Monday, June 21, 2010
Around 800 AD, The Chinese Tang dynasty invented the first paper money. China was a big country, and the rulers of China didn't like the idea of having to transfer all that heavy gold and silver around on a constant basis. The money certificates were exchangeable by merchants for the stated amount of precious metals in any city in the Empire. This remarkable innovation in trade was nicknamed "flying money" by the Chinese merchants, due to the frequent problem with the valuable paper blowing away on the slightest breeze!
A couple hundred years later the Song, Chin, and Mongol rulers began to use paper currency throughout China. By 1309 AD, the currency called the Yuan, had depreciated 1000%. Often the government would refuse to exchange the old money for new as the old became battered and useless. By the end, the great innovation that so impressed Marco Polo had ceased to have any connection to gold or silver, and reverted to it's inherent worth...nothing!
Every paper currency that followed in Europe, America, and around the world has either collapsed or become substantially devalued. In 1950, a US silver dollar bought 4 gallons of gas. It would do the same today due to its silver content if you sold it for US paper dollars. A paper dollar saved from 1950, however, wouldn't even buy half a gallon of gas at your local pump. That, my friends, is inflation and currency devaluation. Please keep in mind as well, that this loss of buying power occurred during the period of time where the USA was the Mightiest nation on Earth!
Is worthlessness the inevitable future for the US Dollar? In a word, yes. It's purely a matter of time. Perhaps it will be a matter of days, months, or years, but it will eventually become WORTHLESS. The process of paper currency devaluation is like an hourglass with an elastic neck, the sand will continue to slip away, only the rate at which it falls is open for debate.
There are a few truisms in historical economics. Governments will always seek to debase currency because it allows them to spend without raising taxes (which everyone who votes generally hates). Think about that for a moment. If you had a printing press and could print your own money seemingly without a reckoning, wouldn't you print away 24/7? When the government gets print-happy, however, the money supply soars leaving manufactured products & supplies in the dust. Too much money chasing too few goods means inflation, or worse, hyperinflation.
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