Currency

 

Slow Hand

‘Cause I got a man with a slow hand
I got a lover with an easy touch
I got somebody who will spend some time
Not come and go in a heated rush’
I found somebody who will understand
When it comes to love, I want a slow hand.

But sometimes you need not just slow but NO.

Slow inflation at 2% APR, is still inflation. It means that each and every year your money is worth less and less.

“The Boiling Frog Syndrome describes the effect on a frog being put into boiling water and being slowly boiled alive. A frog suddenly put into a pot of boiling water, will jump out to save itself.. But if the frog is put in lukewarm water with the temperature slowly rising over time, it will not perceive any danger and will be cooked to death.”

https://www.psychologytoday.com/us/blog/lessons-from-a-burnt-out-psychologist/202406/the-boiling-frog-syndrome-a-metaphor-for-burnout

The Nixon Shock of 1971 made the international currency, which was the US Dollar, no longer convertible to gold. Meanwhile the amount of USD in circulation was pegged to the domestic economy, and it effectively ignored the international economy. Nixon made the classic mistake that everything is either/or. It is not. There is a third way which is both.

Prior to 1933, the US dollar, USD, was on the gold standard. But once the ownership of gold was made illegal by US citizens, it became a fiat currency. The problem is that it had already become a bank note currency merely backed by the commodity of gold.  International trade prior to WWII was based on a country’s gold supply. But during WWII so much of the international gold supply was stored in the US to prevent it from being stolen by the Nazis. In addition so much was lent by the US, that the US effectively had most of the gold anyway. The Bretton Woods conference was made to foster international trade, and it eventually made the USD, at a fixed price of gold, the international currency over Keynes's preferred Bancor. The Nixon Shock may have looked like it was returning to an international commodity currency but Bretton Woods had already made the USD the international bank note currency and this only changed it from being fiat bank notes to commodity bank notes. Unfortunately, the supply of US Dollars was fixed not to the needs of both the international AND the domestic economy, the USD in circulation was based ONLY on the domestic economy. The result was too few USDs in circulation for the demands of domestic AND international trade. And the result was major inflation in the 1970s and declining but still persistent inflation since that time.

As long as the USD is the international currency yet the supply of USD is based only on the domestic economy, inflation will be with us. Inflation, even if it is slow, may eventually kill us just like that frog. If we want NO inflation and, the USD is to be the banknote of and  international currency, then the USD in circulation should be by fiat and that should be based on the demand of the domestic economy AND international trade. Let’s not be content with being slow boiling frogs.