Mike Krieger Explains Why Fiat Money is Immoral

Tyler Durden's picture

Sumitted by Mike Krieger of Kam LP

The people must be helped to think naturally about money. They must be told what it is, and what makes it money, and what are the possible tricks of the present system which put nations and peoples under control of the few.

- Henry Ford

U.S. investors should welcome, not fear, climbing commodity prices.  The increases are "largely a reflection of the fact that the pace of economic growth, particularly in the U.S., has picked up," said Nariman Behravesh, chief economist at consultants IHS in Lexington, Massachusetts, and a former Federal Reserve official who has been covering the global economy for more than 35 years. "It's not something to be worried about." 

- Bloomberg article from yesterday

Why Fiat Money is Immoral

Today’s email is going to be a little different.  A couple of weeks ago a friend of mine from NYC who is not in the business but is on my weekly email distribution list asked me to explain fiat money and why I think it is the wrong way to go.  Below I am going to paste my response to her.  There is so much disinformation out there about money it is scary.  Sadly, the strategist at my former employer added to this several weeks ago.  He wrote:  “Gold, which is effectively just another fiat currency.”

Clearly he failed to look up the definition of fiat currency.

Fiat money is money that has value only because of government regulation or law.

Definition of Fiat:  An authoritative or often arbitrary official order or decree.  THIS DOES NOT EXIST TO GOLD AS MONEY TODAY AT ALL. 

Gold is not money under “fiat” in any country at the moment.  Rather the market is making gold as money today which is the OPPOSITE of fiat money.  

With that off my chest, here is the response to my friend…

Ok, so let’s do a brief thought exercise on why I believe commodity money is preferable to fiat money.  When you have fiat money, a government, or in the case of the United States today, a banking cartel (the Federal Reserve), is granted exclusive authority to create the nation’s money.  Laws are used to enforce the use of this money otherwise people probably wouldn’t use it.  Under a commodity money system, where let’s say the U.S. issues dollars but those dollars are backed or convertible to a commodity (in many cases gold but it can be other things) there is a limit to the amount the government or banking cartel can print or issue and this is in relation to the amount of the commodity that exists or is available to the government or central bank.  The current propaganda that is rife throughout economics textbooks and the like tell is the notion that commodity money is bad since it stifles human innovation in relation to the amount of gold or whatever commodity used.  They say this is bad and that there should be no “limit” on money creation based on something as arbitrary as a commodity and that this is bad for growth.  This is complete nonsense and is used to keep people in the current fiat system where money power is exercised most egregiously by the few against the many.  The reason they defend the current system is simple.  With the power to create unlimited currency at will (via the Federal Reserve) you possess total and absolute power over almost EVERYTHING in the economy and society at large.  The Fed not only creates the money but they distribute it where they want.  In QE1 and QE2  they decided to buy specific assets.  In the case of QE1 where they bought toxic assets, this was just another bailout of the banks and others that made poor investment decisions.  Did the money go to build new schools?  No.  Did the money go to build high speed trains as is done in China?  No.  Did it go to building out massive alternative energy infrastructure?  No.  It went to save the banks because at the end of the day the Fed exists as a backstop to the banks and it is to the banks that the Fed answers to at the end of the day.  It is a brilliant scam that 95% of Americans do not comprehend.  So in this case all of the money is going to the banks (which destroyed the global economy in the first place) and other players in the financial world.  Remember, the banks ARE the Fed and the Fed creates the money.  Gate keepers at the Federal Reserve and academia make understanding economics, the Fed and money seem so “complex” but the scam is really VERY simple.  

I am not saying that I necessarily back the classic gold standard but it is much more of a moral and genuine capitalistic system than what we have today.  One of the arguments against the gold standard is that the rich have all the gold anyway and they will still have the power.  Ok, well let’s suppose this is true.  Under a gold standard they would need to mobilize this gold to exercise their power and influence and pay people off to do their bidding.  This has a real cost to them.  Gold will be spent.  At some point they will choose not to spend it on this or that and ultimately they will lose their power/money by spending too much gold.  They can’t just create more out of thin air to exercise unlimited money power on the populace. 

This is in complete contrast to how things work today.  With the dollar they can create more and more everyday and buy people off without ANY cost in the short term (until the dollar itself collapses).  This is why the most dangerous thing that can happen would be a global fiat currency to replace the U.S. dollar.   They could start over in their never ending system of money power with a new currency that can be printed at will and used to buy up the world and all its resources at no cost to them.  The end result would be slavery for the masses of humanity.  The global monetary system as it stands is one of the most immoral social structures ever created by man.  Most of us in America do not understand this since we have been the beneficiaries of it up until now.  We are like the feudal lords in pre-revolutionary that couldn’t see the world beyond their favored social status until they lost their heads.  The system as it stands has led extreme exploitation and corruption, not true capitalism.  If we continue on this path the next stop is a feudalistic fascism. 
In a Fiat System Banks Must be Like Utilities

At the Sanford Bernstein conference several years ago Joseph Stiglitz spoke and said a good and healthy financial system is a small financial system.  I couldn’t agree more.  This is especially the case in a purely fiat money system.  Money is too important to allow greedy children in expensive suits on Wall Street and dangerous academics at the Fed to play around with.  I do not claim to know what the ideal money system is but I want to be very clear on this point.  If we have a fiat system like today the banks should be the most regulated industry on the planet and operate like utilities.  They are supposed to help the productive economy innovate and create wealth.  They are not supposed to be parasites that suck the lifeblood out of the real economy and compose 16% of the weight in the S&P500 (only technology is bigger at 17%).  Something is VERY, VERY wrong here. 

