Happy Birthday Money!
August 15: Fiat Money's Birthday!
Back in the 1800s and even before, money was tied back to a physical thing, like gold, that’s how we knew its value. Think of it like a receipt for a physical thing that could be exchanged for that thing based on what the receipt says.
When you owned gold, instead of walking around with it on the streets and trading pieces of it for food, clothes, or other things you wanted, you would give your gold to a goldsmith and get a piece of paper saying how much worth of gold you gave them.
This is how paper money began. It was backed by the value of gold you let someone keep for you.
Fast forward to 1944, America named this concept the Bretton Woods system, all foreign currencies were fixed to the U.S. dollar and every $35 U.S. dollars was worth one ounce of gold. The world was a simple and stable place, only for a few years…
In comes money printing!
The U.S. government just started printed money in the ‘60s for war and stuff.
See the problem? If you’re printing paper that says each dollar is backed by gold, but no new gold is created, the value of the U.S. dollar drops which means everyone’s currency drops.
… so everyone wants their gold back because that is what holds the real value.
Well that’s what happened in 1965. France rang the alarm and immediately shipped hundreds of millions worth of gold from New York to Paris, even the UK tried to take back $3 billion of their gold… unsuccessfully.
So the U.S. president in 1971 said (paraphrased), "...enough is enough. The U.S. dollar and all your currencies are not backed by gold anymore by a fixed price. Stop taking the gold!"
What happened next?
Gold went up 2,000% from $35 to $800 per oz. in 9 years. Prices went through the roof because printing money but not creating new goods means everything today just costs more. Remember COVID?
What was once a redeemable receipt stating how much gold you owned to now depleting its value every time we print money, is the history of money.
So the big question: how much money has the U.S. printed in 54 years? $22 trillion new dollars.
Remember: Assets (stocks, real estate, even collectible sneakers) all go up in price as we continue to print money. So, invest wisely!Happy Investing,
NASDUQ