Weekend Wars: South Carolina vs. The Dollar
Though I am by no means a proponent of a return to the Gold Standard, I definitely like debating the merits of fiat currency. A few months back, South Carolina Senator Lee Bright proposed that the state develop its own gold and silver based currency. Not shockingly, the story wasn't big news and has largely gone on ignored. Every day a different pundit tells us that the dollar is going down and it still has not happened.
Presumably, we will continue to send notions like Mr. Bright's to the back of the line. Though I don't think that Bright's Bretton Woods redux is a great plan, I do think the underlying assumption is more than worthy of a public debate. Namely, is America capable of carrying on into the future with a single currency? More accurately, do living standards and economic outputs across various states combine to fit under the neat little notion of the dollar?
America was once a far more unified country in terms of living standards. Whether the uniformity I speak of was guided by policy or values is a debate for another day. What I have seen, however, in traveling across the country lately is that some states might as well be different countries in comparison to others.
In terms of fiscal responsibility states like California, Illinois, New York and New Jersey have a vastly divergent economic agenda from a Texas or a Nebraska. With the federal deficit literally growing by the second, I am starting to see ideas like Mr. Bright's become far more common place than ever in my life time.
It is patently false to argue that how one state does business has no bearing on the fiscal fate of its neighbors. In every day society some people save and some people spend. Some people often spend money they do not have. This in turn adversely effects the savers who often wind up footing the bills for their irresponsible brethren via multitudinous taxation. It is no different in the state arena. It is not only rational, but expected to see fiscally responsible states lash out against the spendthrifts.
Again, I am not saying that every state should print its own money. I am, however, increasingly concerned with the way differing state economic agendas are effecting a unitary currency. Though it is tempting to call Lee Bright a crackpot and make Southern secessionist jokes, there is a good bit to think about here.
Perhaps regional currencies aligned by political, social and economic values are on the horizon?
Though it may sound like fantasy, I can see why many would want it to become reality. With commodity prices going nuts over the past year we are seeing the growing influence of the old time producer in American economic society. Many of these folks are from smaller states, with larger rural populations like South Carolina. Many of them are unhappy with the dollar. Are you one of them? I may not be, but I am certainly seeing their point of view with far greater clarity than I once did.
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I stil don't understand how you can believe that a currency not backed by anything can survive forever. All fiat currencies since the beginning of time have failed. This has happened mostly because they were all mismanaged and devalued by over spending and printing. Even the dollar which is known to be the best performing currency in the past hundred years has lost 94% of its purchasing power:
http://seekingalpha.com/article/137051-the-dollar-s-20th-century-decline
Now in no way at all am I saying that the dollar is going to roll over and die tomorrow but I do believe that because our dollar is no longer backed by any valuable commodity like gold or silver we should definitely take better care of it. Putting interest rates at pretty much zero and mass printing of a paper currency (QE1 and 2) that is not really backed by any anything could have serious long term effects on its value. Just look at the chart above and you cant really debate that unless we change something our dollar will eventually die.
So what I am trying to say is that no I don't think the dollar should return to a gold standard and I especially don't think that each state having its own currencies is a good idea at all. But what I do believe is that we should take better watch over how our money is managed.
If we can control spending, get the deficit under control, and monitor the FED prints I still believe the the dollar could have a long and healthy future.
Can we please stop throwing that argument around? A 94% reduction in 100 years is just 2.9% annual inflation. (1-0.94) = (1/1.029)^100
You obviously don't work at the Goldman Sachs.
Look your completely right but I have to ask are you really ok with that? Look think of it this way If each year you knew that after you got your pay check and after you paid taxes some other is guy going to come in and just take another portion of your pay for no reason what so ever. Would you be alright with that cause I know that I wouldn't.
I know that seems like a stupid way of thinking about it but really thats what is going on. Now again your right if you look at it year by year it is a a very small amount of money but if you spread it out over a long period of time (like 100 years) it begins to add up. And you cant deny that if you let this go on forever your dollar will eventually lose a significant amount of its purchasing power.
Sure if you make multi millions a year this doesn't really affect you but if your just the average middle class American it can over time really begin to hurt. In 1980 the average price for a loaf of bread cost 50 cents in 2008 it was $2.79. And wages haven't increased at all over that period of time. The only reason you don't see this affect on the average house hold is due to the fact that a large number of woman have began to go out into the work place. This extra income has softened the blow from inflation but what is going to happen when you don't have another easy source of money to turn to?
