Ok, here we go. Fire off a question, but if you wait too long I might jump in and start explaining what "real money" really is, and other interesting stuff.
Yes, if we all agree. There are three requirements for a substance to be used as money, and I'm kind of paraphrasing here, but it 1) must be unique enough to prevent forgery, so sea shells would probably be out. 2) it must hold it's value over long periods of time, so perishables are out and 3) it must be easy to transport, i.e. it fits in your pockets without making it obvious how much your carrying. So Gold fits all these requirements very well and that's why over the last 5,000 years or so it has been used as money, gold and silver are "real money". The Federal Reserve Notes in your pocket are not money, they are currency. FRNs don't hold their value over long periods of time. The FRN was created back in 1914 when the Federal Reserve Act and the Income Tax Act were passed at the same time. How much wheat would a one dollar FRN buy then, how much now? So you can see it doesn't hold it's value, at least not in terms of wheat. This leads me to the word "inflation", which means one thing and one thing only, an increase in the money supply. When the Federal government goes deeper in debt they create a Treasury bond which is a debt instrument and they also create the equivelent amount of currency which is deposited into the governments account at a bank, then the government can spend the money for whatever the original purpose, such as building a bridge or aircraft carrier or space shuttle, etc, etc. All things being equal that increase in the national debt is also an increase in the money supply, therefore the money supply was "inflated". What we use as currency is actually and/or also is the Federal Debt. Look at a dollar bill and you see the serial number, which is tied to the bond that was created when the bill was printed. At no time can you take your FRN to a bank and redeem it for gold or silver. The government stopped backing the currency with gold back in the depression when FDR issued an executive order directing the american people to take their gold to a bank or Federal Reserve Bank and exchange for FRNs. President Johnson stopped using silver for coins during his presidency. So you see that today the FRNs are just a piece of paper, a certificate of debt that is backed by the governments power to tax the people to get the interest needed to pay the bond holder. At the time FDR collected the gold (the public only turned in about 20%) it was valued at $20.67 per ounce, per the Constitution. Then a year later FDR revalued gold to $35 per ounce. If you had held on to your gold you would have realized a 40% increase in value, in terms of FRNs .. overnight. The gold was then used to back the FRNs on the international market. If a foreign government had U.S. dollars (FRNs) they could redeem them for gold at a Federal Reserve Bank. The government robbed the U.S. population so the Federal Reserve Bank could use the gold to back their currency in international trade ... sounds like a crime to me!! Today the government is going deeper and deeper in debt everyday, they are increasing the money supply, i.e. creating inflation and to make things worse they are doing this at a time when the economy is slowing. Ok, that should get some questions going.
Could you turn this long comment into a blog entry? Also, here's a use for gold that might help it retain it's value...? Is that a reasonable way to look at it? http://tinyurl.com/ykmzkbt
The job of gold is to retain or store wealth. For 5000 years human beings on planet earth have sought after gold for one reason or another and it evolved into it's roll as "money". Before gold was money livestock was used, then bushels of grain etc, etc. But gold and silver have worked better than anything else over those 5000 years.
Okay, I'm game. What do you mean by "real money?" Couldn't it be sea shells if we all agreed?
ReplyDeleteYes, if we all agree. There are three requirements for a substance to be used as money, and I'm kind of paraphrasing here, but it 1) must be unique enough to prevent forgery, so sea shells would probably be out. 2) it must hold it's value over long periods of time, so perishables are out and 3) it must be easy to transport, i.e. it fits in your pockets without making it obvious how much your carrying. So Gold fits all these requirements very well and that's why over the last 5,000 years or so it has been used as money, gold and silver are "real money". The Federal Reserve Notes in your pocket are not money, they are currency. FRNs don't hold their value over long periods of time. The FRN was created back in 1914 when the Federal Reserve Act and the Income Tax Act were passed at the same time. How much wheat would a one dollar FRN buy then, how much now? So you can see it doesn't hold it's value, at least not in terms of wheat. This leads me to the word "inflation", which means one thing and one thing only, an increase in the money supply. When the Federal government goes deeper in debt they create a Treasury bond which is a debt instrument and they also create the equivelent amount of currency which is deposited into the governments account at a bank, then the government can spend the money for whatever the original purpose, such as building a bridge or aircraft carrier or space shuttle, etc, etc. All things being equal that increase in the national debt is also an increase in the money supply, therefore the money supply was "inflated". What we use as currency is actually and/or also is the Federal Debt. Look at a dollar bill and you see the serial number, which is tied to the bond that was created when the bill was printed. At no time can you take your FRN to a bank and redeem it for gold or silver. The government stopped backing the currency with gold back in the depression when FDR issued an executive order directing the american people to take their gold to a bank or Federal Reserve Bank and exchange for FRNs. President Johnson stopped using silver for coins during his presidency. So you see that today the FRNs are just a piece of paper, a certificate of debt that is backed by the governments power to tax the people to get the interest needed to pay the bond holder. At the time FDR collected the gold (the public only turned in about 20%) it was valued at $20.67 per ounce, per the Constitution. Then a year later FDR revalued gold to $35 per ounce. If you had held on to your gold you would have realized a 40% increase in value, in terms of FRNs .. overnight. The gold was then used to back the FRNs on the international market. If a foreign government had U.S. dollars (FRNs) they could redeem them for gold at a Federal Reserve Bank. The government robbed the U.S. population so the Federal Reserve Bank could use the gold to back their currency in international trade ... sounds like a crime to me!! Today the government is going deeper and deeper in debt everyday, they are increasing the money supply, i.e. creating inflation and to make things worse they are doing this at a time when the economy is slowing. Ok, that should get some questions going.
ReplyDeleteCould you turn this long comment into a blog entry? Also, here's a use for gold that might help it retain it's value...? Is that a reasonable way to look at it? http://tinyurl.com/ykmzkbt
ReplyDeleteThe job of gold is to retain or store wealth. For 5000 years human beings on planet earth have sought after gold for one reason or another and it evolved into it's roll as "money". Before gold was money livestock was used, then bushels of grain etc, etc. But gold and silver have worked better than anything else over those 5000 years.
ReplyDeleteYeah, I kinda rambled here. I'll work on it, see my message on Facebook.
ReplyDelete