Posted by MarkJRes on Nov 16, 2013 in Economics | 2 comments
The dollar lost 98% of its value seince 1913… what do you think its value will be (relative to 1913) in 10 years’ time?
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Modern currencies, dollar included, aren’t pegged to any specific commodity any more. They’re “decreed” into existence by the central bank, at the request of the government. This is the so-called “fiat” system, i.e. “by decree”. And what this effectively means is that they can “print” as much money as they need (or create it within the digital space, if you prefer). As a result, the money is worth less and less, by the time it trickles down to the broad population for use in their daily purchases. They pay their debts with freshly-minted money which is worth less than the original debt – and thus inflation swells.
Since the US Federal Reserve System was introduced in 1913, the dollar – for the protection of which the Fed was ostensibly created – has lost over 98% of its original value, majority of that in the past 30-or-so years. Some stewardship! Put in a different way, in 1913 you could buy for 2 cents what today costs you a dollar. And, naturally, the same situation applies to all other currencies which are not backed by something tangible (i.e. ALL of them!)
The reason why tangible backing (e.g. using gold or any other commodity or a basket of commodities) is a good thing is BECAUSE it prevents the government from printing unlimited amounts of currency and thus diluting its value (inflation). A gold-backed currency CAN appreciate in value, a fiat currency can NEVER appreciate in value over any length of time.
This is why inflation is also called the “hidden tax”. And it’s the worst of them all, particularly because we’re never quite sure just how much our money is REALLY losing value. But even if you take the official figures at face value, roughly 2% loss of value PER YEAR adds up very quickly. It’s compound and cumulative, after all.
So, the buck lost 98% in 100 years. What does that say about the next 10?
Some analysts predict hyper-inflation, others a further decrease in value down to 99.9%. Most fear the worst. Others, meanwhile – particularly the mainstream Keynesian types like Paul Krugman – assure us that all is well and the economic recovery will soon strengthen the dollar.
As the well-known story goes: 2000 years ago, an ounce of gold would buy you a beautiful toga, superb sandals and a high quality belt. Today, an ounce of gold buys you a custom-made suit, a pair of top-of-the-line shoes and a classy belt. Now that’s the kind of stability you’d love to see in a currency. Instead, your dollar buys you 2 cents’ worth today – if you’re lucky.
How do you reverse this? You can’t do it within the current system. Only a free market – without a central bank and without government meddling – is able to accomplish that. But it ain’t gonna happen any time soon.
Meltdown, by Tom Woods
The Creature From Jekyll Island, by G. Edward Griffin
It will be effectively replaced by bitcoin.
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