The US dollar is dying. Why the definition of money matters.
This is a meager attempt at educating others why we have some inherent economical and social problems today and it has everything to do with why systemic change is needed (and coming, IMO). I’m not much of an optimist but this is where I will concede for a desire to be.
“The stock market is a Nintendo cartridge and the Federal Reserve keeps blowing into it.” 😏
I’ve been a tad obsessed with finance markets for a few years now and what “money” means, how we decide what is considered legal tender and what happens when and why certain currencies go bust (ie. de-dollarization of the Venezuelan bolivar).
I will use the US as my primary example because most global markets are ultimately still dominated by everything being traded against USD at the end of the day. Take note of this because we are seeing a switch.
Before we dive deeper, we have to define money. In my view, money is best defined as a language – the definition goes more in depth by Andy Armeniakos in this YouTube video:
But in layman’s terms, at its core, money is inherently understood between two parties where if I give you this, of value, I get this in return of equal value. We have to agree that both aspects of this transaction is mutually understood.
Before the US dollar was known as it is today, they had legitimate bank notes. A bank note was a promise that this piece of paper means it is absolutely backed up by real value (gold or some other precious metal). Believe it or not, people at the time hated this switch because they couldn’t “see the gold.” Much like today, people are skeptical of digital or crypto currencies having a better systemic change for the future of money because they can’t “hold the dollar bill.”
But before this time, we relied on aesthetically pleasing shiny things like gold, silver or copper as “currency.” We assigned value to gold – not just for its functional qualities but because it was considered scarce. Subjectively, scarce commodities equal value. Plus, humans just tend to psychologically like shiny things.
Before bank notes turned into the currencies we know today, Americans had the luxury of knowing that every US dollar was backed by a gold standard value. That meant that a dollar bill was backed by an equal value to its country’s gold reserves.
Fast forward to the Nixon administration. In 1971, long story short, known as the Nixon shock:
He removed what is called the “Gold Standard” for the US dollar. So from then on, money could be infinitely printed but not actually backed by what was considered valuable anymore.
That means the US bills that are in print and common use to this day no longer retain the value behind the currency. It’s literally like an IOU but no one can officially track what that means anymore because it’s not backed up by anything. This has become the norm, fueled by years of establishing the US’ imperial dominance over countries who couldn’t afford to pay, EVEN IF the US is indebted too, and they have been, for a long time.
And what the hell does debt mean anyway if you are in control? Quite simply, it means no one would ever have the resources to fight back in a US Dollar dominated world.
Your country wants AK-47s to deal with civil unrest in a war-torn country? Pay in US dollar. Illegal drugs in mass scale? Pay in US dollar. Pharmaceuticals made in Europe? US dollar.
So what happened? Go back to the ‘70s for a sec and remember what things used to cost. From bread, to cars, to houses, things were considerably cheaper. We’ve noticed major inflation and for example, if you’re not getting at least a 2% pay raise every year, you are actually losing money in the long term because everything continues to rise in price. I, myself, average around a 1% increase per year so I’m behind the curve.
Since I’m referencing the US, I’ll put it this way but it’s the same with the Canadian dollar. Inflation is what happens when the total number of US dollars increases (this means the US Federal Reserve “prints more money into existence.”) Literally that. They just “made more money” to pay off debt.
But we know, the bigger the supply of US currency, the less the dollar is worth because abundance is introduced, reducing scarcity and inherent value. That’s why a house could cost 30,000$ in the 60s and appreciate to a million or more in a dense, urban environment in 65-ish years time, yet the salaries of today can’t match the inflation. Not even factoring in a competitive market.
And this is still happening and getting worse today. There is no debit/credit system for those who have the most power. And the other way money is usurped from its citizens is taxes, which is relied upon for the most basic of initiatives like health care for all – oddly enough, common folk think taxes are the problem because they see what is taken on a pay check but they don’t see what inflation costs or why, on a two-week increment pay period. Spoiler: this is deliberate.
So where did the squandering for the better of some instead of all take place?
40 years ago, a single-income family was more than enough to provide and be successful. Today, you have two full-time working parents where child care expenses can literally be the monthly salary of one parent and ends still don’t meet.
Capitalism tried to teach us, if you work hard, you will reap the fruits of your labour. Except you can’t presently, because everything has become so expensive and no one clued in that poverty costs more in so many different ways than just economic stability, oh, and lives too.
