Wednesday, February 17, 2010
The Onion
While not necessarily as academically robust as some of the other articles on the blog, I feel that the satirical newspaper "The Onion" still brings an interesting and humorous aspect to any debate on economics. This article discusses the arbitrary nature of money, and talks about an alternate reality in which everyone simultaneously realizes that money is not worth anything.
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I found this article be comical with a hint of reality to it. The Onions article quoted, Fed Chairman Bernanke saying, "You know what? It doesn't matter. None of this—this so-called 'money'—really matters at all.". Although this is not the case in todays society, it does have some truth to it. Our nations currency is what is called fiat money. This means that the only value it has is what the government "backs" or promises what the money is worth. If the U.S. government were faced with a "doomsday scenario" that caused a loss of backing to our currency, it would have as much worth at a sheet of toilet paper. While this seems far fetched, it is not out out of the question. The Swiss dinar was faced with this situation when it ceased to be legal tender.
ReplyDeleteWhat happened to the days when our currency was backed by gold? Sure, the money supply was limited as every dollar had to be backed up by gold, but then again our dollar had everlasting legitimacy.
ReplyDeleteWhat are your opinions?
Fiat money or currency backed behind gold?
Money really only has value to you because you can use it to get other things that you want, things like food, cars, houses, etc. Fiat money and commodity money both have the ability to do this.
ReplyDeleteA drawback to fiat money is that without a good central bank, the money can become worthless with inflation. But with gold, a central bank can't make monetary policies as easily.
I don't think there is a reason for people to just give up on their fiat money, especially in the US, because it has value as long as everyone accepts it. Of course, paper money is worthless by itself, so this scenario is possible. But it's kind of weird to think about...
~Cassie