Basically, the more greenbacks the Federal Reserve prints, the less value each one has. They print them and put them into circulation, more each year.

This explains why in the 60's cars cost 2-3,000 and now 10 times more. They haven't gotten more expensive. The dollar has gotten cheaper.

Questions:

Does the consumer benefit from this?

If not, who does?

Is this possible with a metal standard? (Like silver / gold money system?)

 

The value of the U.S. dollar is part of an international poker game that goes on continuously. If the dollar is strong against foreign currency, our goods cost more than theirs and they have an advantage. To secure this advantage, they buy dollars, driving the value up, then buy our bonds which must be repaid with interest - problem is we are dependent on that inflow of cash. Example - The Japanese yen was rising against the dollar last month so their government intervened in the market with $36.2 billion to maintain their advantage. Strange as it sounds, it is good for us if the dollar weakens as long as the decline is slow enough not to upset delicate market balances. We know how the game is played, I wish we played it a little better.
Dono

 

Dono for Grand Ruler!!!! (forget President!)

 

China, as with many games of skill, is the master at shoring up currency values. With little private industry to lobby the government, they're rapidly heading towards becoming #2 foreign purchaser of our bonds.

As Dono knows, that's like holding a gun at our heads. Stop buying bonds, our bond interest rate soars, debt sevice swallows us up and chaos reigns supreme. Our foreign trade partners have a big stick.

 

So, in theory, could they wage economic war and make us weak and disorganized?
zanny

 

They could, but it would also harm them. Right now they're very happy keeping our dollar's value low enough to flood us with their products. Japan has their own serious economic problems and China is in a very precarious position as it moves from being primarily an agrarian society to industrial with private enterprise being encouraged in a communist based government. I don't see any quick fix for Japan and they're currently the largest foreign purchaser of our bonds, so that should continue on the present course. China is attracting enough investment capital that if they can continue the balancing act in a reasonable fashion their reserves will eventually be strong enough to begin financing world trade. But that's a ways away. Right now the mad shuffle is companies attempting to position themselves in China for China's eventual consumer society, the potential vehicle sales alone boggle the mind, and that's good because it'll keep it out of our hair for some time. Unless we again do something stupid like Iraq. Then our bond rating could well be in danger of incurring high interest rates. At the moment, other than the Four Horsemen, that's our biggest potential disaster.

PS: to Jesus freaks and flag wavers, my post is on money, nothing else.

 

To answer your question Carpe, I don't know who benefits but of course it is not possible with gold or silver.