“In June, the US budget deficit, which counted $864 billion, was larger than the total debt that was incurred from 1776 through the end of 1979, which is shocking”
– Morehead, CEO of Pantera Capital (June 2020)
Today the crypto, NFT, metaverse world has seen a lot of projects that are mostly hype. These hype driven projects have not achieved much in the market as they are mostly based on the promises made by the promoters. One bubble worth mentioning where you can understand the crowd psychology and how fiat currency was formed is Mississippi bubble.it was the greatest catastrophe that bankrupted the entire country & the French king lost his head.
The Mississippi Company was formed to colonize the lower Mississippi valley. John Law (European father of fiat?), the company director and was an ambitious man who wanted to try out paper currency which was easy to carry and exchange. He was also close to the French monarch, Louis XV and was same time governor of the central bank of France. Law replaced the metallic currency with a paper currency based on government debt that had been converted into company shares. This circulating debt would provide companies with a ‘fund of credit’ which could be used as equity against commercial ventures.
1717- Lower Mississippi valley was just a swamp, the company HYPEd and spread tales of fabulous riches and boundless opportunities. Shares were sold for 500 livres
1719 — The rich aristocrats, speculators, and businessmen fell for the hype and FOMO’d to buy the shares.
1 Aug — 2750 livres
30 Aug — 4100 livres
4 Sep — 5000 livres
2 Dec — 10000 livres
EUPHORIA and Mania swept, people sold their possessions to buy the shares, people started buying houses where John lived just to get shares and prices of houses in the vicinity jumped 16 times, space was at such a premium that an elderly hunch-backed man was able to make substantial sums by lending his hump as a writing-desk to speculators. People encamped around the area erecting hundreds of tents along with refreshment stalls. Some traders offered to buy aristocracy. Servants flaunted their wealth, many left their jobs thinking they have found a wealth elixir.
Then some speculators realized this bubble was about to BURST as Mississippi was just a swamp and started selling shares for gold. Then people started cashing out, since John was also governor of French Central bank he started buying more of the shares to stabilize the price until they ran out of money. So John prints more money until inflation was sky-high. The government hired many people to show that they found gold and transported mining equipments to Mississippi to SHILL the shares. but the damage was done price the whales RUGPULLed and the price of shares dropped from 10,000 livres to zero. John Law disguised as a woman and escaped to Venice. Whales laughed all the way to the bank, the central bank and the royal treasury owned a huge amount of worthless stock and had no money. Small investors lost everything, and many committed suicide.
The royal French financial system never recovered and lenders charged very high interest to lend money to France, unable to finance wars, French colonies fell to Britain. The following events led to French Revolution with king Louis XVI losing his life.
HYPE → BOOM → SHILL→FOMO → EUPHORIA → RUGPULL → BURST
What has this got to do with modern fiat currency.
After the war, US ended up with the 2/3rd of worlds gold. In an agreement called Bretton Woods, US government said other countries around the world could exchange US dollars for gold and just to use US dollars for trade. This is how US dollar became the dominant international currency.
But US got into Korean, Vietnam and Cold wars and started printing more money than gold they had to pay for the expenses similar to John Law.
Some governments suspected this so around late 60s they started exchanging US Dollar for gold. One of the presidents was
“What the United States owes to foreign countries it pays — at least in part — with Dollars that it can simply issue if it chooses to. This unilateral facility contributes to the gradual disappearance of the idea that the Dollar is an impartial and international trade medium, whereas it is in fact a credit instrument reserved for one state only.
– Charles De Gaulle, 1965
Gold does not change in nature. Gold can be made either into bars, ingots, or coins…has no nationality & is considered, in all places and at all times, the immutable and fiduciary value par excellence.”
So by 1971, President Nikon did something SHOCKING he said dollars cannot be converted to gold anymore in an event known as Nikon shock and that is how currency established by government regulation that does not have intrinsic value or use value which we know as fiat or free floating currency was born.
So are we in fiat bubble ?
Let’s see.
Check the graph below to see the amount of money printed in June alone.(Source)
According to Morehead,CEO of Pantera Capital, during the pandemic, in June alone US printed more money than in the first two centuries after its creation. He continued “In June, the US budget deficit, which counted $864 billion, was larger than the total debt that was incurred from 1776 through the end of 1979, which is shocking.”
The real inflation figures are much higher than what the official stats say.
So is US bubble like John Law Mississippi project? Lets wait in see, meanwhile put your assets in deflationary or real world assets that can appreciate in value.