Posted 8 years ago on Oct. 27, 2011, 8:49 p.m. EST by Rico
This content is user submitted and not an official statement
I am consistently surprised at people complaining that we bailed-out the banks in one post then complain that it's all "funny money" in the next, so I decided to explain a few things about money.
Money is just a token used to facilitate commerce. Imagine I have some excess milk and would like some wheat. WITHOUT these nifty tokens, I have to find someone who BOTH has excess wheat and WANTS milk. WITH these nifty tokens, I need only "sell" my milk to ANYONE who wants some then "buy" some wheat from ANYBODY who has some. Money has no intrinsic value outside the goods and services being traded. It is simply a convenient abstraction.
Some advocate our money would be more "real" if it were gold. Gold, however, is only one of millions of things people want to trade, and it's far from the most valuable in practical terms. If we select ANY product as the "standard" product, someone can accumulate piles of it and strangle commerce, even though few even CARE about that particular product. This DID happen several times in many different coutries over history.
How many of these "tokens" do we need to have in circulation? Precisely as many as are needed to support the volume of commerce. At the WWII Bretton Woods conference, the USA overrode the advice of the economists and established the dollar as the world's reserve currency. This put us in the position of having to print sufficient dollars to support the volume of world-wide commerce (against our own self interest... Google "Triffin Dilemma"). That's a LOT of dollars !
Who is hurt the most when we print dollars? Those holding wealth and debt. Though it takes some time to establish equilibrium, inflation generally causes both prices and wages to increase. Thus, those of us living "paycheck-to-paycheck" see little change on average. In contrast, those holding piles of dollars or debt obligations see the value of those holdings fall because they collected those dollars or made those loans using dollars that were worth more then than they are now. This is why most populist movements through history have demanded a "loose" or inflationary monetary policy.
Inflation is also a good way to get people to spend those piles of money they're sitting on; if they hold on to them too long, their pile becomes worthless, so their value is maximized by spending them as soon as possible. Printing money is also absolutely necessary when there are insufficient tokens in the system to support commerce.
Inflation is also the traditional method by which countries fix trade imbalances. When we reduce the value of the dollar relative to foreign currencies, we make their products look expensive in our market and our products look cheaper in theirs. This is one of the main reasons why America's trade deficits have been falling lately.
The Federal Reserve is doing precisely what is needed. They are trying to devalue the piles of cash held by the wealthy and the huge debts held by our creditors while simultaneously trying to correct the trade deficit problem.
The "average Joe" should be very happy about all this !
Finally, for the Ron Lawl supporters, I must mention the Consititution gives Congress the power to "... coin money, regulate the Value thereof ..." What EXACTLY do people think that clause 'regulate the value thereof" MEANS? For the same crowd, I will point out that the policy making body of the Federal Reserve, the Governing Board, is comprised of persons appointed by the President subject to review by Congress under Title 12 paragraph 3 of Federal Law. The Federal Reserve SYSTEM includes private banks who pay fees to the US Government in exchange for the services it provides, but POLICY is set according to US Government officials.
BRING IT ON all you Pauler's but bring some FACTS with you!
EDIT: Note http://www.frbsf.org/currency/independence/initial/s85.html shows that paper money with no mention of gold or silver was the money of the land in 1776.