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Money
There are many fantastic and well referenced free documentaries and short films online about money creation of which everybody should watch at least two or three in order to understand how money comes into being. Money is at the centre of almost every national culture whether we like it or not and it's quite remarkable how most people don't actually know where it comes from. What most of us think of as money (Dollars, Pounds, Euros and Yen) isn't really money at all. To be money something has to have an intrinsic value. Dollars, Pounds, Euros and Yen are, in fact, examples of Fiat currencies. Good examples of money are gold and silver. The currencies that we use as money are loaned into existence by banks as debt. Banks keep very little money themselves and instead keep small reserves because they know that not everybody who deposits money with them for safe keeping will want their money back at the same time. Only about 3% of a country's currency is physical bank notes and coins. the rest is contained in digital form on computers. This system is called 'Fractional Reserve Banking'. The current system of banking and money creation has only been around for a short time and is the model which has been used globally since 1971 when the U.S. stopped linking the value of the dollar to gold. Before this time the money supply was restricted by the amount of gold owned by the issuers of money. Later in the mid-1990s the U.S. then repealed the 'Glass-Steagle Act' which had prevented banks from using depositors funds to speculate on global markets. These two events together mean that international financial institutions now have a potentially unlimited supply of money to 'play' with on the global markets. In the history of mankind, every fiat currency that has existed has at some point become worthless and disappeared. |
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The Petro-Dollar
After WWII many countries had been ravaged by the fighting and much of their infrastructures destroyed. Britain was bankrupted by the conflict and had to negotiate for it's colonies to be come independent as it didn't have any money to continue it's empire. The world needed rebuilding and was payed for with American dollars. America had actually profited and grown economically during the war and was now in a position to dominate financially with the dollar becoming the reserve currency of the world. This meant the dollar was where other nations chose to invest their wealth. The dollar was the safest investment to make. What's more international trading in oil and gold could only be conducted using U.S. dollars. Basically, countries needed (and still do) dollars to pay their bills. In 1971 President Nixon took the dollar off of the 'Gold Standard' so that the U.S. could increase the supply and by default the dollar became linked to the most valuable and sought after commodity - Oil. Since 2008 and the American government's QE program there has been tensions between different economies. This is because when America introduces more dollars into the system it means the dollars other countries already have are worth less. |