I placed the quote at the top of the email to demonstrate just how entirely disconnected the corrupt elite class is in the United States is today from the average citizen.  Many historians assert that Marie Antoinette never said “let them eat cake,” but surely she made comments similar to those at the top of this email from the Bloomberg article.  What is happening now is nothing new.  It has happened over and over again for millennium.  The elites of every era always think they will stay in control no matter what.  They will be wrong once again.

Watching the circus from Colorado,

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doomandbloom's picture

if the end goal of our life is 'economics'...then does it matter if the money is gold, fiat or any other material?we will have the same problem over and over again...



SheepDog-One's picture

BTW Narihman Bahrivesh...FUCK YOU very much! Why dont you go back to India, nothing to worry about right?

Sudden Debt's picture

You do realise that by insulting a guy from India that:


1. You might never be able to catch a cab IN YOUR LIFETIME

2. NO more Tech support if you have troubles with your PC


And that are 2 basics in life man...

RockyRacoon's picture

I'd shy away from curry dishes in restaurants as well.

Hephasteus's picture

Dollar's looking about a hour past ugly.

Ignatius's picture

Wrong, Mike.

Gold is money.  Gold is a wealth reserve.  Far more valuable than a currency.

Currency -- fiat -- is a unit of account and medium of exchange that is highly efficient and that's why we use it.  "Book your trade balance in dollars, but pocket your profits in gold."

Failure of a gold backed -- exchangeable -- currency is a given in history due to an age-old human habit of cheating.  The US government defaulted on the American people in '33 and the world in '71.

I would support our currency being issued as an asset by our government and run centrally as a utility, but I ain't holding my breath.

Eureka Springs's picture

I've been reading here and elsewhere trying to understand the big ponzi... and you, sir, seem to have hit the nail sqarely upon its head as anyone.

The questions in re currency and damn near everything else is... do we all play by the same rules. And, to what end...are we doing or promoting anything.

Criminals are in charge of our country... switching ponzi fiats wont fix a thing.

faustian bargain's picture

It doesn't seem like you read the article.

Sudden Debt's picture



I had to look up that word. I sounds so negative...

SheepDog-One's picture

'Immoral'? Well what does THAT matter, long as stocks go up! Fabric of the nation destroyed, countless businesses and families destroyed...WHATEVER who cares! Stock congo line starts to the right behind Harry and RainbowTrader!

Sudden Debt's picture








Trundle's picture

Only 10%?- wait a few hours until they metabolize the Guinness.

something fishy's picture

IMO until this society regains some semblance of moral authority it doesn't deserve to remain politically or economically dominant. 

Mudflap's picture

"A little parable may prove useful: Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject's oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal.

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

Of course, the U.S. government is not going to print money and distribute it willy-nilly..."

From a speech by The Bernank in 2002...


Bastiat's picture

"Now suppose that a modern alchemist solves his subject's oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost."

At which point Bennie woke up and had to clean himself up.

Mudflap's picture

Bernie 'the modern alchemist' saves the day!

SheepDog-One's picture

If it was possible to produce as much gold as anyone wanted at no cost, then wouldnt gold become worth nothing? Hmmm and basically its what Bernank is already doing, creating as much money as he feels like for nothing, making it worthless.

RockyRacoon's picture

Oh!  I get it.  You mean like dollars?  Well, that would depend upon the level of financial education amongst the masses, would it not?

Mudflap's picture

According to him it's all about staving off the dreaded deflation.  He believes that there will never ever be deflation again - just induce spending through the printing press - problem solved by forced inflation - at any cost.  All it takes is a 'determined government' (i.e., him).  It's his religion.

naughtius maximus's picture

"Of course, the U.S. government is not going to print money and distribute it willy-nilly..."

I wouldn't bet on that with people like Bernie Sanders in congress.

Misean's picture

The exchange of nothing for something is always immoral...it's called stealing.

Trundle's picture

Or God's work- depending on perspective.

Sean7k's picture

absent police power, there is nothing immoral about it. The whole purpose of exchange is to get a better deal. :)

naughtius maximus's picture

So by extention, in total anarchy, rape is as moral as apple pie?

