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IN MONEY WE TRUST? DOCUMENTARY AND MONEY BOOK ANALYSIS

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In Money We Trust? Documentary and Money Book Analysis

Introduction

Money is always at the center of every modern discussion in the world today. Basically, everything revolves around money, from everyday bills to lifestyle to social activities such as education and entertainment. While money can be defined as currency or value in exchange for a good or service, other individuals have also viewed money as a power source in society. This is a common belief, especially with wealthy individuals who believe that the more money they accumulate, the more power they gain. Promoters of this view believe that having more money will allow you to buy whatever you want, including power and influence. In this paper, the analysis will be on Steve Forbes Money book and the documentary In Money We Trust and look at how important a sound money system is in a country.

Section 1: Chapter 1: How We Got Here

In the first chapter, Forbes recollects how the American economy suffered a crisis in 2008 and what could have possibly gone wrong to initiate this crisis. Forbes posits that the housing bubble of 2008 was caused by some of the decisions made by the government and other business institutions. The government failed to impose regulations while individuals were motivated by greed. However, the main cause of the crisis can be attributed to the decline of the dollar value with little progression in economic growth. There was very little progress regarding economic growth that, in the 1990s, banks did not offer loans,, so there was a very little circulation of money in the economy. The Feds flooded the money market with cheap dollars, a decision that led to the disastrous housing bubble. According to Forbes and Ames, there would have been no bubble without the Feds flooding of the subprime mortgage market with cheap dollars. (2014). Instead of increasing the monetary base, the Feds decided to purchase long-term treasuries and securities that were backed by a mortgage. This resulted in only the government and business institutions benefitting and not the individuals that create jobs (Forbes & Ames, 2014). The Fed’s previous actions forced them to raise rates later on, which caused the market to collapse since several individuals were in no position to pay the adjusted rates on mortgages.

A weak dollar was the main contributor to the housing bubble and the economic slump of 2008. A weakened dollars effect can be felt in all corners of the world but most especially in developing nations whose currency is pegged on the dollar. When there is inflation in the United States, and food prices go up, the ripple effect will be felt worldwide. Food prices in developing countries will also go up, and as Forbes and Ames posit, Food takes up a greater portion of peoples incomes (2014). A weakened dollar is also the main reason for the increase in double-income earning families since every adult now has to work to make ends meet.

A standout concept was how weakened solar has many economic effects, including slow economic growth in the United States. According to Forbes and Ames, an unstable currency means an unstable economy and less prosperity. (2014)

Section 2: Chapter 2: What Is Money?

In the second chapter, Forbes gives a proper analysis of what money is and its uses. Forbes also goes ahead to discuss why the stability of the currency is vital. According to Forbes and Ames, money is a measure of value that allows transactions to go on and provide a communication system (2014). Forbes posits that to achieve economic stability and allow for easy exchange for goods and services while maintaining individual purchasing power over a long period of time. This simply means that years back, the dollar’s value was stronger than it is now, but due to inflation, the value of the dollar now has dipped. Money also needs to be stable to act as a store of value that can be stored, saved, and retrieved at any time.

According to Forbes and Ames, when there is little confidence in a currency, they develop innovative ways that will give them more freedom with very little government intervention (2014). With that in mind, bitcoin, a digital currency, was considered a breath of fresh air, especially for conducting business online. Forbes, however, does not consider bitcoin to be a real currency because of its constant fluctuations making it a poor measure of value. Forbes also argues that bitcoin cannot stand todays currency markets instability because it is not pegged to any currency and can therefore be hoarded or dumped when it is overvalued or undervalued, respectively.

The statement means that money can be used to measure wealth but cannot be used to create it. According to Forbes and Ames, money is just a tool used to measure value and can be used to trade (2014). Forbes also posits that printing more money will not create more wealth but will just facilitate wealth accumulation.

Section 3: Chapter 3: Money and Trade

Nixon had decided to withdraw the U.S. dollar from the gold standard in a bid to try and stop inflation from increasing and instead reduce the trade imbalances and expand the countrys economy. According to Forbes and Ames, for the trade imbalances to the corrected, the dollar needed to be devalued, and this could only be done by getting rid of the Gold Standard (2014). However, the success of the move did not last long.

