You are right my friend. But that is not my point. You are merely describing the true nature of the current system. I was talking about something else.
The only reason why a fiat system fails is because of over ISSUANCE of currency. Aside from that, a nation specially the US is way better off making its own national/international currency than using anything else…even GOLD.
No I did not say that. You are saying them and you are right. But is not my topic here.
You are right…but do me a favor…define confidence and how such confidence might die in the future. Despite inflation I can’t imagine a world order without the dollar playing still a fundamental role.
True…as I said before…over issuance of currency is the demise of fiat money…aside from that is better for the US to use dollars than gold.
Hello matey. Have you seen the US’s national budget deficit? The national debt? The unfunded liabilities? Eventually no other nations will buy US treasuries and the government will either have to default on its debt obligations or monetize the debt. Either way, confidence domestically and internationally in the fiat currency is dead in the water.
The Chinese have been whispering about a new global reserve currency for ages, perhaps involving a “bouquet” of other currencies or an entirely new construct all together. Who knows. In any case, the commodity markets are telling everybody one thing very clearly: confidence in the dollar is waning.
No problem…
You are right…the USD will not continue to be the reserve currency for world trade forever…but lets exploit this advantage as much as possible.
The US has trade advantages due to its international status( HELLO!!). Only one county makes the world currency…“monopoly power”. But…as you well said …due to inflation we see an unsustainable trade and financial deficit that will someday come to a painful end.
I can only speculate on what would happen under such scenario…but I guarantee you that it will continue to be in use. I just wonder why you hate the beautiful green notes???
I never mentioned the word “stick”. The value of a commodity is irrelevant…why don’t we instead use diamonds…they are way more valuable than gold.
But that is not my point and is not what I have been discussing all along.
Gibberish…good point but I am not not in philosophy forum. I simply made an economic point.
You leave me speechless…your facts are irrevutable
But friend…I already said the only enemy to a fiat currency its is over issuance or in other words inflation. Aside from that …my point is…"under a system of no inflationary fiat money like the US dollar…America is better off using its own dollars than anyother currency.
That’s all.
You’re the one claiming the US dollar is great. Why then does it take over 1000 dollars to buy an ounce of gold today when a few years ago it only took 600? The dollar has lost value compared with one ounce of gold, that’s why.
We could use diamonds. However, you can’t really divide a diamond easily and cutting them can reduce their value. Commodities like gold are better suited as money for many reasons, notably because they can be melted or divided and hold a decent value relative to their size and weight. In any case, it’s best to leave people with choices. Let the market decide which commodities should be the prevailing mediums of exchange.
It’s certainly not alright that a nefarious and clandestine group of people known as the Federal Reserve get to decide how much currency should be in circulation. Neither is it alright for government to define what the medium of exchange should be in the first place!
This is like saying Bernie Madoff’s ponzi scheme is fine, just as long as we all ignore the fact that it’s a ponzi scheme.
Oh I see. “The Market” Define this allmighty market that always has the best solution.
I am not claiming the US dollar is great…it is awesome…
I dont see why the price of gold diminish the greatness of the US dollar.
Well i totally agree with you here…please note that I did not say those practices…specially the Fed’s is ok or even beneficial to anyone.
But regarding the government’s involvement on medium of exchange I disagree and agree with you somewhat. I think the government has the authority and all rights to issue a national currency, however, private or market currencies should also be allow to compete. Why not??
First of all, I don’t think there’s anything that can be titled “gold theory” per se. The policy question you bring up is, however, one of continuing to use the USD or switching to a commodity-backed form of currency, with the ideal commodity being explicitly recognized as being gold. But to understand which one is a better currency simply for Americans (ignoring the costs borne by the rest of the world), we have to look at what potential advantages come from using the USD and what the nature of those advantages is, because I think you will see that those supposed advantages of the USD are neither stable nor desirable once the effects of the instability of using the USD manifest themselves.
After WWII, the US emerged as a world superpower and as the leader of the Western World. This, as you say, was the advantage of a life time. It was decided at Bretton Woods that the USD would be the “key currency” in a new international monetary system, where the USD would be backed by gold (yet redeemable only to foreign governments, not citizens) and foreign currencies would be backed by reserves of US dollars. The supposed advantage of using the USD in the United States was simply this: because other governments needed US dollars to back their own currencies, the US could essentially export dollars in exchange for real goods and services from abroad. It seemed as though we could get rich simply by printing money, because the new money would be sapped up by foreigners so that we wouldn’t have to deal with inflation at all. Virtually free imports! That was the promise of the Bretton Woods system for the United States.
