Thursday, March 12, 2009

Cash- Is it Really Legal Tender?

Please click on title for more information or go to the link at the bottom of the page.

When your stock portfolio value can disappear in minutes, when your house value continues to plummet, when blue chip companies implode on the way to bankruptcy. the mantra is repeated Cash is king!

But is it worth anything?

The gold standard is not currently used by any government, having been replaced completely by fiat currency.

Fiat currency (fiat money) is money that exists because an authority or custom declares it to be money. (From the Latin fiat, which means "let it be done"). It achieves value because a government requires it in payment of taxes and says it can be used to pay debt or buy goods and services and because people trust that the value of the currency will be reasonably stable.[1]

What happened to the gold standard? When did it start? What does it mean?
Under a gold standard, paper notes are convertible into pre-set, fixed quantities of gold.

If a country holds enough gold to back up all the paper money it is considered a 100% standard. Problem is there is not that much gold in the world.

How much gold is there? Allowing for production from Egyptian times to now and put in in one place, you could build the Washington Monument, except it would only be a third of the size.

Then what determines worth? Basically if the government backs it and has the resources, the money will be stable.

Assuming a gold price of US$1,000 per ounce, or $32,500 per kilogram, the total value of all the gold ever mined would be around $4.5 trillion. This is less than the value of circulating money in the U.S. alone, where more than $7.6 trillion is in circulation or in deposit (although international banking currently practises fractional reserves).[15]

Does that mean that the gold in FT. Knox is meaningless? As you can see, there isn't enough there to make a that big difference.

Add in inflation and life gets confusing. plus the miracle of compounding interest which lets your savings grow albeit slowly while trying to outpace the devaluing dollar.

What does it all mean? It's all that we have unless we would go back to the barter system and find out how good life is as we know it.

Cash is still King!

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