SOS Worthless Money

FIAT MONEY GROWS WHEN BANK INCREASE CREDITS

Most experts says that fiat money is worthless money. History has shown it is true. US dollar has loss about 95% since 1971, when it was peg against gold, it was USD35 per oz, today it is USD1500 per oz. This is true in GOLD terms, BUT, would it possible gold will drop back to say USD100 per oz? or USD250 per oz? Yes and No, because nobody is able to predict that.

Fiat money grows every year, whether by physically printing (insignificant) or by credit creation by banks (via lending and derivatives instruments). If the fiat money is use productively via new credits, i.e. build a port, increase trading to accommodate new consumptions, and from this productive use, profits are made, some money is saved and allow new credit given to borrowers, hence, the ECONOMY is growing, economic sovereignty of the said country become stronger and bonds (new credit) can be issued at lower interest rate.

In such a case, fiat money is not worthless. If the fiat money continue to grow indefinitely and use for productive use (i.e. business is able to repay the credit created with interest), then more people will become richer i.e. GDP per capita will improve over time. So household income grow, able to consume more goods and services.

BAD CREDIT

The assumption of having productive use indefinitely is a MYTH, and it will not happen in the real world. So, say, credit given to unproductive use, say buy houses, and prices of houses continue to grow, until it is over supply and no one can afford such property, the prices will drop. In USA, the property market has dropped about USD 2 trillion. Fiat money is wipe off the ocean of fiat money. Household will lose money, bank need to write off their loan (not able to give more loans), business will fail, GDP shrink, unemployment goes up.

NET FIAT MONEY IN THE MARKET

What then will happen to the credit created when everything fail, say stock market drop, commodities drop, derivative burst, properties price continue to drop, say 30 trillion being wipe off, will the fiat money become worthless money? Yes, Fed can continue to creat credit, but is there any taker? It debt is so huge, even a layman can see that. Say, USA created USD50 trillion of credit, 30% is for productive use while 70% is for unproductive use, like trading of securities in financial markets via borrowed money, it will eventually become so huge that the creditor will not continue to fund such a wasteful use.

MyView

It would be a myth to say that Fed will continue to print until the US dollar become worthless, hence, paid their loan using worthless money. BUT will such a situation be ALLOWED by the American taxpayers? Think about it, who will gain when the US currency eventually become toilet paper, yes, suppliers, what about all the BANKERS, FED, RICH PEOPLE? Give it a thought, because I believe there is a limit to the PRINTING or CREDIT CREATION. Look at JAPAN today, the public sector may be allow to print due to trade surplus, what happen if this STOPPED?