Our Money System and Inflation
Money cannot be manufactured.
Money, by itself cannot stand alone.
There has to be a system in place to give the paper currency a value.
It may be the product, the service, or the backing of the government.
Money is produced or obtained in only three ways:
Next, a physical substitute such as salt, gold or silver was widely used.
Then, a paper currency that had the backing of the gold or silver was issued.
The printing of money was limited to the amount of gold and silver on deposit inside the U.
S.
Treasury.
As commerce picked up and transactions were conducted, because of geographical locations and other factors, paper currency became popular to use because it was easier to transport and handle.
As commerce increased further, banks were instituted where money could be held in account and checks could be written, transferred, or held for currency transactions.
However, the money was not keeping up with commerce and transactions being made at the sale were not always available.
Consequently, credit was introduced that would enable the buyer, for a fee, to delay the transaction payment.
The money supply, however, basically remained the same so the paper currency could be valued by the amount of gold and silver in reserve.
Another unique characteristic is that the United States became the only currency that is recognized as the world standard.
In other words, everyone else calculates the value of their dollar on the value of the United States dollar.
This means countries that buy Arabian oil are paying for it in U.
S.
dollars.
Sometime ago, more currency was needed to fund U.
S.
ventures and the currency was limited because of the finite silver and gold supply.
By removing the silver and gold standard the United States currency would then be backed by the good word and the good standing of the United States.
This opened the door to the printing of more money to handle the transaction of commerce that was being added to our fiscal system.
All went well for awhile.
Then other countries, through their growth of commerce, became less dependent on the United States dollar and the dollar value started to decline.
An example would be that eggs used to cost $0.
50 a dozen.
Then one day the eggs cost $0.
60 a dozen.
The eggs did not go up in price because of production costs but the dollar decreased in value.
This is called inflation.
Because the dollar decreased in value across the board, it became necessary for everything else to increase in price in order to offset the $0.
10 decline in the dollar.
Even the U.
S.
Treasury dollars have declined in value and therefore they are forced to print more money to cover the devaluation of the U.
S.
dollar.
Then, because the dollar is devalued from printing more money, the government has only three options to recover their money.
Tax, borrow, or print.
Very soon this monetary policy of printing and borrowing will collapse.
15 trillion dollars of debt, and 120 trillion in total debt is too great an amount to print, borrow, or tax our way out.
It is so large that we are not able to create enough jobs to grow our way out.
It is not a rosy outlook and a serious problem that is not going away.
Disclaimer: Terry Warner is not an economist or financial adviser and this article is strictly his opinion.
Money, by itself cannot stand alone.
There has to be a system in place to give the paper currency a value.
It may be the product, the service, or the backing of the government.
Money is produced or obtained in only three ways:
- It is taken from individuals in the form of services and taxes.
- It is borrowed.
- It is printed.
Next, a physical substitute such as salt, gold or silver was widely used.
Then, a paper currency that had the backing of the gold or silver was issued.
The printing of money was limited to the amount of gold and silver on deposit inside the U.
S.
Treasury.
As commerce picked up and transactions were conducted, because of geographical locations and other factors, paper currency became popular to use because it was easier to transport and handle.
As commerce increased further, banks were instituted where money could be held in account and checks could be written, transferred, or held for currency transactions.
However, the money was not keeping up with commerce and transactions being made at the sale were not always available.
Consequently, credit was introduced that would enable the buyer, for a fee, to delay the transaction payment.
The money supply, however, basically remained the same so the paper currency could be valued by the amount of gold and silver in reserve.
Another unique characteristic is that the United States became the only currency that is recognized as the world standard.
In other words, everyone else calculates the value of their dollar on the value of the United States dollar.
This means countries that buy Arabian oil are paying for it in U.
S.
dollars.
Sometime ago, more currency was needed to fund U.
S.
ventures and the currency was limited because of the finite silver and gold supply.
By removing the silver and gold standard the United States currency would then be backed by the good word and the good standing of the United States.
This opened the door to the printing of more money to handle the transaction of commerce that was being added to our fiscal system.
All went well for awhile.
Then other countries, through their growth of commerce, became less dependent on the United States dollar and the dollar value started to decline.
An example would be that eggs used to cost $0.
50 a dozen.
Then one day the eggs cost $0.
60 a dozen.
The eggs did not go up in price because of production costs but the dollar decreased in value.
This is called inflation.
Because the dollar decreased in value across the board, it became necessary for everything else to increase in price in order to offset the $0.
10 decline in the dollar.
Even the U.
S.
Treasury dollars have declined in value and therefore they are forced to print more money to cover the devaluation of the U.
S.
dollar.
Then, because the dollar is devalued from printing more money, the government has only three options to recover their money.
Tax, borrow, or print.
Very soon this monetary policy of printing and borrowing will collapse.
15 trillion dollars of debt, and 120 trillion in total debt is too great an amount to print, borrow, or tax our way out.
It is so large that we are not able to create enough jobs to grow our way out.
It is not a rosy outlook and a serious problem that is not going away.
Disclaimer: Terry Warner is not an economist or financial adviser and this article is strictly his opinion.