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<p>[QUOTE=&quot;fatima, post: 1248682, member: 22143&quot;]I didn&#039;t say it was limited to modern times.&nbsp; I said that it was a product of fiat money.&nbsp; Fiat money has certainly been used many times in history and each time, its end came from one of two results, economic collapse or war.&nbsp;&nbsp; Each time it failed it went down with the scholars and professors of the time citing economic theory that &quot;it&#039;s different this time&quot;.&nbsp;&nbsp; Of course they are not around when there is nothing but ashes left.&nbsp;&nbsp; </p><p><br /></p><p>During the period leading up to the Revolutionary War, the prevailing currency was Colonial Script, a fiat currency, not the official coinage.&nbsp; It was printed by the colonial states as a way to separate the local economies from the Bank of England and hence the King.&nbsp; Of course when Franklin, if I remember correctly, explained this to the British, they went nuts.&nbsp; Go look up what happened after this which explains how the currency became close to worthless and how it contributed to the war.&nbsp; &nbsp; During the Civil War, both sides issued paper fiat currency that promised to pay back the bearer in PMs after the war was over.&nbsp;&nbsp; Again inflation on both sides with the added pressure that whichever side lost, the promise would not be kept.&nbsp;&nbsp; It&#039;s always the same.&nbsp; </p><p><br /></p><p>On your economics class.&nbsp; How would your professor answer this very simple question.&nbsp;&nbsp; Assume a fiat based system like the one we have here in the USA.&nbsp;&nbsp; Instead of the treasury issuing a $ into the economy, it &quot;borrows&quot; the $ from the Federal Reserve.&nbsp;&nbsp; So now there is $1 in the system.&nbsp; In one year, the US Treasury owes the interest for this $.&nbsp;&nbsp; If it is 5% then 5 cents is owed.&nbsp;&nbsp; Now the total amount of money in the system is $1.05.&nbsp;&nbsp; The question for the professor is &quot;where did this 5 cents come from&quot;?&nbsp;&nbsp; The answer to the question is not as easy as it first seems and it exposes the fundamental flaw in fiat money.[/QUOTE]</p><p><br /></p>

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