
A little secret that will make the world fall apart - soundsop
http://alumnit.ca/~apenwarr/log/?m=200901#14
======
DenisM
The dollar is backed by taxing power of the US government - there are 300
million people who _must_ pay taxes to US gov and the latter only accepts
dollars. These 300m people will do anything to stay out of jail so they will
trade whatever they have for dollars, thus insuring continuous demand year
after year.

Money is not worthless.

~~~
mjnaus
What you just said means absolutely nothing: "backed by the taxing power of
the US government". First and far most, when everybody comes running to the US
government to cash in on their dollars, there is no taxing power between
heaven and earth powerful enough to satisfy all the creditors. And what do you
imagine the government paying them with?

For regular folks your statement is even more airy; when they start to figure
out that their precious greenback has nowhere to go but down; are they gonna
call their local representatives and ask them to change the dollars into gold
(oops, no can't do, no more gold standard!) or euros/yen/whatever?

Face it; the dollar is backed by NOTHING! And thank god most people don't
realize this because we would be in a much deeper hole then we are now.

~~~
utnick
Is gold really any less arbitrary than paper money?

Couldn't advances in technology create cheap alternatives to gold that would
destroy its value?

~~~
likpok
Indeed. This is the point that gold-standard people don't seem to get. Gold is
just as arbitrary as anything else. More so, even, because it is absolutely
/useless/ in any aspect except as a valuable. It's too soft to do anything
with. Furthermore, it has issues with being a finite supply that is
occasionally moved around (no control over the monetary supply).

Steel. Now /that's/ what we should back our money with. Everybody needs steel.
At least until carbon nanotubes get popular...

~~~
SapphireSun
Actually, the real bottom line is work transfer, which can be measured in
energy. Energy can produce material goods. If I give you 1MJ in exchange for
work, you could do something with it.

    
    
      The only law money needs to follow is conservation, which energy fits. OTOH, the US government does screw around with the conservation law a lot, but it does apply to normal people.

~~~
DLWormwood
I know this is off-topic, but every time I see a post like this, I feel like
I'm back on /. during the 90's, why does this site feel the need to make the
page wider than screen whenever pre-formatted text has long lines. (Other
sites solve this by inserting scroll bars or forcing line wraps, but not this
one.)

~~~
Xichekolas
Depends on your browser. From what I remember, the pre's do properly size and
have scrollbars in FF2, but not in FF3. The problem has to do with td cells
expanding to fit their content I think.

There is a GM script that fixes this in FF3:
<http://userscripts.org/scripts/show/25039>

------
lionhearted
I believed this when I was younger, but now I've amended my position. Paper
money isn't worthless - it has no _inherent_ value, which is true. But if we
all agree upon it as a means of exchange and set fair rules on how it's made
and spread, then we're good.

The issue isn't with paper money, it's with making the rules excessively
complicated or unfair, or just outright breaking the money rules. Paper money
is conducive to that though - any currency specialists have an idea for
creating a better way?

I've always wondered about a private (non-government) diversified commodities-
backed currency floating against international currencies, with liquid
electronic and paper notes - and simple yet rigid rules and governance on how
to absorb new purchases into the system and buy assets with it, and what
reserves to keep for people cashing out. This is one of those things I sit and
think about, but I reckon it'd be hard to do. Thoughts?

~~~
bokonist
You would need to back up the currency with commodities that have 1) minuscule
storage costs and 2) a very high stocks to flow ratio. Also, all commodities
used must have identical stocks to flow ratio, or the pricing between the
commodities will be very unstable. As a result, using a single commodity is
ideal.

As luck has it, such a currency exists. Simply log into your brokerage account
and buy the GLD ETF. It's only been around for four years, it will be very
interesting to see how it does versus the dollar in the long term. If I was a
Fed chairman, I would be worried.

------
DenisM
I entirely agree with the author's main point:

    
    
      there may simply be not enough important things to 
      do to keep everyone busy
    

If people only bought what's truly needed then only a tiny fraction of the
world population would be employed. I for one am very glad that people keep
inventing iPods and other stuff to keep everyone productively occupied.

~~~
debt
Making useless clutter is not productive.

~~~
bwd
Who decides what is useless? If I compare the enjoyment that I receive from
having an iPod and being able to listen to any song I own at pretty much any
time I feel like it against the amount of labor that I performed in order to
acquire it, I feel like I came away with a pretty good deal. I expect that
there is an item or an experience that you value which could only be purchased
with labor via money that I would consider useless. That is the whole point of
having markets, so that people can make their own decisions about what is and
isn't useful to them.

------
bokonist
Mencius Moldbug describes it best:

"Money is the bubble that doesn’t need to pop. As long as there is demand for
indirect exchange, at least one asset will be stockpiled by hoarders, hence
experience demand that is not a consequence of any direct utility, hence be
overvalued. As long as the storage cost for this asset is zero and the supply
in existence is fixed, you have a perfect Nash equilibrium - using any other
asset as a medium of indirect exchange provides no advantage, and runs the
risk of buying into a bubble which will subsequently pop as punters revert
back to the stable standard." (source:
<http://www.interfluidity.com/posts/1233118501.shtml>)

The story of the past ten years is that people started trading dollars for
substitute stores of value ( houses, stocks, oil futures, etc). But those
substitutes were not stable Nash equilibriums. In the long run, supply of
housing is elastic and bubble prices cannot be sustained. Prices crashed, and
people rushed back to using dollars as a store of value. When demand for
dollars increases, it becomes harder to trade goods and labor for dollars, so
the price of goods and labor in dollars decreases ( deflation). However,
employment contracts and debts are denominated assuming a higher price level.
Thus businesses are unable to meet payroll and pay creditors. Businesses fire
workers or go out of business. That's the stage we are at now. The solution is
to simply renominate the currency by mailing everyone checks, in order to
restore/maintain the 2007 price level. This eliminates the frictional problem
without creating massive transfers of resources from the private sector to the
government.

