We are inflating our currency with our central bank. As I understand it the main thing keeping us afloat is the fact that other countries are backed by the US dollar (originally because the US dollar was very solid due to lack of inflation if I am not mistaken).
In any case, if the other countries are seeing that the US dollar is a bad currency to base their money on, they will likely move to another currency (?). If this happens will not the american economy collapse?
What do you think the likelyhood of this happening is, and what are the signs to watch out for? If it happens what advice do you have (where to move, what actions to take, etc.)
So what does this sentence (“From what I know, every time the US uses the central bank this is inflation as well as debt.”) mean? In particular, what does “use the central bank” mean?
Plus, the Federal Reserve can destroy money anytime it likes. So, even if inflation did start getting out of control, all the Fed has to do is start destroying money and bring it back under control. So, unless the Federal Reserve goes completely nuts, there’s no reason to think that significant inflation would happen in the future either.
The central bank (or the Federal Reserve) is a bank that is allowed to create banknotes without any more gold being put into the national supply. One banknote stands for a set amount of gold, and in adding more banknotes (through the Fed), one banknote holds less value.
When the gov. uses it, what happens is the gov. takes out a loan promising to repay it with interest from the Federal Reserve. What the Federal Reserve then does is it prints up the banknotes and gives it to the government, circulating it into the money supply (inflation). This can be used for funding things the government wants as well as paying back its debts to other countries or bond holders.
Since all the Fed is doing is creating more banknotes (inflation) as well as saying that they must be repaid with interest (debt) I am saying that using a central banking system is inflation and debt.
The dollar is a fiat currency. It has nothing to do with gold anymore. We haven’t been on a gold standard since 1971. So, our dollar has had nothing to do with gold for almost 45 years.
No. Inflation is not just a function of how much money is printed. It depends on a number of other factors. Printing money can cause inflation under some circumstances, but it doesn’t always cause inflation.
This (“One banknote stands for a set amount of gold”) hasn’t been true in decades. And neither is this true (“the Federal Reserve then does is it prints up the banknotes”). The Bureau of Engraving and Printing prints the banknotes. And also do you realize that physical banknotes represent only a small fraction of the money supply?
As others have noted, no gold is involved. A dollar is worth a dollar and nothing else. Basically, a dollar is backed up by the promise that the United States economy is good for it. You’ll accept a dollar when people offer it you because you have reasonable certainty that other people will accept it in the future when you offer it to them. And this system works - people in other countries, who have no legal requirement to do so (and are even legally forbidden to do so in some cases), accept dollars because they believe in their ongoing value.
“Inflation = increase in money supply” is a definition used by the pro-fixed-money-supply crowd.
However, the vast majority of the world uses a much more useful definition, which is an overall increase in prices (and sometimes, an overall increase in prices that’s not due to an external force such as oil prices rising due to supply restrictions).
The money supply needs to grow and shrink with the size of the economy. If it’s very far out of whack from that, it rewards behavior that’s not economically productive. (That in turn tends to cause the economy to shrink, which exacerbates inflation, but tends to stall deflation. Thus, we don’t see a lot of long periods of deflation.)
Very few countries use the US dollar as their currency or as a backing to their own. Panama used the US dollar when I was there; perhaps it’s changed, but that’s fairly unusual (and due to the Panama Canal, which was US possession at the time.) New Zealand sets a rate of conversion between $US and $NZ, so the NZ dollar is pegged to the US, but not backed by it. Many countries (e.g., China) buy large amounts of US Treasury instruments as an investment, but not to “back their currencies”. Most currencies are fiat currencies, as mentioned above. They have no intrinsic values; each is backed up only by the stability of the issuing government, its fiscal policy, and its national economy.
We are always inflating our currency with our central bank as far as I know; there is an ideal inflation rate for a healthy economy which the federal reserve tries to hit with various monetary policies. No inflation is not considered to be good and excessive inflation is also bad, between those two extremes is an optimal expansion of the money supply.
There are various rumblings about other countries doing things to limit their dollar exposure and find other mediums of exchange, but at the moment , as for as I know the dollar is still very strong compared to other currencies - perhaps someone on this board is knowledgeable enough to elaborate on this more than I can.
I do not think the US will experience a sudden economic collapse, however I believe the long gradual erosion of the of one segment of the economy, the middle class, will continue for a very long time.
What to do? Don’t think I really know the answer better than any else; but I would say avoid a lot of the common consumerism pitfalls like buying more house than you need, a better car than you need, spending 4 years at an expensive school when you could spend much less by going to community college the first 2 years. In my opinion the wise man avoids any keeping with the Joneses nonsense - I’ve never seen any satisfactory ROI on that.