is your business investments pay off and you profit by lets say
100%, but while doing this your gold also appreciated in value, lets say 15%. So now from that $100,000 investment you got back $215,000 in total.
But what happens if you don't put up 100% of the collateral? What if you have good credit and you only need to secure the loan by 50%? Now you have
$100,000 in gold that appreciates and you have $200,000 in business investments all from an initial investment of $100,000. Now you have a leverage
rate of 2:1, and you get to profit immensely. You can even add another layer to this. What if you use that $200,000 in business equity to fund a
futures market investment on oil? Now you're leveraging again and none of this is illegal or wrong because you still have an initial investment that
can cover losses.