The things I don’t understand in this world would fill the Library of Congress and no I an not going to bore you by trying to recount them all. But, I have been musing about a few things and I wondered if maybe someone out there in internet land has some answers. So, here are some of the things I have been mulling around in my head.
Back in the good old days, our money, the US dollar, was backed by gold. Richard Nixon put an end to that in 1971. We and the world converted to a fiat money system where the US dollar became the world’s reserve currency and the dollar, or greenback, was backed by the full faith and credit of These United States of America. Much has changed since 1971. Nations like the US don’t bother printing money anymore. Banks and Central Banks like our Federal Reserve can and do create money out of thin air with a few key strokes of the computer and money magically appears in bank accounts around the world. So, once the dollar was backed by gold and then a dollar was backed by the words “full faith and credit” and now we don’t even have dollar bills. We have binary 0 and 1 in a computerized account. The world’s and the US economies continue to function because everybody has been condition to accept this strange arangement. For example, someone in Japan writes a check or does a wire transfer of Y yen to a company in the US, that company will send to the person in Japan X dollars worth of their product. I don’t understand it. I wish I did.
The Dollar As The World’s Reserve Currency
So, in 1971, the world decided to use the US dollar as its reserve currency. Why did Nixon and his advisors think this was a good idea for the United States? Until the financial crash of 2008, having the dollar as the world’s reserve currency was not a blessing. It was a curse! From 1971 to 2008 every one of America’s trading partners manipulated their currencies to be less than they a free market would indicate. This makes their products cheaper for Americans and, therefore, they sell, sell, sell to America. Of course, our trade imbalances over the years just kept getting worse. Now, I suppose since the Great Recession, we are probably glad of the dollar’s position in the world. It may be the only thing keeping the US from becoming the next Greece or Spain. Did Nixon and friends know this day was coming? I don’t know. I don’t understand it. I wish I did.
One could argue that QE1 had some marginal benefits for the economy, but QE2 had much less benefits, and QE3 will be worse. Bernanke says QE3, to the tune of $40 bullion per month, will be used to buy mortgage-backed securities. I guess that will make Wells Fargo happy and the Wall Street casino players are happy and once again most of the digital dollars will end up in the excess reserve accounts of the big banks just like it did with QE1 and QE2. So, why does Bernanke think this pledge of indefinite digital money-making is going to get people to buy homes and businesses to borrow and invest and, thereby, create jobs, when it has not worked the first two times. I read today an article where a big time hedge fund operator said that the Fed has the best economist in the world. They know everything except their own limitations. I don’t get it. I wish I did.
Congress and Politicians in General
On this I know I am not alone. Congress has the lowest approval rating ever. I think they deserve that rating. Last year we were entertained the circus of the debt ceiling crisis, a Super Committee to resolve what the whole congress couldn’t and everyone knew in advance that it was a waste of time. The Democratic controlled Senate won’t allow a budget to be produced so they keep making Continuing Resolutions. And, even after the Republicans take control of the House, they don’t even have the backbone to say to the Senate there will be no Continuing Resolution unless we take Obama’s stimulus money out of the baseline budget. All of our politicians, with only a few exceptions, are more interested in their next election than they are of America’s future. We ended up having our credit rate lowered and it is going to happen again in a few months when we will be entertained by another congressional circus. This time, however, it will be a lame duck congress putting on the circus. One side will scream about spending cuts and the other side will scream about tax increases and in the end they will raise the debt limit and pass some short-term Continuing Resolution and kick the can down the road so the next congress can deal with the mess. I don’t understand politicians. I wish I did.
There are a few more things on my mind today, but it is time to bring this post to a close. One of those things was ObamaCare, which no one understands either. However, I did come across this video at the What We Think and Why blog that you may find interesting. The woman speaking is Dr. Barbara Bellar who is running for the state senate in Illinois. The Doctor may not know the “why” of ObamaCare but she does have a handle on the “what” of it. Amazingly she wraps it all up in one sentence; all be it a very long sentence.
(I don’t know why this YouTube videao won’t embed today.)
Well, now you know what I’m thinking. What are your thoughts?