Ron Helwig wrote:
When we (my U.S.A. centricism is showing here) were on a gold standard (or a silver/gold standard) then the economy grew at a more natural pace.
Why is it that people feel currency is "valueless"?
Until the housing crash of 2008, the speculators, hedge funds, and banks played their zero-sum game off in the corner, so to speak.
There were buyers that believed that the item they bought was about to go up in price, and there were sellers that sold because
they believed that item was going to drop in price...so they wanted to take whatever profit they had made and sell.
Sometimes the buyer was right, and sometimes the seller was right. One lost while the other won. No actual loss or gain,,,just a
transfer from one ledger to another.
Then they designed a derivative, which is based on the value of a real asset. In this case, it was based on the value of a
house mortgage.
Every speculator was a buyer. Nobody wanted to sell, since the belief was that house prices would continue to climb.
What the speculators overlooked was the fact that the asset that the derivative was based on had a "flaw". It was designed for
the real-estate flipper. Low interest for the first few years,which would give the time needed to increase in value, and then sold
by the flipper just before the large "balloon" payment or a much higher interest rate came into effect....thus giving the flipper a profit.
What actually happened was these mortgages were given to ordinary people at what they believed was a low, affordable rate of
interest. Low monthly payments....until the time came to pay the large balloon payment/higher interest rate....
People couldn't afford it, so thousands of homes suddenly were repossessed by the bank. The houses lost a lot of value, and so
did the derivatives that were based upon them.
It stopped being a zero-sum game. The group of speculators were in real trouble. So the Federal Reserve and the government
stepped in and bailed many of them out.
The government then made the choice of making the bail-out money part of the national debt and cut back their programs--the
PR word used, I believe,was "austerity"--to help decrease their debt.
What if they made the choice of simply printing more money and simply
giving it to the speculators?
They couldn't....because the rest of the world used the
value of US currency to base their currency on.
If the US dollar became 50 cents, the rest of the world might have difficulty basing their currency on it.
The International Monetary Fund is made up of nations with many unfriendly to the US and is set up to replace the American dollar
with "Special Drawing Rights". SDR is a collection of currencies,with China being one of them, that could be used for trade between
nations.
Interestingly, China has made direct currency trade agreements with almost 30 major trading partners....bypassing the need to
use the US dollar.
Another interesting thing is that just before WW2, China issued bonds backed by US dollars to help fight the Japanese invasion.
China has yet to pay back the estimated 800 billion. Speculation is that China is waiting for the "right time" for payback in
order to negotiate for Taiwan.
Would it matter is the US lost it's place as the world currency. Look back on history regarding the British empire and the pound
being the trade currency before WW2. Look again at Great Britain as it is today.
So the US dollar does have a value. To be reckless regarding this value could result in
depreciation, seen only
before WW2 where people roamed the country just for food to eat.
And with reference to the original post, the worldwide interlocking of the present system combined with the use of "public
relations" will make the donut model almost impossible to implement. The simplistic view that all you need to do is be able
to curb the power of corporations in order to set everything right is just not realistic.