HI,
I had a lovely and boring study of trade and tariff for this post BUT I decided to delay it. I thought we should look at Gold for awhile.
Gold is shiny, yellow, and beloved by most societies, both historic and modern. It also has a wonderful history including being the underpinning of our dollar. It was removed, replaced,and stayed until Richard Nixon got a wild hair up his nose and removed it again in August of 1971. Thanks Ricky.
Nixon reasoned gold as the standard for the dollar didn't allow us to print more money(duh...that was the idea!).The theorists (assuming again) said removing the gold backing (it doesn't really peel off!!??) and printing FIAT money would reverse the 1970's recession. Well, we lost the gold standard which had stabilized the dollar, printed more paper money with only our word as backing; then went into a slump called "Stagflation". Theorists had advised Nixon that the prior return to the gold standard had depressed our economy so it could not grow naturally. Hmmmmmm. Maybe Presidents should keep their mitts off financial matters.
GOLD was rated at $35. an ounce at the time. That meant that each ounce of gold in Fort Knox (I guess the gold is still there unless one of our honest politicians has figured out a way to remove it.) backed $35. of paper called U.S. currency. That was solid and sound. If you had $35. in paper money and you wanted to have it converted to gold, you could buy one ounce of gold and put it in the vault and thumb your nose at the politicians who could make the U.S. economy weak.
GOLD is a valuable metal and can always be sold, usually for more than you paid for it. When the economy goes into decline, folks purchase gold to make sure they have something to fall back on when a current currency goes belly up. If the economy stays good, you can have it melted down into jewelry. TRY THAT WITH PAPER MONEY! Gold has now reached almost $1100. dollars an ounce--think about that?
Our economy now runs on what is called a FIAT monetary system. There is no restraint on the amount the politicians can print since it's not backed by any hard metal. The only thing that makes it valuable is RELATIVE SCARCITY and FAITH. If we now remove "In God We Trust" we not only don't have scarcity, we've lost faith. Uh Oh!!!:::???
By the way, Lyndon Johnson removed the silver backing from coins. The Constitution wouldn't discuss paper money as a replacement for gold or silver. Those wise men were hesitant. Seems like we need not only to remove a few laws but a few powers from Presidents, who are arrogant enough to think they know better than the framers of the Constitution.
A FIAT Money system allows unlimited credit creation. A rapid growth in credit availability is often misunderstood as economic growth and therein lies the rub! That misinterpretation causes expansion bubbles as we have seen in the mortgage market.
In my next blog, we'll look deeper into gold underpinnings for the currency and the current FIAT system AND why hyper-inflation can follow the loss of confidence in a currency and how it can be avoided.
One of my readers suggested I keep these post a little shorter for better understanding and I am doing so!
Cheers, Connie
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