Financial Education #1: The Collapse of The US Dollar
Why Is This Important?
Money, a good that we relentlessly pursue and something that can dictate most of our lives, yet do we ever ask ourselves some bigger questions about what money really is, where did it come from, why is it so important? Well, that’s what I hope to share with you in this post today. Any economics lesson or degree will make you think that money is a really complicated subject, yet I hope to help lift some of the smoke and mirrors and share reality of some very simply truths.
Properties of Currency
A practical definition of money can be: ‘a tool for trading time, a container for storing up your economic energy until you are ready to use it elsewhere.’ Although, what is really important to understand and makes this whole conversation so vital is the literal definition of what money is and the important properties that make it so.
Here is where we start to distinguish the different between currency and money. Both currency and money share the following properties:
- Medium of exchange: can be used as an intermediate to exchange goods or services, thus helping to determine the value of something.
- A unit of account: able to put into numerical measurement helping to compare goods and services.
- Portable: can be transported and transferred to others
- Durable: can withstand being used and not decay.
- Divisible: can be divided into smaller units of value.
- Fungible: one unit is interchangeable with another.
Money Is A Store Of Value
However perhaps the most important property, which money has and currency does not, is store of value: able to maintain value over time. One of the most powerful example of this over the past 5,000 years is gold. Later on what we will begin to discover is that Dollars, Pounds and Euros are not sound money because they do not maintain their value. Keep reading to find out how these are currencies and are worthless, even though we spend our lives dictated by the pursuit of these.
Money Was A Poweful Invention
Winston Churchill famously said, ‘the further you look back in the past, the further you can see into the future’ so join me in heading back to 5,000 BC in Egypt. During times of trade and commerce around this time, we simply had a barter system where people would trade 5 cows for 10 fish, for example. However, this system had problems: not only would you need to find someone who has what you want, they would also have to want what you have and then also meet them at the same time and place. There is also problems with divisibility, you can really cut a cow into 5 slices. Therefore, we had the introduction of money, sound money too, and this was gold. Gold was able to work soundly and properly for thousands of years and allowed for trade and commerce to be very stable.
Currency Was A Thieving Invention
To their demise, what we start to see in Athens, Greece is the first ever example of hyperinflation. This is the debasement of money, and the birth of currency. With this example, gold coins had copper mixed into them making them less valuable until we started to see gold coins disappear until copper coins subtly became the currency of choice. The debasement of currency in the Greek empire was put to use to develop layer upon layer of public works, social influence and expenditure on military to fund wars. These are all funded by stealing wealth from the people by debasing their coinage with base metals.
Collapse WILL Happen Again
Can you see how too how this is done today? This is a long term cycle that echoes throughout history to right this very day and it is essentially a societal pendulum that swings from quality money to quantity currency and back.The population historically have lost faith in the currency and revolted against the currency, forcing the pendulum to swing. Social scientists nowadays can measure this quantitatively. When peoples’ percentage of income for food hits around 40% historically people stage a revolution, as was the case in Egypt and Frace. Gold historically has caused a knockout blow to central run fiat currencies, currencies that exist by dictate or authoritative order from the government. This is a clear example of where debasement of money has been the collapse of governments.
What Makes Today's Currencies Any Different?
Albert Einstein said insanity is doing the same things over and over again and expecting different results. Governments and empires have always gone down the road of debasement and again this has been their demise. All fiat currencies have gone to zero, there are hundreds if not thousands of fiat currencies that have gone to 0. Famous examples of these are: Zimbabwe dollar, Hungarian pengo, Greek drachma, Argentinian peso, German Papiermark… the list goes on. Let me suggest to you why you may have to be concerned today and how this may affect you. Perhaps the most significant currency today, the US Dollar, was backed by gold for hundreds of years. What the dollar essentially acted as was a receipt for gold. As mentioned before, gold being a sound money, allows commerce and trade to prosper however gold has problems of portability due to the weight of it. So the creation of the dollar overcame this problem helping the speed and convenience of transferring money. However, just as the Greek empires had done in the past, the authorities had fallen into greed.
The Day The US Dollar Became Currency. NOT Money.
On august 15th 1971, President Nixon suspended the convertibility of dollars into gold. At first, this was a temporary measure yet this has carried on for close to 50 years. We had essentially seen debasement on a mass scale. This wasn’t a case of coins slowly being debased with cheap metals, what we had was a valuable gold money replaced by a worthless piece of paper with nothing to back it. The receipt for gold was no longer backed by gold, the dollar had literally become a receipt for nothing, just paper. Before the suspension, the dollar could have been called a ‘claim check’ for gold. There is no store of value for a piece of paper as this can be printed as much as the government want. When this paper was backed by gold, a store of value, this was fine. The US government and others have done the same thing as the empires before them yet expected different results.
Financial Education is really important, especially right now. COVID is happening and there are significant health and social reciprications yet it is important to understand the financial implications too and what is going on behind the scenes. Please continue to read my blogs about financial education and crypto as they come out. This is aimed to educate people who know nothing about these topics with the aim of having some protection with an inevitable financial collapse.
Currently, if you are new to this, you are not too late. The talk in crpyto is that if you aren't already in you are too late yet this is not true. There is still an opportunity to educate yourself and make appropriate decisions!
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