Fiat Fallacies
It is the duty of every concerned citizen to be informed. This includes basic economics. As the recession creeps into its second year and the number of unemployed Americans is in double digits, learning some economic essentials is a must. A good place to begin, is with the idea of the Gold Standard, which President Nixon discarded on August 15, 1971.
Before we begin to explore the history of how we were taken off the gold standard, let's its concept down. It is defined as, "A commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of gold. National money and other forms of money (bank deposits and notes) were freely converted into gold at the fixed price." Basically, the gold standard was embraced in an effort create an even playing field across all national economies.
Historically, the United States used a variety of precious metals upon which it based its currency. The two most prominent have been gold and silver. Bimetallicism -- as it's known -- was enacted by Congress via the Standard Act. Now it's important to also know that whenever there is a recession or depression, governments hate having such a shiny standard. What they like doing in such dire times is print more money giving the immediate illusion that markets are holding fast and steady. They don't like having to worry about a standard to uphold because that only slows the printing presses. But that's not how it works.
This tactic of printing more money is a favorite of central banks worldwide. When one powerful economy, like that of the United States, begins to print more money, so too, in most cases, do the banks of foreign nations. This had and still has -- a tremendous affect on the Forex (or Foreign Currency) markets. To keep parity with the dollar, they must print more or less money.
The gold standard has not been used to peg any major currency since 1971. As a result, every major currency is a fiat currency, that is, it has no intrinsic value and is only as valuable as it is accepted for services rendered or goods created. The hidden danger involved is in the inflation that arbitrary printing causes. It has been estimated that the buying power of a 1971 dollar is now roughly eight cents to the dollar. Without a peg to the dollar, the Fed can print as much as it wants, thereby causing a massive tide of inflation that has the potential to flood our everyday lives. - 23218
Before we begin to explore the history of how we were taken off the gold standard, let's its concept down. It is defined as, "A commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of gold. National money and other forms of money (bank deposits and notes) were freely converted into gold at the fixed price." Basically, the gold standard was embraced in an effort create an even playing field across all national economies.
Historically, the United States used a variety of precious metals upon which it based its currency. The two most prominent have been gold and silver. Bimetallicism -- as it's known -- was enacted by Congress via the Standard Act. Now it's important to also know that whenever there is a recession or depression, governments hate having such a shiny standard. What they like doing in such dire times is print more money giving the immediate illusion that markets are holding fast and steady. They don't like having to worry about a standard to uphold because that only slows the printing presses. But that's not how it works.
This tactic of printing more money is a favorite of central banks worldwide. When one powerful economy, like that of the United States, begins to print more money, so too, in most cases, do the banks of foreign nations. This had and still has -- a tremendous affect on the Forex (or Foreign Currency) markets. To keep parity with the dollar, they must print more or less money.
The gold standard has not been used to peg any major currency since 1971. As a result, every major currency is a fiat currency, that is, it has no intrinsic value and is only as valuable as it is accepted for services rendered or goods created. The hidden danger involved is in the inflation that arbitrary printing causes. It has been estimated that the buying power of a 1971 dollar is now roughly eight cents to the dollar. Without a peg to the dollar, the Fed can print as much as it wants, thereby causing a massive tide of inflation that has the potential to flood our everyday lives. - 23218
About the Author:
Understand how world currencies can be bought and sold with an accredited Forex course. As the dollar begins to lose its value, it is essential investors look to foreign currencies to offset potential losses.
posted by X - Men @ 6:20 AM
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