However, we must recognize that this system could only persist when foreign governments desired more US dollars for their own currencies. As Americans continued to increase the supply of US dollars, and as many of these dollars were exported, the inevitable effects of inflation eventually started to be felt as the increase supply of USD decreased the value: increasingly, foreign governments were deciding to hold the US government to its promises and to redeem their US dollars for gold at $35 an ounce.
This is where you fail to recognize why Nixon abolished this system: it was not true that inflation didn’t threaten the future of the USD before Nixon cut the ties to gold, it was precisely because inflation was threatening the USD that Nixon abolished the last link to gold. Because foreign governments were increasingly calling on the US government to redeem its US dollars, the US reserve of gold, and thus the base of the USD, was being threatened. Nixon’s choices were either to stop inflating the money supply (and potentially even to have to contract the money supply) in order to maintain the United States’ gold reserves, or to break the link with gold altogether. He choose the latter course of action, as history shows.
And here is my crucial point: simply because the US has a monopoly on the production of US dollars does not mean that there is always going to be a demand for US dollars. As the supply of a fiat currency is increased, it is valued less and less, particularly because a fiat currency is valued only because of its marketability value, rather than any real use value. People will gradually expect the value to decrease, and will want to decrease their cash-balances of that particular currency, thereby further decreasing the value of the currency. Eventually, this process leads to hyperinflation.
So while the US may have had a great run getting people to demand the USD, because of the nature of inflation, there will eventually be a point at which people stop demanding more USD and start trying to use them to purchase US goods and services. However, with the increase in nominal demand for US goods and services, US prices will start skyrocketing, thereby encouraging more people holding US dollars to spend them in the US while they still have value. When this point comes, the USD will be finished. And the longer we rely on people to keep sapping up our dollars, the worse this crack-up boom will be, and the more everyone loses.
Eric,
Thank you for taking your time and effort to write so much and so accurately.
I agree with you all the way…I just think the US dollars is worth more than any other form of currency to Americans. The opportunity of a lifetime after 1945 has been unsuccessfully exploited. I say unsuccessful because American got greedy…as you well say…just print to pay for free imports…so in essence the system broke down in 1971…and although its real value continues to diminish decade after decade the US dollar is still the currency of choice backed up by everything that America represents.
Eventually the US dollar will be replaced as the only currency for international transactions and will have to compete with at least one more currency to bring international trade to a more realistic balance of trade. But I believe that since 1945 Americans enjoy monopoly power as the only nation on earth making the only international currency of choice.
Three are the pillars of American might
1-dollar
2-military
3-economic/politics
Why can’t the US government just buy some more paper and print more US dollars (faster and faster) to pay our expenses like Mexico? Every time that the US government prints dollars, the value and buying power of each printed dollar reduces proportionately. One US Dollar that would buy about 8 Mexican pesos in 1960 can now exchange for as much as 15,000 of the 1960 Mexican pesos today. This is equivalent to about 187,500% inflation over that period. A $2.00 USA loaf of bread would then cost $3,750.00 if the USA implemented Mexican type economic monetary policies.
Chairman Mao said “Power comes out of the barrel of a gun”.
I think that he was only partially correct because a strong economy is also necessary to arm, feed, support, house, pay and otherwise maintain a strong military force. The soldiers need to be happy, or they might overthrow whatever government might be in power at that particular time.
China now has the strong economy and is rapidly building their military technology and military might that will surpass the military capability of the USA in the very near future.
I am assuming you wrote this while under the influence…
The Dollar: Will continue to weaken. The Military: Can’t be sustained given unfunded U.S. domestic liabilities and hundreds of over bases overseas. Economic / politics: I have no idea how this relates to a “pillar of American might.” (Why, by the way, would a free people even want a “pillar of might”? Who’s going to pay for it?) The economic system is a disaster made possible by printing money.
What you seem to be saying is: “The monopoly on money creation is a boon for Americans since the dollar is the world’s reserve currency. The dollar will be endangered by too much money creation”.
I noticed that no body has recommended a reading list for you. My guess is this is because you don’t seem to express an interest in learning, and you’re not asking for such a list (which is fine by way, this does not have to be a classroom). But, aren’t you curious as to why so many here oppose the monopoly on money creation?
For starters, have you read this? What Has Government Done to Our Money? The Daily Mises articles are also excellent. Good luck to you.
The question is- if private currencies(including gold and silver) were allowed to compete instead of the US government forcing people to use the dollar as legal tender- would the dollar mean anything at all? I think the only reason people are debating with you is because you make it sound as if the dollar would’ve been preferable no matter what- and not because of legal tender laws and other government intrusion into the market of money that give it its monopoly.
Do you think that Americans would’ve had a higher or lower standard of living if there was a private market in money after WW2?