What is the value of the US dollar based on?
In 1971 President Nixon removed the gold standard from the US dollar. Since then, what has given the dollar value?
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We buy things with money; the vendor accepts this because he trusts that he could use that same money and buy something they need. A country borrows money from another. The country loaning the money does so because they trust that the borrower will eventually pay them back (and also because they will make a profit through the interest.) We put money in savings for various reasons (emergency fund, retirement, etc.). We do so because we trust that the money we save will maintain or increase (through interest) the value so it could benefit us in the future. There is no actual "value" to money, as ArionaAllant mentioned, it is a fiat currency. Whatever value currency has is based on “Trust.” So what happens when the government prints an excessive amount of money reducing is purchase power? What happens when the government doesn’t pay back its loans and defaults on its debt? What happens when the money you’ve been saving for years and years has less value than when you deposited it into your savings account? Money loses trust... and so loses value. Side: trust
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Gold has value because people think it has value as well. I can't eat it, I can't make useful functional clothing out of it, it's a crappy construction material... you can use it in some electronics but other materials work better... etc... gold is considered highly valuable because people like it and want to buy it. As in, it is valuable because people perceive it to be valuable. Just like fiat currency. The one difference being that it is extremely hard to manipulate the supply... which gold standard groupies love to paint as a great thing without considering what massively restricting money supply and thus currency flow in the economy (which is what moving to a gold standard would do) would do to said economy. The population of earth is rapidly approaching 7 billion people these days. How exactly do you think we're going to divy up the equivalent value of all the gold on earth to allow it to be a functional basis of a global economy that a population that size would participate in? In the entire history of the world there has been approximately 140 thousand metric tons of gold mined. At current gold valuations that's a little over 7 trillion dollars. That doesn't even match the current U.S. money supply ALONE... and that's assuming the US had every last ounce of gold on the planet locked up in Fort Knox or something. So try thinking through, seriously, what happens if you revert the global economy to the gold standard. Side: trust
You make a good argument gcomeau. Personally I would not advocate a gold standard. But we should have some standard IMO. Either that, or the making of new money should be restricted much more than it is now. If it wasn't for the almost insurmountable task of evolving beyond this current primitive mentality of ownership, property, and survival of the fittest, etc. that most people have. I would advocate a resource based economy. I feel it is important that people focus more on humankind as a whole and the evolution of our species. It seems the current mentality is stepping on people to get to the top instead of working as a team and giving each other a boost. The way the system works now, it only truely benefits the few elite at the top and they will do anything in their power to squash the competition unless they can see a way to benefit themselves by letting the competition succeed in some way. Anyway, didnt mean to deviate too far away from the OP, just going off on a tangent here ;)~ Side: trust
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Gold has value because people think it has value as well. Of course, value is subjective, it is based on supply and demand, gold has more than subjective value than fiat money. Just like fiat currency. I know that my grammar isn't perfect but what do you see wrong about this sentence. How exactly do you think we're going to divy up the equivalent value of all the gold on earth to allow it to be a functional basis of a global economy that a population that size would participate in? Nobody. The value of economies will be based on supply and demand of goods and services. Markets determine value, they always have and always will. This is further explained in The Case for a 100 Percent Gold Dollar by Murray Rothbard. In the entire history of the world there has been approximately 140 thousand metric tons of gold mined. Wait...You wouldn't have a claim without a source. Oh, I forgot, you never forget that. At current gold valuations that's a little over 7 trillion dollars. The wealth of a nation is not gold or fiat currency, these are only forms of exchange, gold is free market currency. True wealth is an abundant forms of goods and services. Your definition of wealth is a reflection of inflation through fiat currency. Just ask Zimbabwe how they thought wealth was accumulated by fiat currency through inflation. If I owned every single piece of gold or every paper fiat dollar on the Earth, I would be presumed rich, but if goods and services don't exist, it is just worthless metal or paper. Side: trust
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The US dollar is backed by what others are willing to pay for it. Every dollar not just the US dollar is based upon people accepting said money as currency to pay with. http://www.ehow.com/ http://answers.yahoo.com/question/ http://uk.answers.yahoo.com/question/ Etc, etc. Side: Fiat currency
The US dollar is backed by what others are willing to pay for it. Every dollar not just the US dollar is based upon people accepting said money as currency to pay with. So basically... nothing? Accepting a note as "legal tender" doesn't alone instil a value on that note. You tagged your comment as “fiat currency,” this is true. But even gold could be considered a fiat currency considering its value is not "innate." it is only as valuable as humans see it but it is a tangible rare mineral, there is a scarcity to gold that cannot be increased or decreased on a whim. Paper money is as scarce as the printing material used to make it. A government can (and does) print money regardless of the consequences in reducing its purchasing power because there is no longer a tangible consideration put up to base its value on. Come to think of it... they printed money on a whim even when we had a gold standard. Which brings to mind another considerable problem with the current way the monetary system works, the central bank.... Of all the unconstitutional criminal acts! Side: Fiat currency
US $$ is fiat money and is based on ----- the future productivity of Americans - and that's why we are still paying off debt from the Korean war and the standard of living will be lower and lower . What if there was no gold in South America - that gold was the extra capital for more growth. What you do when have no gold? Squeeze the productivity of the people.......wage slaves. "I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a money aristocracy that has set the government at defiance. This issuing power should be taken from the banks and restored to the people to whom it properly belongs. If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered. I hope we shall crush in its birth the aristocracy of the moneyed corporations which already dare to challenge our Government to a trial of strength and bid defiance to the laws of our country" - Thomas Jefferson, 1791 Did the US invade Iraq becuase they wanted to trade oil in euros instead of dollars and therefore make the dollar worthless? Check out the inflation (hidden tax) convertor about how worthless your money has become over time. 1960 = one dollar is now $7.63 - inflation rate of 662.6%. http://www.westegg.com/inflation/ http://www.coinnews.net/tools/ Oh - BTW Cost of Living index is a lie also - they don't count food, shelter or oil! (JFC!? what do they count?!?!?) OH YEAH - if inflation is "zero", (not!), minimum wage, SS benefits and other rates the Gov't pays out will remain the same - eroding the purchasing power of you and me. Have a Happy :( Side: We R Screwed
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Yes, basically nothing unless you hold pride in the working people of the world to dictate how currency should price. Of course it isn't really that bad, though currency worth can fluctuate annoyingly sometimes. However it often turns out well if you use the Euro (for example), wait for the US dollar to cost low and convert then convert again when it is high. If I am correct 8 pounds is worth about 15 USD at the moment. Hey the printing currency bit isn't as bad as Germany in the past, at one point you had to have several hundred dollars to buy bread. (Probably over dramatized though that is what I remember reading.) Unconstitutional acts huh? Rather amusing. Side: Fiat currency
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