~~~
eru
Nice theory. Though the existence of other currencies complicates the picture.

------
ewiethoff
"[T]here may simply be not enough important things to do to keep everyone
busy."

More and more these past few years I think of a favorite old science fiction
story by Frederik Pohl called "The Midas Plague."

All production is done by robots. Production has become so, uh, productive
that humans spend all their effort just wearing out everything made by the
robots. "Poor" people must live in giant mansions with several robots and wear
out more stuff than "well-to-do" people, who live in small cottages with few
to no robots and enjoy leisurely, intellectual and social pursuits. Comically
(or tragically), it's illegal to get a robot to wear something out for you.

I think I'll reread it today.

~~~
ewiethoff
Addendum (since I can no longer edit): I reread the story. Never mind the
above reference to illegality.

~~~
gdee
Totally OT but I'll try. You don't also happen to know the name of a SF novel
about some project Australia. Somewhat resemblant to what you describe.
Physical work unneeded, robots doing everything, energy problem solved, people
VR'ing with some spinal implants. Whole thing started as a corp. venture witch
sold stocks at a dollar the unit?

------
ken
While I usually don't think of it in such terms, I've found a good litmus test
for me is whether, if I was Phil Connors, something would be of any use to me.
Anything that Phil would lose at night, it's possible for anyone to lose, and
thus I probably will lose it at some point. My activities tend towards
acquiring knowledge, universal skills, and doing things that scare me.

A couple of businesspeople have explained to me that every part of building a
business is about reducing risk. They talk about diversification, but then
only apply it to money. As personal investments go, money (in any form) looks
like one of the riskiest! It's much harder to forget a foreign language, or
how to play a musical instrument, than it is to lose money. I'm trying to
reduce risk by diversifying my assets to the point where money is a relatively
small portion. After all, the happiest people I know don't tend to be those
with the most money.

------
yters
There are two kinds of goods: consumable and capital.

There are two kinds of capital: direct and indirect.

Money is indirect capital, but it is still capital, as long as the financial
infrastructure exists.

------
redsymbol
I'm almost done reading "The Creature from Jekyll Island", by Griffin. Having
had little background in finance or economics, much of what's been happening
in the financial markets the past several years was just a mystery to me, and
about a year ago I decided I wanted to understand how it worked. CFJI has
helped quite a bit. It's not an easy read, even though it's well written,
simply due to the subject matter (I had to read ch. 10 three times). It
nevertheless does a great job of explaining how modern fiat currency systems
work, and the mechanisms used by nations' central banks today.

------
nihilocrat
_But oh no! My job was producing those useless goods and services! And if
people don't buy my useless goods and services, I won't be able to make money,
which means I won't be able to buy food, which means I'll starve! PLEASE,
SOMEONE, STIMULATE THE ECONOMY SO I DON'T STARVE!

The depressing thing about the great depression of the 1930s, as well as the
current potential one, is that there may simply be not enough important things
to do to keep everyone busy._

This seems to be the entire premise of the society present in "A Brave New
World".

------
dylanz
Great synopsis. Who grows food anyhow? Most people have lost this skill, and
it's pushed over to "specialists (farmers)". Have you ever tried eating money
for lunch? It tastes horrible.

------
myth_drannon
Larry Smith is amazing guy, he is a legend in UW. Although he is an economist,
he is particularly fond of computer science nerds :) and encourages them to be
bold and creative. See one of his lectures called "Creating Killer
Applications"
[http://csclub.uwaterloo.ca/media/Larry%20Smith:%20Creating%2...](http://csclub.uwaterloo.ca/media/Larry%20Smith:%20Creating%20Killer%20Applications)

------
gills
Despite this being sort of a doomer rant, I really got a chuckle from the
snarky bit at the end:

"I mean, we can't just give people food _for free_.

That would be ridiculous."

------
known
I petitioned govt to give rice freely to people Below Poverty Line (BPL), an
economic indicator of standard of living, used in India.

Since rice is Indians staple food, I assumed that it will have a cascading
effect on remaining food items and will help in reducing their prices and
inflation.

But to my surprise BPL people started buying exotic products and services with
the money saved because of free rice.

~~~
anamax
> But to my surprise BPL people started buying exotic products and services
> with the money saved because of free rice.

Did this experience teach you that you really don't know much about human
behavior and should stay away from activities where such knowledge is
important?

Or, did you double down and keep at it, perhaps with "I'm a good person so
what I want is good."?

~~~
known
I'd say both wrt <http://en.wikipedia.org/wiki/Perverse_incentive>

------
Jem
If you liked this post, you'd enjoy Terry Pratchett's Making Money.

------
raheemm
The US dollar gets some of its value from the awesome US military. Worse comes
to worse, we can take stuff from others regardless of how poor we are. Its a
self-destructive mode of operation and would be used as a means of last
resort. (North Korea is an extreme example - the world pays them not to go
crazy with their nukes)

A more positive source of the dollar's strength is the US economy and its
resourcefulness and innovation (ie hackers:)

------
known
3 years back I realized that I am also directly are indirectly responsible for
poverty in the world.

~~~
Devilboy
you bastard

------
pshc
Man, Hacker News is full of UW students, eh? I see people reading it in class
all the time, this article is just more evidence...

------
edu
money is not useless, simply it's more comfortable to carry and trade with a
set of coins/papers than a cow.

------
Allocator2008
Everyone in this forum is stupider for having read this. I award you no
points, and may God have mercy on your soul.

