A Letter from Iceland: A World without Money | Hacker News Reader

A Letter from Iceland: A World without Money

ft.com

52 pointstortilla22 comments

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Use this link to bypass the "register to read the whole article" rubbish:

http://www.ft.com/cms/s/0/66c87994-aec1-11dd-b621-000077b076...

This should work: http://www.ft.com/cms/s/0/66c87994-aec1-11dd-b621-000077b076...

Gave me only the first two paragraphs. jgranby's link, above, gave me the whole thing.

I had the opposite result - tortilla's link worked, jgranby's didn't.

You can watch this whole thing play out, and see how it ends, if you read about the Argentine bank crisis:

http://en.wikipedia.org/wiki/Argentine_economic_crisis_(1999–2002)

(I have friends in Buenos Aires, which is for some reason a security hacker hotbed).

In some ways I can think of, Iceland is much better off than Argentina was; Iceland is the victim of a short-lived failure of financial engineering, while Argentina's bank run was caused by long-term systemic corruption and unemployment.

Tyler Cowen says "I genuinely cannot imagine what the endgame looks like."

http://www.marginalrevolution.com/marginalrevolution/2008/10...

Since you can see how it ends you should explain it to him.

Did you notice all the references to Argentina in the comments for that post?

This is, by far, one of the best written articles I have read in a long time. Thanks.

It surely is well written, but distilled to its essence, here it is: Our banks collapsed and our credit cards stopped working. Bad banks!

So there's no real subsistence crisis yet? I wish there was about how the people who were hit the hardest were coping, but then again I remember that Iceland's population is less than half that of Boston and wonder how much more press coverage they are getting relative to their population size. Now why a population of 320,000 would elect to face these coming hardships by hunkering down and not moving to a more diversified and larger economy, that is fascinating and the author does speak about the cultural roots responsible for that attitude.

by far, one of the best

So there's a huge gap between, say the third and fourth best articles you've read in a long time, but only a tiny gap between numbers one, two, and three?

there's plenty of money in the world, just no value. any government can print up a trillion dollars. we have half a quadrillion dollars in total outstanding global debt (all govt, private, hedged, and derivative-based debts)...one must wonder when global citizenry will awaken to the fact that global fiat currencies are all converging at worthlessness simultaneously

Ron Paul for IMF president and US Treasury secretary.

Just because you can't touch something, doesn't mean it isn't real. Just because you do not understand something, doesn't mean it is made up.

Conversely, this is also a reason given to justify stuff like Creationism. Maybe it is just 'that simple'; our current financial crisis is primarily the result of a bunch of people realizing "oh, it's bad to give out huge loans to people who are probably going to default, but sell them like they are AAA loans", or perhaps more precisely "oh, maybe we shouldn't print so much imaginary money to the point where there is not enough real money getting generated to back it up".

Sigh, this stupid meme again.

Fiat money is backed by something - the majority of the time it's backed by real estate, or other real property.

Fiat money allow the value of property to be represented as cash.

If I build a house there is more value in the world, so there should be more paper money too - without affecting inflation. This is what happens with fiat money.

On the other hand if we use gold, then if I create value - a house - you can't also create more gold to match it, so instead I just deflated the value of the gold (i.e. the ratio of value of real propery vs the value of all the gold just changed) - that's bad.

Gold money does not, and can not work unless you are in a static economy. Fiat money works in both cases.

Please spread the news: the anti fiat money/anti federal reserve/anti fractional reserve banking meme's are dead.

A currency back by land makes a lot more sense than a currency backed by... nothing, which is the definition of fiat money: 'Fiat money is money that is intrinsically useless; is used only as a medium of exchange' http://economics.about.com/cs/economicsglossary/g/fiat_money...

Fiat money is backed by something - the majority of the time it's backed by real estate, or other real property.

Does that mean I can redeem my dollar for a specific amount of land or real property? Or do you mean it's 'backed' by such property to the extent that I could trade it for such property, maybe -- in which case the value of everything I own is 'backed' by a diversified portfolio consisting of basically every other asset in the universe.

Fiat money allow the value of property to be represented as cash.

Any currency allows this. If you have a currency backed by gold, or barrels of oil, or heroin futures, you can represent the value of a house in terms of that currency. In fact, you can represent the house as a single unit of a currency denominated in houses.

Why is a declining real price level bad? It rewards saving, keeps interest rates low, and makes people want to accumulate productive assets rather than natural resources, property, or other hedges. Also, why do we trust people not to print up more fiat money? I can certainly trust gold miners not to 'print' up more gold -- the market is just too inelastic.

Please spread the news: the anti fiat money/anti federal reserve/anti fractional reserve banking meme's are dead.

I'm sorry the meme is are dead. It has lasted a surprisingly long time, what with the long history of governments' responsible stewardship over printing presses, banking systems, and the like. Why on earth would anyone think that a fiat system does anything other than adjust, like clockwork, to the size of economy? Why doesn't someone just tell them that $1 in 2008 can buy about as much real estate, food, or clothing that $1 in 1908 could?

The dollar is a pretty stable currency, and it hasn't faced any serious crises. So shouldn't its ability to hold most of its value be a great argument in favor of fiat currency? I bet people would even consider your ideas sensible if the dollar had only lost a modest amount of its value -- 5%, 10%, maybe 15%. So, ars, how well has our tailored-to-the-economy, modern, anti-meme fiat currency done during that time period?

It rewards saving, keeps interest rates low, and makes people want to accumulate productive assets rather than natural resources, property, or other hedges.

People won't accumulate productive assets, they'll horde money, which will contribute further to declining prices. This will put an economy into a deflationary spiral.

That's the whole meaning of money. Money allows us to trade without having to barter with or for things we do not want or do not have access to.

Fiat money is only backed by one thing - people's trust in the ability to trade with that money (which, in itself, is usually backed by the government). No more than this is required, though, since if you can trade fiat money for goods and services, why does it need to be physically backed by gold or similar?

Fiat money can vary in value, but that's not a bad thing as long as the variations in this value are controlled properly via interest rates and fiscal policy.

If I build a house there is more value in the world, so there should be more paper money too - without affecting inflation. This is what happens with fiat money.

Depending on what other goods were spent to build the house, the total value in the world could increase or decrease. Does your system burn some paper money to reflect that?

There is high value in the work that people do to build that house, though. Look to your computer -- all it is, is a collection of petrochemicals, metals, a bit of rubber, and a bunch of bits etched into silicon. If you were to look at the sum total cost of what it took to build your computer, it would probably be much less than what you paid for it.

Yet you probably think you got a bargain. This is not because you are a fool, but because you probably did get a bargain -- your computer is, as a programmer, your means to create value and wealth.

Every time I read about the gold standard, I'm reminded of the Germans and Japanese during World War II -- they were insanely gold-hungry, and yet the only lasting legacy of value from either culture, has been the technologies they developed.

Wealth is something we create, not metal dug out of the ground.

Of course wealth is created, but let's go back to the topic of money. Every worker creates new value every day. Does this mean it's okay to pay everyone's salary with newly printed money?

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