Saturday, December 29, 2007

What is Money?

Dear Colleagues

Students of economics used to be taught that money was a medium of exchange and a store of value ... but is this true any more?

But that was in the days when money ... currency in circulation ... was backed by real assets of the banking system. Once upon a time one could take $36 to the (central) bank and get an ounce of gold in return ... the gold standard. But that is long gone.

Today money is really nothing more than just another derivative, with rather little that is tangible to back it up.

Money with no backing can be very volatile ... certainly not much a store of value any more.

And as a medium of exchange, money is no longer really needed, merely some way of recording transactions and the amounts owed between various parties ... in other words, something that is totally virtual.

So where does this leave the US dollar and the American economy? There is probably a broad concensus that the answer is "Not on a very good position".

There will be little agreement, however, on "How Bad?" and not much understanding of "Why Bad?". This is not an easy subject, but the underlying health of the US economy is poor ... the money has been debased ... and the US has massive debts and deteriorating collateral. Not a pretty picture.

Though the situation is very grim ... there are US values that can make a huge difference if they are used right ... hopefully they can be clarified in this blog over time.


Peter Burgess
The Tr-Ac-Net Organization