You don't have to work at Goldman Sachs to realize how this can over time effect the average American. Its just common sense.
^ agree - maybe we should do the same thing in Jersey? Hell, how else are we going to fix the budget - even Christie the wrecking ball has been losing momentum.
Ultimately, whether or not the currency is fiat, gold, or Chinese salt cakes, if a civilization is failing, the currency failing is just on factor and does not by itself cause a civilization to fail.
I'm glad this is finally getting some attention. It's not JUST the silver/gold surge, it's a slew of other issues all interconnected that have not been discussed here. Out of all the places, I actually can't believe this has not been discussed by anyone here, especially the more serious forum members. Either way, anyone holding a leveraged position in XAG right now is making a killing and if they're smart enough they are going to book those profits very soon before SHTF temporarily in the silver/gold market. I can't wait for that dip.
By the way, Tokyo/Sydney markets opened up couple hours ago with silver $1.20-something up...
State currencies are an utterly terrible idea. They specifically included the federal governments sole power to print a currency because it did not work when states had their own. Imagine the chaos of trying to use Texas dollars in New York or South Carolina dollars in Nevada etc. Not to mention international trade. Any politician posing this question is only pandering to his base. A more practical method is allowing a separate currency that is redeemable for gold. This would might counter irresponsible management of the dollar. This has been done before: http://wallstreetpit.com/69010-the-three-monetary-systems-during-the-ci…
Actually, with computers, credit/debit cards and smart phones, I'd think it would be super easy to set up a system of different currencies. You're at a Macy's in New York and you are a resident of South Carolina. You whip out your phone, put in the $100 NYDollar t-shirt price and convert it so you know what it will cost. Go to the register, swipe your credit card and you make your monthly payment to the company in SCDollars and the computer automatically converts. But currency risk would sure be a bitch.
Lol @ the guy pushing for a bimetallic currency. If arbitrageurs made sure those didn't work in the 18th and 19th century, what in the world would make him think that it will work now?
On the idea of state currencies, and ignoring the logistical nightmare, it would just lead to the same problems we have today. If South Carolinan producers were to start killing it with ag products (or whatever it is that they produce down there), their currency would appreciate until they lose their competitive advantage at which point SC farmers would cry foul and ask to be bailed out by keeping their currency depressed, triggering retaliation in neighboring states. Instead of smoothing productivity across the country, we'd probably just run into ever-increasing distortions as human nature is loathe to change and the same spinelessness and idiocy gripping Washington today would affect decisionmakers with regards to their state currencies.
As far the 94% decline of the dollar, why in the world should anyone care? Did you buy 100-year bonds paying 2% from someone back in 1900? Not only does the value of a currency only matter in relation to others, wages, capital assets and bonds resoundingly beat inflation over the course of the 20th century.
Exactly. The biggest problem is unexpected and volatile inflation in the short term because it causes winners and losers and bad economic decision making. If inflation rates are stable, predictable, and relatively low (what the right level is can be debated) then prices and asset values rise across the board evenly in the long run.
Another way to look at it - that 2.9% inflation per year is just a tax on hoarding cash. If you invest your savings in productive assets, they are shielded from monetary inflation because your investments can charge gradually higher rates to customers to compensate. The folks who are hurt are those that sit on their cash.
It would be interesting to know what would have happened if Greenspan's "Great Moderation" strategy had been executed with higher average rates. Slower growth to be sure, but perhaps the massive distortions we have seen over the past few years would have been avoided. Too bad the fundamentals aren't justifying pursuing such a policy just yet.
I'll admit, currency has never been my strong suit. But the $ grants you access to the US consumer and the US economy. What international company/country would want to get paid in South Carolinian $?
Yeah GoodBread and paradox71582 you guys are right. sorry.
ctw930, I'm not trying to say I don't share your concerns about the budget or the Fed's policies. For some excellent discussions on the subject, both historical and current, I would recommend these two books by Eichengreen: http://www.amazon.com/Globalizing-Capital-History-International-Monetar… http://www.amazon.com/Exorbitant-Privilege-Dollar-International-Monetar… Not exactly light reading, but absolutely worthwhile.
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