Tag Archive | "fiat money"

Sound Money

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The term sound money, also known as honest, strong, or hard currency relates to its value in terms of the world’s standards.  For example, when you visit a foreign country, you may be compelled to exchange your U.S. dollars for the coin of the realm if you wish to purchase goods, pay the fee to enter a museum, or do anything else that a tourist may wish to do.


This is just what I did when I traveled to Italy in 2000.  At that time, the rate of exchange was 2,000 liras to every U.S. dollar.  Thus, by exchanging 100 of my U.S. dollars, I received 200,000 liras.  For the first time in my life, I felt like a millionaire!  But when I purchased food, wine, or gifts for my family back home, I learned that the prices of these commodities were inflated, thus creating a money system that paid 2,000 liras to every one of my little ol’ U.S. dollars.


Liras or dollars, Euros or rupees, the real value of money lies in its purchasing power in the world market.  In my lifetime, I have witnessed and felt the affects of deflation and soaring inflation, and I am not alone.  Many are those who remember “the good old days” when our money went a helluva lot further than it does now.  In fact, cyberspace is abuzz with such memories, in the form of circulating e-mails concerning the prices of yesteryear.


For instance, in the 1920s, three pounds of steak cost 50 cents in a typical New York City butcher’s establishment!  And this was a retail price paid by regular consumers, not a wholesale price.  During the Great Depression, a new automobile cost $800 dollars.  Today, the average new car, not a luxury car, can run as much as 40 times more: $ 32,000!


Most of us simply accept the fact that we must pay more for the same goods that we once bought for far less.  Escalating prices are like a ladder whose summit is always out of reach, and a very familiar ladder at that.  We’ve been conditioned to accept the concept and the harsh realities of inflation.


It’s easy to blame inflation — the dwindling purchasing power of our money as reflected in the costs of goods and services — on the greed of the manufacturers.  Manufacturers are those that produce finished goods as well as those that produce merchandise, such as automotive parts, that contribute to the manufacture or assembly of finished goods.  And it would be right and just to lay blame at the manufacturers’ feet.  But where does the government come into this equation?  Are our lawmakers exempt from blame?


Some suggest that they are.  Some suggest that the American Constitution, as written by our Founding Fathers, states that U.S. currency is to be backed by precious metals (gold and silver).  If our government followed these guidelines, it would place limits upon the amount of paper money and coins that it printed, minted, and distributed via the Federal Reserve.  Some believe that the more money we print or mint without limitation, the more the currency could be considered counterfeit as per their interpretation of the Constitution.


When crafting this part of the Constitution, our Founding Fathers no doubt relied upon the history of gold’s stability.  From the days of the ancient Pharaohs, gold has been the one commodity, worldwide, that has never devalued.  Gold has, in fact, risen in value over the years, representing the one form of monetary exchange that has remained unshakable during times of economic flux and crisis.  So sure a bet was gold that our government kept its stores under lock, key, and guard, at the United States Bullion Depository, a fortified vault adjacent to Fort Knox, Kentucky.


On March 14, 1900, the Congress of the United States signed into law the Gold Standard Act. This, in essence, established the price of gold at $20.67 per ounce in U.S. money.  This was in force until the Great Depression.  In 1933, under the threat of a collapsing, paper money-based economy, President Franklin Roosevelt denied private gold ownership to its citizens, with the exception of jewelry.


In 1946, the Bretton Woods system was enacted to fix the exchange rate.  It allowed foreign governments to sell gold to the U.S. at the price of $35.00 an ounce; this continued until August 15, 1971.  In 1971, then-President Richard M. Nixon ceased the trading of gold at $35.00 an ounce.  For the first time in history, formal links between major world currencies and real commodities were severed. The gold standard has not been used in any major economy since.


Today, almost every country, including the U.S., is using fiat money, defined as “money that is intrinsically useless,” used only as a medium of exchange.


Doesn’t that make you feel secure knowing that your money, whether it’s stored under your mattress or in a savings account, has no worth if the economics of the country should change?  Maybe it’s time to spend that useless money for something real!  “Don’t get stuck holding a bag of useless money” may emerge as yet another quote from a White House insider.


Maybe that’s why Publishers Clearing House is giving away “A Million Dollars a Year for Life” and why President Obama is borrowing trillions of Chinese fiat dollars, because … it’s only paper!


Do insiders know what the government doesn’t want its people to know?  “The people” of course are you and me and our neighbors, the average taxpayers, the ones left holding the bag when calamity strikes.  The cold hard fact is that money used for solely exchange purposes is governed by the supply and demand of consumers.


For instance, if people stopped buying gasoline, the price of gas at the pump would dip to twenty-five cents a gallon due to the lack of demand.  If you recall just a few years ago, consumers did manage to drive down the price of gas without so much as anything as organized (or disorganized) as “Occupy Wall Street.”   The price of gas had gotten so high that many people nationwide began to carpool and also cut back on unnecessary trips by car.  The gas companies felt the pinch and thus lowered prices at the pump.  Slowly and inexorably, however, those prices have crept back up.   They did so due to supply and demand.  Once the prices went down, more people stopped carpooling and engaged in their normal driving activities; therefore, they needed (demanded) more gas!


Thus, we “the people” are doomed to be the victims of devalued currencies.  If money were to become sound once again, it would regulate prices because it would be in demand.  Until and unless it does, the guys holding the useless money — the average taxpayer — get shortchanged.  And that’s no pun.


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