MORE ABOUT MONEY

I have been having an online debate with a gentleman who thinks the whole problem with our economy is the banking system. Particularly the fractional reserve banking structure we have. (Thank you sir, for that term, I knew the mechanics but not the name prior to our debate.) The basic idea is that because the Federal Reserve Bank can literally create money out of nothing we have this inflationary cycle. Well, he's right, as far as he goes. And, the Federal Reserve Bank is one of the most corrupt and evil entities in the nation right now. Which is made much worse because we have zero oversight, and no way to get any.


But, what he and those like him miss in blaming the Federal Reserve Bank is the real root of the issue. And, that is that we are on a Fiat Money system as opposed to a Commodity Money system. You see commodity money is simply money backed by a commodity. Mostly gold, but the earliest version 5,000 years ago was Mesopotamia who used the Shekel which was a measure of barley. So the first money was one of the ingredients of beer. Gotta love that. But, their money was backed by something. Granted it was a consumable good, but it was something you could lay your hands on


Fiat money on the other hand is backed by the “full faith and credit of the government.” I use quotations for a reason. That reason being that almost no one has full faith in any government, and for good reason. Putting that aside though let's examine what happens to fiat money on a historical cycle.


Most civilizations start out with a commodity money type system. Whether it is backed by barley, gold, or widgets doesn't matter. The currency is backed by SOMETHING. For the Dollar it was the gold standard. Then the government realizes that unless the supply of that commodity is grown they can't grow their power as fast as they'd like so they move the currency off the standard and it becomes a fiat currency.


Initially not a problem, they can now create money by simply firing up the printing press, and giving said money away causes them to be liked and able to stay in power. Here we took the Dollar off the gold standard in the 1970s.


But, and this is where it gets silly, everyone seems to lose sight of the fact that unless it's backed by some service or good money is just worthless paper. So, the powers in charge, in order to stay in charge, have to print and give away more of these now worthless pieces of paper to appease those that keep them in power. Remind you of any politicians you know? But, eventually everyone realizes that those pieces of paper are indeed worthless, and the currency collapses. Then a new currency has to emerge, hopefully backed by a commodity, and the cycle starts all over.


Some say this is happening to the Dollar right now. I would not disagree with that, but don't know for sure that it's this cycle that will cause the ultimate collapse. I can tell you though that every fiat currency in the history of the world has eventually become worth nothing. I wish I had a solution, but other than teaching this history to our kids so that future generations can avoid going off their commodity I don't have one, and I fear it is to late for the Dollar.