The term “fiat money” is obviously ambiguous. Kings once issued penny coins that contained only 3.9 farthings of silver and mandated (by “fiat”) that vendors accept them. If a bank’s marker could be redeemed with debased coins was it “representative” of silver or representative of a fiat money? We don’t need to go down the rabbit’s hole of such nested definitions.
But, again, there is a fundamental difference between notes created by Zimbabwe and notes created by a Western-style central bank.The latter are backed by government debt, for whatever that is worth. And note that even the Bank of Japan didn’t begin large purchases of long-term government debt until 2001 (and the FRB in 2009). We can agree to disagree on whether there were better responses to the 2008 credit crisis, but to insist that the possibility of quantitative easing gives U.S. money the same status as Zimbabwe’s is … an oversimplification. BTW, does anyone know what the interest rate would be on U.S. Treasury long bonds without QE?
One interesting data point is that a few years ago the government of Thailand was unable to meet its obligations to Thailand’s rice farmers, because the government was unable to borrow (or print) money!Cite and another cite.
I guess Thailand’s central bank did not operate Zimbabwe-style even if you think the U.S.'s does! /jk
But “fiat money” is reasonably well defined, for anyone with a genuine interest to understand. Today’s regimes are pure fiat, so there is no possibility of confusion about that.
The only ambiguity here is historical: whether “representative money” counts as fiat, or whether it should be treated as its own category. There are reasonable arguments for either definition. If we call representative money a kind of fiat money, then we are saying that most of the circulating money in latter-day gold standard regimes was fiat money. Sometimes that confuses people. (“I thought they used gold during the gold standard…”) But of course the entire point of a gold standard, rather than trading gold coins, was to use paper representing gold at the standardized value rather than trading the gold directly.
Money evolved over time, taking on more and more fiat traits. I’m not sure what the consensus of usage on this is to handle the historical ambiguity.
But the reason I don’t know that is that the problem is entirely historical. It no longer exists. Today it’s fiat money all the way down, and that’s easy to describe, at least for anyone who is actually interesting in discussing the issue with other people, as other people genuinely speak the language.
Yet here in this thread, you have literally been advocating a definition used only by you and no one else in the world.
The reason that English definitions are messy rabbit-holes is because we’re attempting to negotiate collective meaning.
Technical definitions aren’t decided by personal fiat anywhere except on a personal blog. Meaning in a group discussion is whatever the people using the language collectively happen to land on, as they negotiate conversations with each other. This has already happened with the case of fiat money. The historical ambiguities are gone, leaving a clear definition for the present situation.
If I personally print some bonds, I can keep them in my desk drawer at home.
If I then personally print some non-dollar currency – Hellabucks – I could keep that currency in my office drawer.
I could then “back” that currency kept at the office with the debt printed at home. I could make sure that my office drawer had at least one Hellabuck worth of bonds from home for every unit of the currency that I took out of the office drawer and allowed to circulate “in the world”.
According to the definition you’ve provided here, my currency is “backed”. If I kept an independent accounting ledger for my office drawer, every Hellabuck of currency issued would be backed by legitimate debt issued “elsewhere”. I could even get my colleagues into the circle of transactions by issuing the debt to them first, before my office issued the currency to buy the debt. (I would presumably have to pay them a commission, in order to go along with this. But I could do this, too.)
The Federal Reserve is an arm of the government, no less than the Treasury is.
They are two different “drawers” of the same underlying entity.
It is not entirely clear why you think the debt issued by one of the desk drawers is “backing” the debt issued by the other desk drawer. There are legitimate government laws governing the transfer of paper between these drawers. This is true. But it’s also not remotely, not even in the same universe of logic, what gives the currency its value, what “backs” the US dollar’s value. It is not the pushing of paper from one drawer to another that gives value to anything. (To add another layer of non-reality: it’s mostly electronic now. The “paper in drawers” isn’t even paper, aren’t even drawers anymore, they’re hard-drives kept in different buildings.) What backs the US dollar is the belief that its circulation will ultimately be limited, that the people in charge of the drawers (meaning the hard drives) will not do anything silly with the paper they’re pushing around, for the next decade or so at minimum.
The paper is valuable because the domestic banking system is forced to use it to back their own debt obligations. The paper is valuable because the government accepts it, and nothing else, for the payment of taxes (what the OP relates to). The paper is valuable because everyone else in the economy accepts the paper as valuable, in a general agreement – call it a collective delusion, or a Nash equilibrium – that the paper will be valuable. The paper is not valuable because one kind of debt, issued from one office, is backing another kind of debt, issued from another office, with literally both offices ultimately deriving their power to issue debt from the same underlying political authority, since they’re two limbs of the same government.
