A Fiat Standard Hell May As Well Revive Gold And Silver As Unit Of Account

Not ever before that our world is so connected, because technology allows us all to trade and travel in seconds.  Just imagine this, before the Internet age, we were pretty fast, because we could travel the world in hours and very few days through flying on airplanes.  Nonetheless, age before the Internet is pretty slow comparing to now, because traveling around the world is no longer requiring us to be physically there.  Instead of just flying around the world, we can simply utilize the Internet to interact with various parts of the world in seconds.  Why traveling in the first place?  Sight seeings and trading and get to meet people and tasting different cultures and foods are probably on the todo list for many people, but the Internet allows us to do most of the stuffs I mentioned in seconds.  Of course, without physically traveling, we cannot use the Internet to have firsthand experience.  Nonetheless, with technology improves we might just as well be able to use virtual reality to somewhat attain the firsthand experience of physical traveling.  Trading is obviously done in seconds in the Internet age, and this has let the physical retail stores and what not to become almost obsoleted.  Fortunately, it’s that, nothing has yet to beat the firsthand experience of whatever, thus the physical retail stores might be able to retain the customers who prefer to have the physical feel and touch of things.  Too bad though, the trend is that many people rather go to physical stores for showroom experience, and then they go home to purchase the products they want on the Internet.

With being so connected as how we are now, it does seems that a small hiccup in the market would not be able to stir any storm and damage the wealths of many people.  Unfortunately, since we are so connected, a huge hiccup might churn out a firestorm that is huge enough to bring down the world market.  If this happens, the whole world will be in depression.  This almost happened in 2007-08, but China was holding up really good and stopped the whole world’s market from collapsing even more.  Nonetheless, I feel that, it is possible for a scenario such as a whole world’s market to really collapse and destroy all economies at once.  This is possible since we’re so connected and using only fiat currencies.  Never ever before in our human history that we have all countries using fiat currencies.  Some wise homo sapiens once said, the strongest link could also be the weakest link.  By being so connected, our economies could affect each other fast and furious, and so this would allow change to happen fast and furious.  When positive things are happening in the world market, this contributes as the strongest link.  The opposite could happen, and this would be the weakest link for the world market.  At the strongest link, positive effects would echo throughout the world at fast and furious speed.  At the weakest link, negative effects would also echo throughout the world at fast and furious speed.

Nowadays, we are using several main currencies that are known as reserve currencies.  The Dollar is the prominent of them all at this very point in time, but we never know how long can the Dollar hold this prominent reserve currency status.  If the world isn’t so connected, the multiple reserve currencies might be a panacea for world economic structural problems, because one economy can always spread foreign reserve wealth into multiple reserve currencies for diversifying.  Unfortunately, our world is so connected in a way that all reserve currencies’ hosts can be taken down, consequently rendering the reserve currencies themselves to be on the fringe of uselessness.  This has me thinking that perhaps gold and silver and other valuable metals are still very much the sort of wealth that us people may need to turn to if a perfect storm does hit the world market and bring down the world market in one fell swoop.

Just like fiat currency, gold and other valuable metals are backed by nothing.  Intrinsically though, gold is being used practically.  This means gold does have industrial applications.  Let me list a few gold’s industrial applications here.

  • Dentists can plant new gold teeth for patients.
  • Gold can be used to prevent rust and corrosion of important components within electronic devices.
  • In the medical field, gold can be used for various purposes such as treating patients with arthritis (gold salts reduce swelling, bone damage, joint pain, and stiffness).
  • Architects and builders can use gold to design beautiful structures.
  • Space devices can use gold to reflect radiation and cool temperature.

Besides gold’s few industrial applications, people like gold for its shininess and immune to rust qualities.  Before the well known use of gold in several modern industries, gold was being used as money since the early period of the entire human history.  Gold was minted into coins and so forth.  Since the dawn of human history, gold was used as money then was replaced by whatever and then it made a comeback, rinse and repeat kind of event really.  In our modern history, president Nixon of the United States abandoned the gold standard, thus he was effectively allowing the Dollar to not be redeemable by gold.  Since the Dollar was the most prominent (and still is at the moment) reserve currency in the world, Nixon’s gold standard abandonment was effectively put the world on fiat based standard, only.

With the knowledge of how humans tend to turn back to gold in hard time to hedge against paper currencies, it’s not too hard to see how people like us nowadays see gold might play the role of hedging against the possible collapsing of the fiat based standard.  Silver is considered to be a lesser quality metal than gold, but silver does have practical industrial applications too.  Nonetheless, I won’t elaborate on silver in this blog post.  With gold and silver and other valuable metals around, I think people and governments alike will use these metals in hard time as money.

