Follow the money. That’s what our Secretary of the Treasury had done about 80 years ago, and President Eisenhower wanted him to be his successor to the presidency.
Robert Anderson, born in Burleson, Texas, was the sort of man who asked questions like, “What is a dollar?”. In his day, most dollar bills were called, silver certificates, and could be exchanged for 9/10 of an ounce of silver. The exchange was possible due to hard currencies being backed by gold or silver. Anderson probably owned a dollar bill labeled a silver certificate and would still have questioned what it was. Was there enough silver in the national vault for all the dollars printed? Was there enough gold in Fort Knox to back all the transactions?
He might have questioned what a dollar was worth if the price of silver increased dramatically while the cost of a bushel of wheat remained stable. He would have probably challenged other American currencies. In the mid-1800s, some of the banks that were politically connected were chartered to issue Bank Notes, which were backed by the individual banks that had the authority but didn’t receive backing from the government.
In the 1930s, we were on the gold standard which implied that gold backed our currencies; yet, it was illegal for individuals to OWN gold. 1944 ushered in the Bretton Woods Agreement, whereby 44 nations agreed to establish the US dollar as the global currency, taking gold out of the equation. It also set fixed values of currencies relative to each other. At that time, 75% of world trade was using the dollar as the medium of exchange. Then, in 1971, the gold standard still existed, and foreign countries were exchanging its dollars for gold. Since the US didn’t have enough gold, it had to abandon the rule and develop the fiat system, wherein the dollar is not linked to any specific asset. Instead, the fiat system works on the backing of the full faith and trust of the US economy.
Still today, 60% of world trade is in dollars. However, evolving now is cryptocurrency. It seems to be a great opportunity to gamble. I’m told the bitcoin concept is very illiquid, in that analysis, or an appraisal needs to be performed for each transaction; and it appears to be backed by the full faith and trust of a computer program. Or is it the programmer? And, when you trade your cryptocurrency in, you return to the dollar standard.
While cryptocurrency is expanding, it is simply another commodity such as corn, gold, silver, wheat, iron ore, pork bellies, etc. If we choose to bet on any of these, they can be converted to cash in seconds; and there is oversight from governments of most countries.
Personally, I prefer the crap tables in Lake Tahoe.
Rich Meyer, Blogger & Author.