Quote from: jbreher on January 13, 2017, 09:48:17 AM

Quote from: Cassius on January 13, 2017, 09:11:02 AM

Quote from: jbreher on January 13, 2017, 09:05:24 AM

OK, here's the funny thing. The central bank can bloviate all it wants. In the end the people have the power. (OK, it wasn't exercised in this recent India demonitization, but we should be ready for the next ((hint: it's coming to you)) ).

What do I mean? India was about 80% cash. Why would the people not just reply with 'fuck you - we'll just keep using these notes the same way we have been'. Nothing changes. 80% of all transactions continue being done in cash -- not recognized by the gubmint, but who the fuck gives a shit -- and Modi ( and his wall street financiers) get to stew over in the corner. I mean really -- for the people, what is the downside?

The problem is that you have to trust every other member of society to honour the value of that non-government-backed cash. It's like a massive game of Prisoners' Dilemma. Personally I wouldn't trust other people to maintain the value of my wealth (any more than I'd trust the government). Unless it has some sort of very widely recognised/intrinsic value, you're playing a very dangerous game.

But aren't you already trusting the government to maintain the value of your cash?

The reality is that fiat money only has value because the government accepts it for taxes. Take that away and you are literally asking people to trade against pieces of paper. That works so long as there is confidence: if people agree something is money, it is money. But if people start suggesting the emperor is running around in the buff, it's going to fall apart pretty fast.
Of course, the emperor is running around in the buff and things are going to fall apart. It will just take a little longer whilst the government is able to enforce the value of fiat.