by Tim Fullerton
I see separate long-term policies converging:
1. Gold Standard. Under a gold standard, the country can only have as
many dollars in circulation as it has solid assets. The currency
represents those assets.
FDR took our country off the gold standard (for
internal purposes) in the 1930's so he wouldn't be constrained in his effort to
spend our way out of the great depression.
Nixon took us off the gold standard for international trading in the
1970's. So he could fund LBJ's war on poverty, the brand new EPA, and the
Viet Nam war all at the same time.
Since then, our money has been backed by nothing except the "Full faith and
credit of the United States." Faith? That means our money is now
physically not even worth the paper it's printed on.
2. Related to #1. Quantitative Easing. Since even before the
recession or crash or whatever it was back in September of 2008, the Federal
Reserve has been printing money at an extraordinary rate. Like any asset,
the more rare something is, the more valuable it is.
Simple law of supply and demand; if the supply of something grows and the
demand stays the same or drops, the price (inherent value) must fall.
3. Related to #2. The American dollar is the "global reserve
currency."
This means, that when Brazil wants to buy something from
South Korea, the Brazilians must convert the purchase funds into dollars to make
the purchase. Then the South Koreans convert those dollars into whatever
their money is called. This is supposed to keep all international
transactions fair (level the playing field).
Lately, Russia, China and the International Monetary Fund (IMF) have all
called for a switch from the dollar for international trading. If this
happens, the worldwide demand for dollars will go down by a LOT. (I read
one estimate of a 25% drop). This may cause havoc here -- since this
demand is what has been propping our (paper only) dollar up for so long.
4. American government debt. (You knew this one was coming, didn't
you?) There's been some talk that the government actually wants to inflate
the dollar so they can pay off foreign bond holders with worthless money.
That's the Full Faith and Credit of the United States?!??!
How is this advantageous? I recall that during the inflationary 1970's,
this same strategy was employed by average citizens; they bought everything (and
I mean EVERYTHING) on their credit cards assuming the money sent to pay off the
cards would be worth less than “today's” dollars. Admittedly, I'm no math
wiz, but I fail to see any advantage here; you still have to pay off your debts
and the accumulated interest besides.
I foresee a convergence of these policies into a PERFECT STORM. Savings
accounts: worthless. Paychecks: worthless. Prices rising faster than the
money can depreciate. $100,000 bills becoming commonplace – one of them
might cover a single month's worth of electricity.
I see separate long-term policies converging:
1. Gold Standard. Under a gold standard, the country can only have as
many dollars in circulation as it has solid assets. The currency
represents those assets.
FDR took our country off the gold standard (for
internal purposes) in the 1930's so he wouldn't be constrained in his effort to
spend our way out of the great depression.
Nixon took us off the gold standard for international trading in the
1970's. So he could fund LBJ's war on poverty, the brand new EPA, and the
Viet Nam war all at the same time.
Since then, our money has been backed by nothing except the "Full faith and
credit of the United States." Faith? That means our money is now
physically not even worth the paper it's printed on.
2. Related to #1. Quantitative Easing. Since even before the
recession or crash or whatever it was back in September of 2008, the Federal
Reserve has been printing money at an extraordinary rate. Like any asset,
the more rare something is, the more valuable it is.
Simple law of supply and demand; if the supply of something grows and the
demand stays the same or drops, the price (inherent value) must fall.
3. Related to #2. The American dollar is the "global reserve
currency."
This means, that when Brazil wants to buy something from
South Korea, the Brazilians must convert the purchase funds into dollars to make
the purchase. Then the South Koreans convert those dollars into whatever
their money is called. This is supposed to keep all international
transactions fair (level the playing field).
Lately, Russia, China and the International Monetary Fund (IMF) have all
called for a switch from the dollar for international trading. If this
happens, the worldwide demand for dollars will go down by a LOT. (I read
one estimate of a 25% drop). This may cause havoc here -- since this
demand is what has been propping our (paper only) dollar up for so long.
4. American government debt. (You knew this one was coming, didn't
you?) There's been some talk that the government actually wants to inflate
the dollar so they can pay off foreign bond holders with worthless money.
That's the Full Faith and Credit of the United States?!??!
How is this advantageous? I recall that during the inflationary 1970's,
this same strategy was employed by average citizens; they bought everything (and
I mean EVERYTHING) on their credit cards assuming the money sent to pay off the
cards would be worth less than “today's” dollars. Admittedly, I'm no math
wiz, but I fail to see any advantage here; you still have to pay off your debts
and the accumulated interest besides.
I foresee a convergence of these policies into a PERFECT STORM. Savings
accounts: worthless. Paychecks: worthless. Prices rising faster than the
money can depreciate. $100,000 bills becoming commonplace – one of them
might cover a single month's worth of electricity.
RSS Feed