Monday, June 2, 2014

It's All About the Money, Boys!

Money! It is something that many people will seek in the world. Some may cheat for it, some may steal it, but whatever it is, it is something that most people in this country so desperately seek.

But why is this such a fervent desire anyway? It's not as if the money we get in this world today is actually worth anything at all!

Yes, you knew I was going there, didn't you? Here I am, telling you your money is just worthless paper. Now of course we agree to trade it still. But that is only because the government says it's valuable.

Yet even the government is not able to keep our "dollars" at a steady rate. Due to laws of economics, the money we use is bound to become far less valuable over time.

It wasn't always this way. When our dollar system started, it started out as a gold certificate. You see, a dollar is a measure of weight. You could return a paper dollar into the US treasury and receive a dollar of gold.

Then in the Great Depression, the American people were robbed. The paper currency was no longer backed by the Gold Standard. Since that time, the American people have been trading green Federal Reserve Notes that for some reason still go by the name, Dollar in common nomenclature.

Here's the benefit with Federal Reserve Notes. They are not standardized by a set amount of gold and thus can be inflated at the government's will.

The main disadvantage with Federal Reserve Notes is that they are not standardized by a set amount of gold and thus can be inflated at the government's will.

That's when the laws of supply and demand kick in. As the supply of dollars in our economy goes up, the value ultimately goes down.

Think of the most expensive things in the world: Diamonds, signed Home Run Balls (especially when breaking a record), chocolate. Oh wait no, that last one isn't expensive, it's just in the same league as the others qualitatively.

But then that illustrates my point exactly. Despite the fact that chocolate is as good as diamonds, why is it that diamonds are so much more expensive? Well, if you go into any store, you will find chocolate. But you won't always find diamonds. Diamonds are much more rare. Even with the recent chocolate shortage, there is still a higher supply of chocolate than there is of diamonds.

As the dictates of supply and demand tell us, with rarity comes a higher value. When supply is increased, demand for that commodity is decreased, and the product now has a lower value.

And that is what has happened with the US Dollar as it shifted from a gold certificate to the Federal Reserve Note we see today. As the Federal Reserve inflates the dollar by pumping more Reserve Notes into the economy, it requires more greenbacks to buy milk, eggs, and bacon. Thus, inflation causes rising prices.

But then that shouldn't be that big of a deal, right? After all, since there's more money in the economy, we should all have more money to spend on milk, eggs, and bacon, right?

Except the harsh reality is that when the Federal Reserve pumps more into the economy, it never is distributed perfectly among all citizens in the nation, leaving some with limited buying power, and others with a surplus.

That is why it is so silly for us to have money that is truly worth nothing at all. I didn't even mention the Boom-Bust Cycle or the exchange rates between currencies in other nations. But even with this surface-level examination, we see ample reason why inflation is destructive.

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