The goal of talking about money should be to understand money.
There is no understanding in saying that one kind of paper is “backed” by another kind of paper. That doesn’t answer any questions, doesn’t resolve any mystery. It’s just accounting sleight-of-hand, adding more and more layers of paper as a substitute for actually figuring anything out. An actual answer to the question must link that paper (not intrinsically valuable) to the things the paper is traded for. For the purposes of this thread, part of that answer really is “taxes”. It’s convenient to hold money because it’s what the government pays us when it buys things, and it is what we must pay to the government when we are taxed. Another part of the answer is the network effect of money being used by everyone else.
Money, like language, is a form of collective agreement. We negotiate the value of money in a manner very similar to how we negotiate the meaning of words. This is true even of “fiat money”. This is produced by government fiat, but its market value cannot be similarly controlled, top down, by fiat. Its value is continually negotiated and renegotiated, just as the meaning of words is re-negotiated – and even changes – over time.
Literally nobody in this thread said that US money has the “same status” as Zimbabwe’s.
They’re both fiat money.
Common dirt in the backyard and platinum are both made up of atoms, but they don’t have the “same status” either.
The best guess to this is what a country with relatively reliable debt, but which experienced a less aggressive QE, is currently seeing. The ECB eased, but not much. The German 10-year is currently yielding less than half a percent. The 30-year is yielding around 1.3%.
Long yields in the US would almost certainly be lower, if the Fed had not moved as aggressively as it did. When the Fed purchased a lot of bonds, it drove down the price of those bonds over longer time periods, thus increasing their yields.
This tends to confuse people until they think more carefully about inflation over long horizons. The Fed purchase itself is a small part of this puzzle. Higher expected inflation, over the next decade, is a bigger determinant of long yields than the purchase itself.
I’m not sure what you’re driving at here.
The scheme in Thailand was commodity manipulation, to pay farmers more than international market value for their rice. From your Economist cite:
From the Times:
The farmers weren’t promised a nominal payment, which can be met with more printed money. They were promised a real payment, literally in excess of actual world market prices in exchange for their political support. The farmers were the key constituency backing the people who were doing this. They were essentially being bought off for their loyalty to the government by being overpaid for their rice, meaning they had to be bought off with money that was actually worth something. But the situation went even deeper than that. The government was using this manipulation of prices as merely the first step for commodity speculation in the domestic rice markets. Again, from your own cites, first from the Times:
From the Economist:
The elections weren’t even complete at the time that the financial pressure was building, presumably because this financial pressure came from a brazen attempt to bribe an important segment of voters from cornering the domestic rice market.
My own post related to the political winds of a country.
I don’t see how this relates.
Is it your contention that the political winds of that situation were favoring the commodity manipulators in the government, after their attempt to corner the domestic rice market failed? Supposing it’s the August or September before a US presidential election, and a severely unpopular president is attempting to pressure the Fed to goose the economy before November by monetizing some of the debt, I’d expect the Fed to be able to resist that pressure in most cases because the prevailing political situation would easily allow that resistance. But I’d also expect the political situation to be much different for the Fed in the February following a major election with clean majorities for the ruling party.
I don’t want to engage in interminable debate where you misconstrue some of what I say or make semantic quibbles. I am bemused that you still see no distinction between the uncontrolled printing of fiat money, and central bank money with government forced to borrow rather than simply print. I’d ask why Greece couldn’t print its way out of crisis, but doubt you’d know the question was rhetorical.
I will comment briefly on this:
I wasn’t asking for a summary of that Thai crisis. Indeed, I’d already amused myself by posting a tongue-in-cheek summary here at SDMB. I will question the implication that Yingluck was “severely unpopular” — she was never in danger of losing any election. The fact that*** she was unable to “transfer pieces of paper from one drawer to another,”*** if that was your metaphor, could be viewed as a clear example of a difference between Zimbabwe-style fiat money and central bank regulation, but we’ll go in circles if you feel the need to respond to that.
The best thing to do when you have been misconstrued is to point out where you were misconstrued.
Language, as you have noted, is ambiguous.
This is why people misconstrue each other all the time. People don’t mean the same things with the same words, and they don’t make the same inferences from reading the same set of words, and they don’t always notice and internalize all of the caveats and fine distinctions in another person’s post. Here is a very good example of that:
I never said there was “no distinction” between “uncontrolled printing of fiat money”, and “governments financing through public debt markets”.