Sean7k's picture

That is not an exchange- it is theft, kind of like government. If you add Anarchy + Private property law, now were talking the ultimate in individual sovereignty and elite impotence. 

haskelslocal's picture

Market going green! So much for healthy retreats! All together now, "Here we go PoMo here we go!" (Clap clap)

Sudden Debt's picture

Tomorrow BAC will report prémarket.

Staying in is pretty risky.

So drop before end or aftermarket.


The rise could also be there because a lot are setting up for a crash and buying puts.

Option expiration day tomorrow while there are so many longs, is also a reason to worry.

P Rankmug's picture

All that is needed is to link currency to gold and maintain its value through currency supply.  It is not necessary to back it with gold or have it convertible to gold.  If it has the same value why would you convert it?  It would be like exchanging 5 nickels for a quarter.  It is not necessary for gold to be hoarded or stored, though some could be held to make people feel better.

The problem now is to determine the proper price to link the dollar to gold so creditors and debtors are in balance.  Even if there is error it would be far better than the current system of fiat currency linked solely to Bernanke's feeble mind. 


chinaboy's picture

Thank you zerohedge for reminding us of the issue of right and wrong with regards to the money printing press

mule65's picture

Did ya buy that dip?  Great buying opportunity of a lifetime!





Arch Duke Ferdinand's picture

World War coming very very soon.

...Over food shortages...

Billions of people, especially in Asia, icluding Oil rich countries will begin revolts.

The only safe quadrant in the World are the....Western Canadian Provinces.

A plethora of food and natural resources w/ only 12.5 million people.

...Led by it's Gateway City of Vancouver BC....North America's Geneva of Switzerland.


SWRichmond's picture

A plethora of food and natural resources w/ only 12.5 million people.

Sounds like a target to me.  How will you muster enough adults to defend it?  Ukraine, anyone?  Not sure I'd be so anxious to brag about it.

High Frequency Traitor's picture

I doubt it Canada has a serious peacenik attitude and some draconian gun laws. Michigan, on the other hand put 700,000 rifle-armed citizens in the feild last deer season, and aside from the Detroit area is also loaded with foor and natural resources (heck, we even have a small oil field of our own).

tgatliff's picture

The money supply must correspond to the growth rate of individuals.. That is not possible in the current world which is why the Gold Standard will never happen again. 

Actually if you think about it... You have two side of the coin.  One side is the Gold Standard which is ideal for creating future generations that provide zero productive capacity, but own all of the wealth.   On the other side you have a Fiat currency which will always end in implosion because it is too temping to play with the money supply...  In the future, hopefully there will be a middle ground found.


TheDavidRicardo's picture

I believe your right regarding the whole Gold Standard and population growth issue. 

And even if you did figure out a way to have it implemented, they would just fudge the population numbers.

Pants McPants's picture

The money supply must correspond to the growth rate of individuals.. That is not possible in the current world which is why the Gold Standard will never happen again.

Not true.  Prices and exchange rates can fluctuate to accommodate an increase or decrease in population and/or gold.  A gold standard protects and preserves wealth for present as well as future generations.

Aristotle's five characteristics of money - durable, portable, divisible, intrinsic value.  Gold IS money, regardless of how many people use it.


Milestones's picture

Pants 1) durable 2)portable 3)divisible 4) intrinsic value 5)?????????????     Milestones

Peace is the x-axis's picture

"...because it is too temp(t)ing to play with the money supply..."

Herein lies the challenge, and the opportunity. To find a way to have the beneficial effects of fiat currency, while eliminating the risk.

Recommend reading Ragnarok's link to FOFOA above. Also worth studying is Silvio Gesell's 'Natural Economic Order' and concept of 'Freigeld' (free money), along with the instances where this has been tried successfully (eg, "the Miracle of Worgl", Austria in Great Depression) until shut down by the C-Bster money elite (and ask yourself WHY the banksters always shut this down).

"The money supply must correspond to the growth rate of individuals..."

There is a way to achieve this. Decentralise central banking. How?  Developing alternate / Complementary Currencies, that work better, and thus over time can outcompete the (likely collapsing) existing currency system/s.

As food for thought, see by way of less-than-perfect example The Ripple Project:


Think about what is possible through (eg) peer-to-peer technology, and encrypted systems.  Is it not possible to develop a system where every individual effectively becomes their own Central Banker, creating their own "demurrage" currency credits, subject to pre-programmed cap limitations?

If We The People do not employ our creative genius to develop something better, from the grass roots, then I fear we will forever remain enslaved to 'money' (and those claiming the exclusive 'right' to issue currency) ... rather than money being a slave to us.




Sean7k's picture

Easiest way- eliminate legal tender laws.

Peace is the x-axis's picture

Not so easy when those who claim exclusive rights on currency issuance also control those who pass the laws. I see Congress took no notice of the Will of the People viz. TARP. 'Nuff said.

Sean7k's picture

If they won't, create black markets and trade in alternative currencies without reporting to the government. Force the issue.