Wednesday, October 12, 2011

Worlds First Fiat Currency

Fiat Money is Not New
The first time fiat money was ever used was in 11th century china, during the Yuan and Ming dynasties. Surprisingly this ended with hyper-inflation and the notes were discontinued in 1455.

That's a nice little fact, but then after more research it seems that every fiat currency ever used throughout history has ended in devaluation and eventual collapse. 

Fiat Money Never Worked
From Louis IV to Napoleon to Post-World War I Weimar Germany .The Treaty of Versailles was essentially a financial punishment placed on Germany to make reparations. The sums of money to be paid by Germany were enormous. (Huge unpayable debt, sounds familiar?)

Can you look at this graph that shows gold in USD and tell me that inflation is around 2% and that we need looser monetary policy because we are at risk of deflation. All that while keeping a straight face?

How does one profit from this eventual collapse?
The general idea is to own leveraged hard assets. of course the best hard asset to fit this bill is real estate. If you don't own your own home go buy one. It is possible that the gold bullion ship has already sailed but you can still find some gold miners trading at some good valuations.

The US dollar is a fiat currency like many before it throughout history, why would it be different this time?

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