Sharing A Currency System October 6, 2008Posted by olvidadorio in Earth, Economics, Money.
Tags: bailout, fiat money, fractional reserve system
One of the fundamentals of sharing an economy-around-a-currency:
You share the responsibility to retain the currency’s value.
This fundamental responsibility has been and is being trodden upon by the federal reserve system in the US — in the effort of mending prior irresponsibility by financial institutions. If one for some reason thinks one has to use standard fiat money (money not backed by commodities, i.e. gold) then one should either not go for fractional reserve banking or totally not go for free-wheeling, no-state-intervention, market capitalism. Simply because this free-wheeling market, combined with fractional reserve banking can be exploited for short-term gains, which then necessitate big governmental intervention such as the current bailout. So — as people have been pointing out — all this necessitates the opposite of non-interventionism to keep the economy going.
What the current situation will create is inflation in dollar and dollar-backed currency. Which will increase US-depression. I’m a little bit worried about that country and its economy, especially if one takes into account that it consumes 50% of the worlds oil-production. You know, oil isn’t going to be getting significantly cheaper, unless something really strange happens.
I’m looking forward to my time in the states. I might have to find work there, so I’m a bit worried about the job market too.
Edit: Solely predicting inflation is not quite on spot. We have already seen massive deflation in the housing market and there will be further deflation in other parts of the material economy as it will probably be much harder to receive credit! There also has been deflation on the financial markets so far, however, expect to see inflation creeping up, due to the simple fact that there are, acutely, more dollars floating around that have been conjured from thin air at the federal reserve. Also, US treasuries will most probably be leaking onto the market, as primarily asian stakeholders will try to diversify away from the dollar.
Inflationary and deflationary effects may cancel each other out in part, making development look more moderate, in the end however, i would say that decline in trust in the US economy would lead to inflation.