The Changing Value of Money

I think its fair to say our financial education here in our culture is severely lacking.

If we were to break it down to basics, money has two qualities, a physical and an energetic, in this article we will be discussing the physical sense.

I remember as a kid looking at some paper currencies, one of $100 value and another of $5...thinking "how weird, being on the same paper one could buy a whole lot more than the other." It really did not make much sense, although that's one of the basic beliefs of fiat currency...ignorance is bliss.

Keep in mind the mention of the fiat currency. The fall of each great civilization came at the hands of the devaluation of their fiat currency and we will get to that in a bit.

Why do we have money? To get stuff. Whether they are necessities or they are for fun or pleasure, or whatever...the true essence comes from a trade and barter.

Think about the hunter and gather days. In a particular village you might have someone who could make one hell of an arrow, someone else who could cast a fishing net better than anyone else, and someone else who could put up shelter without blinking an eye.

Well, each person had a certain talent which gave them access to a certain commodity...one has fish, another can provide hunting tools, another can put a roof over both of their heads while they are doing what they do best.

And all three talents were necessities for life, so there might have been some trades which took place to provide everyone with all that they need...each had a certain intrinsic value to them.

Then things got diluted...beyond necessities. Maybe someone needed shelter built, although only had the fine bone jewelry which they made that the shelter builder had no use for, nor did he want to have to find a way to trade or barter that, it became a real hassle as you could imagine

...so then there was a creation of a centralized form of currency.

Precious metals were the perfect option. One could place a value on it, say a gold coin, but in addition, they held what we referred to early as intrinsic value. Not only could they be used for acquiring goods, they had and have other usages in industry and tool making, unlike the paper that most fiat currency is printed on.

Then people got greedy.

They wanted more but did not want to be held accountable for their wants...so they said, "there is only so much gold to go around, we have to mine it and all that, what if for ease we printed money, and called it something, like a dollar, and really its kind of like a promissory note"

All well and good at first, because the rule was...every dollar that is printed must be back up by gold...so we are not just printing money out of thin air and attaching a made up value to it, it's really backed by something of intrinsic value.

But then it happened.

The money, aka dollar (or whatever currency from whatever civilization) was taken off of the gold standard...it was not backed up anymore by gold and then become known as what we call fiat currency...aka monopoly money. This happened in the US in the early 70?s.

Yes it works for acquiring goods, although with the irresponsibility of man kind, the easy answer is often 'print more to get what you want' without realizing this ultimately leads to a mass devaluation of that currency (gets you less of what you want) via hyper-inflation.

I liken this to a surgeons motto of 'to cut is to cure'...rushing into surgery often haphazardly without getting to the root of the problem.

And then it got a bit worse.

Banks were able to do the same, and not be held accountable for what they lend out...they print their money in the form of numbers on computer screens and bank statements. For instance, a bank can take in a deposit from someone for $100 and then go lend out $200 for someone else...that extra $100 was created out of thin air, and then they can collect real interest on imaginary money.

And then credit cards...more money out of thin air, electronic IOU's. This makes me think of the term 'as above, so below' and the exact reason why we need real financial education, and it seems we are getting it first hand, by the teaching of the current economy.

So now we have many people who owe more than they have. On top of that money that they had invested in what was deemed "safe" has sunken in value in many cases between 40% to 60%.

So what is the answer?

First of all money does not disappear, it does not go away, like all things there is just energy and matter, neither can be destroyed, only transformed.

As a fiat currency such as the dollar loses its value, other asset commodities gain in value, such as gold and silver. This is exactly why more and more people are investing in gold and silver. One, to hedge inflation and help insulate from losses as well as the financial opportunity which exists as the precious metals value increases.