Funny Money

After three days of the desert fun
I was looking at a river bed
And the story it told of a river that flowed
Made me sad to think it was dead
--America

Many view money as wealth (a.k.a. economic resources). But money is nothing more than a medium of exchange. Prior to money, people traded economic resources directly. If I chopped wood, then I could use some of my 'income' of wood to trade for other goods.

The clumsiness of such a barter system is readily understandable. As such, money was created to make exchange easier.

The oldest forms of money were hard assets. Because of the unique properties of gold (scarcity, divisibility, portability, durability), it rose to the top of the list as a preferred currency.

Over time, societies have moved toward paper currencies as the predominant medium of exchange. Initially, paper money was 'backed' by gold or silver, meaning that one could cash in paper for a commensurate amount of metal.

Gradually, however, precious metal backing has been removed, such that now the only thing backing modern currencies is well, nothing, really. Absent the discipline that gold backing instills, governments over time print more of money by 'fiat' in order to achieve political agendas.

Governments rarely come right out and say that they're printing it, however. If they did, even those at the lower wrungs of the societal pyramid would catch on to the consequences. Instead, governments invent various codewords for money printing: monetary policy, reserve ratios, repos, open market operations, etc. Such technical terms seem to keep inquiry at bay.

The hip money printing term right is 'quantitative easing (QE).' Over the past two years, the Fed has printed over $2 trillion as part of the QE program. Recently, Fed officials have been signaling that they're ready to do more--perhaps another $1 trillion or so.

The question on many people's minds seem to be whether QE will 'work' w.r.t. stimulating the economy. The question few are asking is, if money is merely a medium of exchange, then how can printing more of it create a more prosperous situation?

Moreover, few seem to be asking what are the risks associated with gobs of greenbacks out of thin air?

That's one for you to ponder...

position in gold, silver, USD