The fool's gold: fiat money / by kevin murray

The United States has the biggest economy in the world, of which, in simple terms, the dollar thereupon has become the currency most commodities and other country's currencies are measured by.  That would be fine, to the extent that the dollar is back by specie, such as gold, which was the case until 1933-34 when because of the Great Depression the gold standard was effectively negated; of which private ownership of gold was thereby outlawed, though this did not completely eradicate the gold standard, it clearly changed the dynamic, and in 1971, the United States officially dropped the gold standard in its entirety.

 

This means that the dollars and the monetary system that currently is the backbone of how commerce, savings, and wealth is typically measured worldwide, is done by a currency which is backed by nothing, other than the belief that the U.S. government debt, so created, by the dollars borrowed and utilized; has stable value, which is debatable, at best.  In point of fact, while the convenience of dollars as a medium of exchange most definitely has its place, once those dollars became forever severed from specie or any other medium of intrinsic worth, than the dollars so circulating today, of which people depend upon these for their income, their wealth, and the payment of their debts, is for all practical purposes, fiat money.

 

This doesn't mean that the economic system as built upon dollars is in danger of imminent collapse, though, it might just be, but it does mean that it inevitably will collapse, because of the absence of some sort of specie, whether that be oil, gold, silver, land, stock certificates, or some other medium or combination of things so linked to each dollar that is created.  Those that believe that fiat money will, forever, have value, fundamentally are unable to comprehend that fiat money will collapse, once the confidence behind such currency has been fatally breached.

 

There are significant problems with fiat money, of which, there are many pundits that believe, incorrectly, that because our fiat money has historically been fairly stable since 1971, that therefore, all things that are priced utilizing this money, are a fair and true reflection of the true value of those assets and things.  The first thing to consider, is that fiat money is not all that stable, which is why as reported by dollartimes.com, the buying power of $1.00 in 1970, now necessitates $6.54 in 2018, so that, those that literally buried their fiat money in the ground or under their mattress, have seen the value of their money become decimated in the ensuing years.  So too, classifications such a being a millionaire, which actually meant something  back in 1971, don't mean as much today, for as calculated at savings.org, $161,445 in 1971, has the same value as $1 million today.    Another issue, is that people implicitly provide value to fiat money based on its historic purchasing power, of which, should that dynamic be severely breached, this would essentially mean that virtually everything as currently priced in dollars, would be subject to dramatic revisions on a worldwide scale, so that the effects of such, would initially be catastrophic.

 

In short, fiat money, maintains its relatively stable value based upon its apparent normalcy in the course of everyday business, but such normalcy is always subject to correction, at any time, of which, such a correction, when it comes, will fully demonstrate the fundamental difference between gold and fool's gold.