By: Elliott Wave International
My dad will turn 84 this year. When he was born, you could walk into a Federal Reserve Bank or the Treasury and redeem your paper money for gold. It actually said you could on every piece of U.S. paper currency:
"Redeemable in gold on demand at the United States Treasury, or in Gold or lawful money at any Federal Reserve Bank."
You can't do that today, which helps explain why my dad is so grumpy.
But, seriously, I mention my father to make it personal. The move away from the gold standard did happen in the lifetime of some folks who are still around. Is that such a big deal?
Well, it is a big deal when the government unilaterally changes all economic and financial transactions, from having a basis in something, to ...
... A basis in nothing.
Now, a discussion of what money is -- and how society can have a convenient way to exchange goods and services -- gets abstract in a hurry, so I'll save that for another day.
I will use one not-so-common word, which is fiat. It sort of means what happened when God said "Let there be light." Out of nothing comes something.
But in the story of our currency, what we have is fiat money. As in, the Treasury and Federal Reserve put ink on paper and say, "Let There Be Value!"
The problem is: You can't create value from fiat.
Here's some context: The Federal Reserve Bank was created in 1913. The idea was to keep the financial system from hurting itself.
Did it get less pain? Well -- less than 20 years later -- "hurting itself" only begins to describe the pain of the 1929 crash and Great Depression.
The depression is why President Franklin Roosevelt and Congress moved away from the gold standard in 1934.
Was fiat money a real solution? Mind you, the government didn't make this huge change all at once. In truth it took about 35 years. (When things move slowly, fewer people notice.)
The real question is: Are we better off with fiat money?
Bob Prechter just published a full-blown reply to this question. He dedicated his entire March issue of The Elliott Theorist to answering it.
Please know that Bob doesn't write dry boring history -- because he's not dry & boring. He does connect the dots to today's banking system and economy.
Read the entire issue for yourself -- for free -- by starting your complimentary Club EWI Membership >>