You are here attributing to me words that I never wrote. What I actually said – in two different posts so far – is that the ostensible division between printing and borrowing will be meaningless, depending on the political winds of the situation. You can scroll up and check that. I’ve already said it twice, and now I say it a third time.
Notice the important difference here. I’m not just accusing you of misconstruing my post out of nowhere. I am explicitly pointing out that you are attributing to me words that I did not say, then I am citing my own posts where I said something different. If you genuinely think I have misconstrued you – which is, of course, extremely likely because people misconstrue each other all the time – it is more productive to point out where this has happened rather than making the complaint in isolation, without evidence.
You’d only ask this, rhetorically or otherwise, because you did not internalize what I had written. You literally quoted the following words in your post, but you did not absorb them in your reading:
I explicitly referred here to places which have national central banks.
If you are not aware, this excludes Greece specifically because Greece does not have its own national central bank in charge of creating its own monetary base.
It’s worth looking at this quote more carefully, because you have now misconstrued this one sentence in two different ways. First, it deliberately excludes countries like Greece, but second (and again), nowhere do I say there is literally “no distinction between borrowing and printing” to finance deficits. I specifically said central banks follow the political winds. This is what makes central bank independence a “fig leaf”, as I described it in the same post. Fig leafs cover very little. I still see that as an apt metaphor – more on that below.
Discussions about definitions are semantic discussions.
Your position in this thread was to posit that you believe there is a “useful” distinction between fiat money and debt markers. This is literally from your first post: “It is important to distinguish debt markers from fiat money. A debt marker plays the role of “fiat money” only when the debtor is unlikely to repay his debt but someone is forcing you to accept the marker anyway.”
What has been subsequently pointed out to you is that literally all fiat money is a debt marker. It is unclear, then, why you believe this is a “useful” definition. When in your first post in this thread you made the argument that this definition was useful, you were making a semantic argument. If you want to defend the notion that this is a useful definition, you will continue to be engaged in a semantic argument. Maybe you do have a useful distinction here, and your distinction is just poorly labelled. Maybe your distinction would be better highlighted with better terminology.
But no one is going to believe this until you make an argument for it. That argument, if you ever made it, would be about definitions and their relative usefulness, which means it will necessarily be about “semantic quibbling”. When you posit a definition that you think is useful – as you did in your first post – you are making a semantic distinction. And when you are argue about the “usefulness” of that definition, you are necessarily quibbling about semantics.
People are quibbling about semantics with you, precisely because that is what your first post is literally about.
This is not your blog.
I’m not actually talking to you, specifically. I’m not writing a summary “for you”. I’m making sure that other posters reading this have the appropriate context for the situation. Your own post lacked that context.
It is this context that strengthens the previous point I was trying to make. More on that immediately below.
I was talking about political winds, not elections. In the US, the two things are related. Being “severely unpopular” is a relevant criterion in the US because of our political system. This is why I used the phrase severely unpopular with respect to a US election. I did not use that phrase with respect to Thailand, nor did I make any such implication you attribute to me. (This is another misconstrual of my post, BTW.)
But we can talk about Thailand. What were the political winds in Thailand at the time?
She was removed from power just months later in a military coup whose leaders still rule the country.
Right.
There was political turmoil in Thailand to the extent of mass protests, transportation shutdowns, and even bombings, that left dozens of people dead. The commodity-cornering scheme was only one part of this.
There was an election whose results were blocked in outlying provinces from transportation blockades from anti-government forces.
This entire period of political chaos ended with a military coup, and a new junta that rules the country to this day.
And of out this, you draw the lesson that Thailand and the United States… have different monetary systems from Zimbabwe? Martial law was invoked, the prime minister removed, but Thailand did not hyperinflate its currency because of a few lines in the law books that said that that was not allowed? Did those same law books also indicate that a military coup was not allowed? Or did they leave that part out of their laws, which the observant military noticed and then decided to act on?
Is the new ruling junta also prohibited from financing its spending with new money creation by the magisterial power of the written laws of Thailand, which separates the borrowing of money from its creation? They’re allowed to seize power by force, but still not allowed to finance their own spending with direct money creation because the words in the law books say they’re not allowed to do that?
Do you think there would there be another military coup, replacing the current military junta, if the current leaders threatened to finance deficits with money creation?
Have you considered the possibility that a law making a distinction between the borrowing and printing of money might not be particularly meaningful in a country where the government can be removed with violent force?
Might the nuances of some of the laws in such a country be something of “fig leaf”, and that the actually relevant question here is which way the political winds are blowing, which can result in the violent disruption of the government? Or, in milder cases, money-financed deficits in places where that is not “legally” allowed?
/jk