so why this sudden desire to understand economics? perhaps it is because prices are rising like crazy. and the money that i have been trading my time for, has suddenly lost alot of its "value". it feels like i have been robbed. and i needed to understand what happened.
so long long time ago, Uncle Jimmy who founded equities tracker (https://equitiestracker.com/) tried to explain to me, how the dollar is no longer backed by gold and is essentially worthless, but is too big to fail. or perhaps for the lack of a better option. so here, i am going to try to explain what i understand.
once upon a time, we used to barter. i give you a chicken, you give me some cabbage, tomatoes and spinach. so the whole world is happy and balanced (to a certain extent). I work hard and I will get my hard work's worth of goods. then i decided i cannot be giving a chicken every week... and i am not able to finish the chicken's worth of vegetables in a week. so, we started to use "money" - like pieces of gold/ silver/ rare precious metal to trade. and the whole world is still balance. the precious metal/ gold/ silver is rare and limited and the people who had it spent time mining it or traded for it. So, it is still fair and balanced.
then one dude says, these precious metal/ gold/ silver is heavy, why don't we use paper? For every piece of paper, the value stated would be backed by gold ie. the gold standard. And so these paper "money" represents gold and can be use to trade.
sounds ok right? until 1971 when president nixon decided to scam the whole world. he realized that everybody holding the US dollar will not come and redeem the gold all at the same time. so, he decided it would be ok to announce that the dollar is "money" because i say so. so, all of a sudden, the "money" used in trade and is now being held around the world is no longer worth anything real. at that point, the US dollar became pieces of paper saying "I O U" with no real ability to make payment - and i suppose since internet does not really exist as yet, not everybody would be aware of the change. and even if those who were aware took advantage of the situation. how? what would you do if you know of this change before everybody else?
well, let's just print more money! bring it to other countries and buy goods and services. as long as the money... oh.... excuse me, i cannot say money anymore at this point!.... as long as the US dollar does not simultaneously go back to US, it would be ok. The inflation (where there is more money chasing less goods and services - the money has to lose enough value to equal the actual amount of produce available) would be "exported". The dollar that is being held by the merchants who sold their hard earned produce to the US would be worthless dollars - poor merchants not yet knowing that it is worthless, holding to the dollar and so preventing the inflation from hitting the US.
and in the US, they start to print more dollars (and yes, apparently it is really easy to do so and this shall be my next research) and bringing goods and services into US.... so, to my colleague who asked why is US so "rich" compared to the whole world, it is because the country stole from the whole world. The other countries caught on. But as they started late, the could not export as much of their inflation. Their currency is not the "standard" for anything or anyone else. so in countries like malaysia, when the politicians decide they needed more currency to purchase votes to stay in power, when they print the currency, the inflation cannot be "exported". there is not such demand for the currency. so inflation hits the nation.
and such situation has hit some other corrupted countries at a greater degree - look at venezuela. and because too much of their currency has been printed, the paper is totally worthless. and they have to trade in US dollars (for now). and that is why, the market exist for gold and that is why crypto currency exist today. it is because people are looking for the one thing that cannot be produced by any nut job in need of money - hell to the world. it is because people are looking for something that can hold value.... hold it. did you say hold value? did the cryptos not lose a bunch of value recently? well, it is still being established. i suppose it is finding it's value. currently, it is very much based on sentiments of the buyers and seller - so essentially dependent on fear and greed. but over time, it should find its value.... provided it is true that it cannot be simply produced by a nut job without any basis what so ever other than the fact that my wife would like a hermes handbag. ok... need to learn more as i have not totally understood crypto.
i welcome constructive comments - please explain in super layman terms. if you are not able to do so, then it would mean you do not understand it well enough. in such situations, please do more research before commenting. teng kiu.
No comments:
Post a Comment