Is $100 trillion a lot of money?
It depends on how you think a dollar has a value in the first place.
The dollar is accepted as the way we measure our financial security and whether we are getting ahead of our neighbors or not.
But the real value of a dollar is what it represents in purchasing power.
Economists and the investment industry have many definitions, and confusing methods, to explain the varying valuations of the dollar. Interest rates, trade balances (relative to other currencies) and a whole host of smoke and mirrors.
What counts in the end?
Purchasing power. What you get for what you gave.
The Dow Jones Industrial Average, for example, is reported in terms of the dollar. Reporters hyperventilate when it hits 13,000.
Does the Dow at 13,000 tell us how much beer, pizza and as George Carlin used to say, “stuff” we can buy today over yesterday?
When you look at it this way, then the value of a dollar makes more sense.
Ultimately, the dollar and other currencies have value because people are convinced that people selling stuff will accept dollars from people buying stuff.
This system did not happen in a vacuum.
Out of necessity, as societies became more complex trading systems, something had to become an alternative to just straight bartering. As government — the King, Caesar, etc. — provided the power, credibility, and control over the markets, using coins became a much more facile way to conduct business and collect taxes.
Eventually, a lot of coins were needed, so governments just started printing paper, which was the alternative to coin, which was the alternative to barter.
In the United States, these pieces of paper are created by the Treasury, printing paper call debt which it then “sells” to the Federal Reserve, which then manufactures dollars.
It’s a system that works well — until it doesn’t.
Value in the form of paper and coins only works while buyers and sellers believe that printed paper and coins are worth something in the marketplace.
Since land, water, cows and gold can’t be manufactured by government, they seem to have inherent value which everyone has recognized. Paper and coins are, as in the merry old Land of Oz, a horse of a different color.
Which brings us to today, the value of a dollar, and measuring financial security.
It seems our government has found printing money very convenient for lots of political reasons. They call it “infusing” or “quantitative easing.”
In the real world that the rest of us live in, it’s called counterfeiting: Printing pieces of paper that have no value, then used to “pay” for real goods and services.
And, of course, there is a whole industry of facilitators who think they are profiting off this.
As the volume of printed pieces of paper floods the marketplace, the owners of land and water, the makers of refrigerators, electricity and underwear, and plumbers, accountants and their spouses, start realizing that there is something wrong.
What happens then?
Prices in terms of printed pieces of paper go up.
At some point, no one will accept the government’s pieces of paper. What they want are things like wheat, iron, and chicken. Toilet paper and ammunition are good too.
With that, we’ll all see the Dow being reported as rising or falling by the number of bushels of apples people think the equities are worth.
So what’s the worth of $100 trillion dollars?
Nothing if it’s a $100 trillion note issued by the Reserve Bank of Zimbabwe.
Think of that the next time the Treasury sells more debt to the Federal Reserve, which then can print more pieces of paper to spend on increased government spending.
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