Even if you believe capitalism is an equal opportunity system, surely the amount of hidden corporate money, sheltered from taxes in havens beyond the power of jurisdiction, and the fact that the biggest governments (puppeteered by corporations), has had a noticeable impact?
Back in the day, as much as 70% of corporations were taxed but now we live in a world where Amazon can get away with paying next to none? Corporate socialism has existed this whole time and will for the foreseeable future, doing no justice to lower and middle class people (which is, well, everyone else).
The point is: the money isn’t filtering back into the economy despite the stock market highs and never benefits classes lower than the rich – hence the polarization between low and upper class. The middle class has shrunk considerably and there’s no end in sight for this under the current trajectory. No wonder everyone is pissed off and divided.
OK, but back to money, markets and the impact. Whether you know it or not, we are witnessing the US dollar going through currency failure.
When newly created money inflates financial assets (stocks, derivatives, etc.) more than it increases actual economic activity, this means the currency failure has begun.
We’ve seen this before and it’s happened many times to other countries’ currencies. As aforementioned, the Venezuelan bolivar declined rapidly in 2018:
But what did their government do? They printed a whole lotta’ money:
Which made their currency near worthless all while the people had to stave off unrest and economic collapse:
The thing is, Venezuelans knew this beforehand. If you were reading the news about this in 2018, everyday citizens were trying to get rid of their money, trade it for other stable currencies, even buy Bitcoin. Hell, I even donated some BTC to a Venezuelan family; the amount was modest, but was the equivalent of paying their bills for over 3 months (as of this edit, well over a year’s worth of expenses if they held that Bitcoin since 2017 to present day).
If you have a near infinite supply of money all of a sudden, any other commodity, metal or currency is a better option to preserve wealth. You want to trade what is losing value for other assets that have more stability in times of crisis:
Need another example so it’s not a one-off? Argentina’s currency has been declining steadily since 2013:
And what‘s happened to their stock market at the same time?:
But the problem for them was, if some now made millions (optimistically) in stocks, their millions in their own currency was now worth the price of one daily expenditure of groceries. A few months beforehand, that money could get you a nice car:
You might also notice some people in official positions who have tried to remove US dollar market dominance, people in positions of power, have had suspect deaths or disappearances. 🤔
But to make it more clear, we have to understand what a currency’s purchasing power is. That’s the difference if inflation impacts your life or not.
Definition: The value of a particular monetary unit in terms of the goods or services that can be purchased with it.
If you want to know your own currency’s purchasing power, in markets, you can ONLY compare it to something that has held consistency in purchasing power over centuries – example, gold.
I don’t have Canadian dollars displayed here (though if someone wants me to produce it, I can), but currency failures have been happening for a long time and bottom line, it ruins the livelihood of now and generations to come (FX is short form for currencies):
That chart is the worth of several currencies traded against gold since 1850 to present day. Still think the economy is booming?
If you were holding any of these currencies during these steep declines at the time, you would have nothing. And that’s what happened with the Great Depression and on a smaller but notable scale, the recession we last experienced in 2008. No one on my social media feeds have ever experienced what we are going through right now. Oh — and no one has a clue.
Because since 2008, to deal with the economic and housing crisis in the US, the Federal Reserve (the US money printers) have been printing money out of thin air at an insane rate.
The worst offender of this crazy incline in money printing has been under the Trump Administration. Mind you, that’s not a political statement, that is just facts. But this is just buying time, not fixing ANYTHING:
So where did this newly printed money go? Helping the homeless? Opioid crisis? Charity? The economy? Nah. It went into financial assets such as stocks and those who owned those assets became richer while those who couldn’t invest got poorer:
And those who had the wealth were able to afford the basics of life, like houses, medical care and education while those who got poorer legitimately could not do the same:
Naturally, the wealth gap began to widen:
We can also see a wider gap in political views when these things happen:
Oh by the way, we haven’t seen this kind of political division since the mid-1930s:
If history can teach us anything, it’s that we’ve been down these roads before. The idea of money changing as we know it isn’t far fetched, it’s a necessity. We know what happens when people struggle to just survive and never get to live. Out of everything that needs reform, it’s money. How we define it, how we use it and how that impacts all parties involved when they don’t have any.
“They say money can’t buy happiness… but it sure does cost a lot to be broke.”
Thanks for reading my TedTalk,