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The US currency (the american dollar) is not based on anything, its a made up item, and holds imaginary value. Effectively, everyone who uses US money agrees / believes that they will be able to trade it for something else and that it will retain some type of value. Really, its just a piece of paper with some words written on it. It holds no intrinsic value of its own.
Fiat money is money that derives its value from government regulation or law. The term fiat currency is also used when the fiat money is used as the main currency of the country. The term derives from the Latin fiat (“let it be done”, “it shall be”).
The US themselves moved away from a gold backing (where the dollar was based on a set amount of gold and you could trade your dollars in directly for x amount of gold bullion.) in 1971 (as the article below details).
What does this mean? Effectively it means governments can print as much money as they want WHEN they want because they don’t need to have any REAL value to back it up. This assumes consumer / market confidence stays intact and that the public doesn’t see this printing or realize it. This means governments have an unlimited money supply, again as long as consumer confidence sticks around.
Monetary scholar Edwin Vieira … pointed out that every 30 to 40 years the reigning monetary system fails and has to be retooled. The last time around for the U.S. was in 1971, when Nixon cancelled the convertibility of dollars into gold. Remarkably, the world bought into the unbacked dollar as its reserve currency, but only because that was the path of least resistance. But here we are 40 years later, and it is clear to anyone paying attention that the monetary system is irretrievably broken and will fail.
The interesting thing is the average life span of a fiat money system (which Canada has as well). Governments and bankers and such didn’t like the ‘gold standard’ because that means they actually had to HAVE gold in order to be able to purchase and lend and such. Removing that means again, a virtually unlimited money supply, they just need to plug a printer into a computer and print some more! Thats really basically what they do…
Fiat currencies always fail since the government keeps printing money, more money is in flowing through the economy which means that the value of each dollar goes down. If you hav more money, you’re willing to spend more on the same item, eventually everyone is paying more for that same item. The item hasn’t lost its intrinsic value but the money has since people realize you now need MORE of it to get a particular widget.
This is a big subject, hopefully you get the idea of the fragility of our money system and that its all ‘faith based’ effectively.
Check out http://dollardaze.org/blog/ . Has some info on what occurred, how much the US bills are worth and how it works into the world economy.
These are big numbers and they are basically going crazy because there is no real value behind the which act to hold it back and keep it valued at what it should be, namely no gold backing. Haven’t REAL value behind your money means its worth what its worth ALWAYs and its value won’t change much from year to year, decade to decade. It will always be worth something. Not so in a fiat world.
Watch for the soon collapse of the US dollar as the world currency and look for either China to step in or for a world economic currency which all countries will switch to. Its bible prophecy. All world news these days is basically if you read between the lines. In this case, you don’t even need to read between the lines, the outcome is obvious to any economist or even any Joe Regular who is paying attention.
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