Do you really know what money is? Most people think so. So, let’s talk about it a little.

Before ‘money’, people traded goods and services directly. There is nothing wrong with that except both parties did not always have the specific goods that the other wanted. That was a problem, and if a person had goods to trade and wanted to trade for future items storage and perishability lead to more problems.

Gold, silver, hides, sea shells, stones, to name a few, became items of local or universal ‘value’. Gold and silver proved to be historically sustained. The United States as well as other countries used these metals for coinage (money). Rather than carry heavy coins to make transactions, banking systems were make so the valuables could be safe and a note was made as to who had ownership of the gold or silver being held safely by the bank. (I think you are seeing where the term banknote comes from).

Now the bank would loan out your money (or title to it) for a fee. This was great! It allowed, seeds to be bought for future crops (insuring food), projects to be funded (improving employment and social standards) as a just a couple of examples.

Each banknote was backed by a specific quantity of a precious metal being stored somewhere that could be redeemed at any time on demand. These metals were valuable but were in finite supply. If a canal project to irrigate farmland and thus doubling or tripling its yields, the money to be loaned had to be backed by equivalent value held. But, what if there was currently not enough gold to back it? The project could not go forward until enough gold was on hand, or mined and the gold placed in banks to loan or invested. To solve this problem banks (and business) created credit to be paid back with future earnings. Credit is temporary artificial money. It filled the gaps in supply and demand. Life was good and industry thrived making a wealthy nation. The government produces nothing but must fund many things like military and supplies in a war. This money comes from bonds, taxation, and credit. Abraham Lincoln funded the civil war by simply printing more currency. This was great, but it caused all dollars both real and the created ones, to have less value. This was the beginning of creation of money out of thin air.

The United States held gold reserves that backed money; the money supply increased faster than the gold supply so the U.S. got off the gold standard and went to the silver standard. This worked until the money supply continued to grow faster than the silver supply as well. The U.S. government has the right to tax its people to cover its debts, so the government was guaranteed in its reliability to pay back debt. Because of this the currency was no longer backed by precious metals, but by the promise and trust of the stability of the government. Now, when the government needed money, it simply printed more. But like the days of Abraham Lincoln, it caused the dollars to have less actual value.

We have seen the dollar buy less and less through history and this is because there are more and more of them. The government in essence is living on credit. Remember, credit is the spending of future earnings. Credit is good if it is invested in worthwhile projects like the canal that will improve yields for the farmer or the new factory that will employ people and produce goods. Otherwise it is a death spiral, one we have probably all seen in our younger days with our first credit card. It is not ‘free money.’ The day of reckoning will come and it must be paid back.

Let’s get back to precious metals. I remember when 3 (silver) dimes would buy a gallon of gasoline. The value of a paper dollar has gone down and the silver has gone up in relation to each other. The same (equivalent value) 3 silver dimes still will buy a gallon of gasoline today.

A $100 bill and a $1 bill are the same. The cost the same to print, have the same amount of paper, and ink. The difference is simply what is printed on them. They are only worth what they will buy, and that changes moment to moment.

But you say, “The U.S. Dollar is strong among all other nations.” Is it because the U.S. is stable and wealthy? No, it is because many of the global currencies are pegged to the value of the dollar. If the dollar fails, so do much of the rest of the world. Our dollar is sick and unhealthy, but it is just not as sick as the others.

When asked where we should put our money so we can be protected in the future, the overwhelming answer is gold! (Or other precious metals). Let’s look at that. If (hypothetically) there was a global crisis where governments or economies failed (just look how close WE came with government shutdowns not long ago, the crisis in Greece, and Trillions in spending) how good is a stockpile of gold? You can’t put it in your gas tank, you can’t eat it, it won’t light your house, and if you are trading it the same applies to the other person, they too want something useful. In a crisis, commodities (goods & services) are what will be exchanged. Just like the days before money. Yes, gold will still have value, but its value will rival a good hamburger when you are broke and hungry.

All countries use fiat currency. Fiat currency is money backed only with a promise and trust. The U.S. and the world are spending credit (its future earnings of goods and services) past the point of ever being able to repay. Yet, we sail down that road at ever increasing speed.

Will there be a global economy? Yes, there already is. Will there be a global currency? It is very likely. A single world currency and a single world banking system is no longer a far-fetched science fiction idea.

That’s my 2¢…… (by now it’s a dollar)