I've been hurt by it. I've cried over it. I've dreamt about it. I've made future goals with it. We have joyful moments together. We have a past. We have a present. Hopefully, we will have a full and prosperous future together. My boyfriend? No no. I'm talking about money.
We all have stories about money in our lives. It's a relationship. And like members of the opposite sex, if you don't really understand how it works in general, you won't know how to apply it successfully to your life. For example, the woman who doesn't realize that many men want the chase when pursuing a woman, might make the mistake of instead chasing her dream guy and squashing his attraction for her before it ever even got off the ground.
Same with money (and prosperity for that matter). If you don't understand general properties of it, you might squash your chances of attracting more of it into your life. Or you could lose what you've already got.
What's to know? It can't be that hard.
You get it. You spend it. You figure out how to get more. Easy peasy.
Honestly, once you understand money, you may not want more of it. Not in U.S. dollars anyway. Maybe in some other form.
Did you grow up thinking that the green pieces of paper with George Washington or Benjamin Franklin's pictures on them are real money? Perhaps you thought they were backed by something valuable, like gold or silver?
They are pieces of paper. They're backed by nothing. Sorry, they are backed by the word of the Federal Reserve telling everyone they are valuable. So pretty much nothing. This type of currency is called fiat currency.
1. If our money is worthless paper, how do we buy stuff with it?
How are we able to buy iPads, cars, clothes, makeup, and food with paper backed by nothing?
Because our government has legislated it. In other words, they passed a law commanding Americans to only use their fiat paper dollars in trade (buying and selling stuff). They made it illegal to trade with anything else. With their legal tender laws they can throw us in the slammer if we don't abide. They have created a monopoly for themselves in the money printing business.
2. What is currency? Is it money?
In a nutshell, sometimes it's money. Sometimes it's not. How's that for an unclear answer?
Currently, of all the different countries' currencies around the world, not a single country is using money. Only fiat currency. Not even America is using money.
People use currency as a medium of exchange to purchase things that have value. I purchased my iPad for $599. Or 200 years ago, I might have purchased a cow or a hand made bed with 2,000 sea shells. The currency being the dollars or the sea shells.
Most currencies, themselves, contain little to no value. Like paper. Or seashells. It just acts as a medium to “transfer value from one asset to another.”
Currency comes from the word current. Like an ocean current. As currency moves from person to person, it is circulating, like a moving current. If people stop buying things with a particular currency (for example, because a government has overprinted and debased it out of existence), like Zimbabwe's dollar, it will stop circulating from person to person and will no longer be considered a currency. It has stopped moving.
Silver and gold have traditionally been money for most of human history. Even though silver and gold are valuable, people have stopped buying things with these metals because the government has deemed it illegal to conduct trade with anything but Federal Reserve notes (dollars).
So no more gold and silver as currency. Now most people call them "investments". Even though the Constitution states that the only money America should be using is gold and silver.
Gold and silver, although not a currency at the moment, is money.
Not all currency is “money” either. Throughout time, people have used all sorts of things as currency: paper, salt, grains, shells, unusual stones, beads, spices, livestock, etc. They have all acted as some kind of medium of exchange but, for various reasons, none of them has successfully passed as money.
Much like finding a good mate, certain characteristics must exist in order for a currency to make the grade as money.
3. So what is money? Why is the U.S. Dollar not money?
There are seven characteristics that a currency must meet to be money:
(1) It must be durable, which is why we don’t use ice cream, rice, corn, or cows.
(2) It must be evenly divisible, which is why we don’t use art work or statues .
(3) It must be convenient, which is why we don’t use lead, copper, or pigs.
(4) It must be consistent, which is why we don’t use real estate or stocks.
(5) It must possess value in itself, which is why we don’t use paper. (erhm...)
(6) It must be limited in the quantity that is available, which is why we don’t use aluminum or iron.
(7) It should have a long history of acceptance, which is why we don’t use molybdenum or rhodium.
Only two currencies in history have ever successfully qualified as money - gold and silver. They are hard currencies and fulfill all the qualities.
But they are not circulating as currencies at the moment. Why? Because, like I said before, we've been banned by our government from using gold and silver in America as a medium of exchange. Sad, sad day for us.
We used to use gold and silver. Our country was founded on it. In fact, most of the Founding Fathers were repulsed by central banks and their fiat currencies. They knew governments used central banking and fiat currencies for their own agendas and to overspend.
If you ever hear people talk about the logic and strength of “sound money,” (ahem! Ron Paul) they are referring to a system where currency and money are one and the same, when the currency is gold and silver or it’s backed by gold and silver.
4. The American dollar used to be money.
Defined by the coinage act of 1792, the dollar was a coin containing 412.5 grains of standard silver, or 371.25 grains of pure silver.
Today's "money" is nothing but pieces of paper. They can be printed up at will or added into the system by a computer entry by the Federal Reserve. And they are rapidly printing the value right out of it.
This over printing, or debasement, of money is what has impoverished so many countries in the past, Germany's Weimar Republic, Zimbabwe, Chile, Argentina, even ancient Rome! Today's U.S. Dollar, Euro, Pound, Sing Dollar, whatever...are no different than the thousands of failed currencies in the past. No fiat currency has ever lasted. They have all died out. Not gold and silver.
Country after country after country has seen their economies collapse. Too much currency creation (inflation) caused the value of their money to become worthless.
Here's what most don't realize - America is headed down this awful road of collapse from inflation.
It seems great, at first, for a country to print as much money as they like. Like a party! Passing out the dollars! But it always ends in disaster.
Just look at bankrupt Europe.
What will help us out of this plight?
We need to go back to our old system of using real money. Yes, that would be gold and silver.
We need to rein in our spending (individual AND government) using the constraints of real money, silver and gold, so our irresponsible government cannot just make more currency at will.
The money printing by the Federal Reserve must stop. We have become a country of credit and debt (the U.S. Dollar is technically a form of debt) instead of a country of real value.
If you'd like to delve more into money, how it works, and the history of it, I recommend Michael Maloney's book, Guide to Investing in Gold and Silver. It's excellent! Super interesting and it will change your life if you don't already know this stuff.
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