To summarize everything up, what makes fiat currencies valuable is that people around the world see them as valuable.  Regardless fiat currencies are backed by anything, as long people of the world think fiat currencies are good enough as a unit of account, the fiat currencies can go on being the monies.  Unfortunately, people are usually illogical.  This is why if the so connected world market like ours stops functioning somehow, people aren’t going to wait around for the consensus that the fiat currencies will be OK.  Instead of waiting around, people may have a run on the fiat currencies and hoard golds and silvers.  This is when people will see golds and silvers as monies.  Perhaps, some people may argue that if the dollar collapses, the market will turn to IMF’s SDR (Special Drawing Right) or China’s Yuan as the reserve currency.  Since nobody knows the future, they maybe right, but I argue that none of those so called possible reserve currency replacements can hold water to gold and silver.  After all, gold and silver do have industrial application values and these metals have been used as unit of account over and over again in our past histories.  Moreover, I question the ability of IMF’s SDR or any other single fiat currency can be confident enough to rescue the fiat standard from hell.  By this I meant if the fiat standard does go to hell, by then it’s way too tough for any other fiat currency to be able to rescue the fiat standard system.  People may just as well turn to gold and silver as a change!

Sources:

Old Men Talk World Economy, I Like It!

Economy

Economy (Photo credit: CassadeyFedel)

When people often talk about world economy, polarized elements of politics tend to creep into the talk and demand something to be politicized.  This often creates angst among the participants of the talk.  Furthermore, a participant which is against or for the political point of view will definitely not compromise his or her position on the matter, therefore nothing will be resolved or be persuaded.  This is why I often hate to listen only to one side of the story or politicize anything, because it’s a lot easier for me to just sit back and do the listening and watching of whatever that is being politicized, whether such a matter is deserving such a merit or not is another story altogether.  With this in mind though, matters such as world economy that are highly politicized and being debated often cannot be left out of whatever political talk easily even if one does not want to touch the political side of the matters.  Perhaps, these matters are so important to the livelihood of each earthly citizen.  (Or in another way to put this, “It’s the economy, stupid!”)

Even more now than ever before, matters such as the world economy or an economy which is important to the world are evermore very much the concerns of each earthly citizen or I should say the citizen of the world.  How come?  To say the least, besides economic policies, technology matters!  You might think I’ve digressed, but perhaps I just have done so by a little bit.  How so that technology matters when we’re talking about economics?  Continuing below…

The world of today has become so small in term of how we’re able to communicate so clearly and so effectively even though there are oceans that separate several continents.  Technology has allowed and will improve and will continue to allow information, transportations, and other technological important mediums to flow across the world effectively unless a country’s government is hampering these opportunities, therefore the information age and several other obvious technologies such as advanced transportations are now effectively shrinking the world to a point of obvious (i.e., small).  In short, the advancing of technology helps make globalization realizes easier.

With advanced developments in technology in general, whether the progress is made in the information or transportation or whatever technological sector, the positive progresses of these developments have had effectively changed how the world of today is operating.  Furthermore, these so called positive progresses in technology effectively change the economic progress and general attitude of each country and the citizens of a particular country and the world.  I have to say though, these positive progresses of technology might be viewed as negative effects for parts of the world, because several parts of the world see their economy declines and correlate that progresses have been made in technology but citizen livelihoods have not been improved.  Perhaps, technology in general is just a tool among the tools in a tool box?  Should the reform of economic policy and other policies might make more sense in the argument of bad economics?

In a sense, the main point I want to make within this blog post is that it’s very hard to not politicize matters such as the economy of a country or the economy of the world in general, but with effort one can at least try to make it’s a friendly debate when such a topic would arise.  Specifically though for this blog post, I want to emphasize on why economy matters.  After all, economy matters a lot as it is the lifeblood of the livelihood of the citizens that are being supported by a particular economy.

It’s easy to say that economy matters, but do we really understand why there are so many bad economies have came to light and will come to light in our time?  And this to be said is not to compare with other times of our complete history, whether our history is complete or not is another story altogether.  Of course, I’m not an expert on the economy matters at all, therefore I like to embed some very interesting videos which may be able to spill some light onto our contemporary economic matters.  If you enjoy watching old men talking about economic matters, then by all means the videos right after the break might be somethings that you are going to be pleased with.  Enjoy them videos!!!