Forbes’ view of the trade deficit shows that trade deficit isn’t really bad because there is a balance of trade. A trade deficit is not bad as long as it does not rise because it might cause unemployment. According to Forbes and Ames, economic growth in the United States occurred because of trade deficits. Trade deficits convinced investors of the United States purchasing power (2014).

A standout concept from this chapter is Forbes view that the only deficit that exists in trade is not enough trade. Forbes was a huge supporter of free trade. According to Forbes and Ames, trade deficits are neither good nor bad (2014). He, however, believed that trade deficits were an indication of consumer spending power that usually results from a buzzing economy. He deconstructed the idea that trade deficits result from financial losses when in the real sense, trade deficits represent trade transactions between countries. Forbes also proclaimed that deficits in trade increase the inflow of capital from foreign countries, and this helps to keep interest rates at a sustainable level hence creating jobs for the U.S. economy. In essence, Forbes was not a critic of trade deficits in the United States economy.

Section 4: Chapter 4: Money Versus Wealth; Chapter 5: Money and Morality

Increasing the money supply negatively affects the economy. Increased money supply creates hyperinflation that makes individuals lose trust in the countrys currency. According to Forbes and Ames, ‘monetary obesity,’ which was a term he used to describe oversupply of money, can undermine an economy’s health (2014). According to Forbes’ view, an increased money supply does not increase the wealth of an individual or nation but instead destroys wealth by reducing currency value. According to Forbes and Ames, wealth can only be created from innovation, and prosperity is not created from increasing the money supply (2014). Forbes and Ames also stated that the reckless supply of money obstructs the creation of capital, allocates resources poorly, and reduces the public trust in market prices (2014).

Forbes posits that communication between the Fed and the public is via the Feds monetary policies. The Fed comes in to prevent market forces from sending signals to potential investors and the public. For instance, if the fed wants to inform the public that it is lowering the monetary base, then the best way to do so is by increasing the rates of interest or by selling government securities.

Trust is important for the stability of the currency and the political environment. Currency creates an environment of trust and stability, especially if the citizenry is in agreement on its use. Trust in currency can enable strangers to transact easily because the value of the currency is universally agreed upon, and everyone believes the currency is a true reflection of value. According to Forbes and Ames, trust in society is dependent on the stability of currency (2014).

The concept that stood out is the effects of debasing the currency and the relationship between trust and currency. Forbes and Ames posit that once the public loses trust in a currency and the government, then no amount of monetary policy or financial control can revive the currency. Currency debasement also takes away moral behavior and would most times lead to immoral social behavior such as crime (Forbes & Ames, 2014).

Section 5: Chapter 6: The Gold Standard

The Gold Standard is a system that pegs currency to a certain measure or standard of gold. Gold Standard gave the citizenry some level of confidence because they knew the amount of gold that can be redeemed for a certain amount of currency. The citizenry, therefore, found it more convenient to carry the paper currency instead of carrying gold. Nixon took the U.S. dollar from the Gold Standard in a bid to devalue the U.S. dollar. This move created the fiat currency that was not pegged to any tangible asset but the Fed. The move was in a bid to help solve economic problems in the 70s. However, this move increased the levels of inflation and dollar debasement.

Forbes strongly advocated for the Gold Standard to be brought back since he believed that pegging the dollar against the Gold Standard would increase the dollars stability. Forbes posits that reintroducing the Gold Standard would; get rid of economic fluctuations that are connected with fiat money, stop the decrease of wealth that is caused by inflation, and allow prices to be dictated by market forces (Forbes & Ames, 2014). A return to the Gold Standard would also mean that more countries will have to peg their currencies against the dollar so as to achieve stability.

Forbes believes that fiat money is a dangerous tool that has caused the debasement of the U.S. dollar. Forbes believes that every other alternative has not worked and that gold is the only way to create stability in currency. Forbes also strongly advocates for money to have tangible worth and posits that the only way to achieve this is by pegging the dollar back to the Gold Standard.

Conclusion

Forbes ideas on money and how to create a stable currency are quite insightful. Forbes gives insights on why a stable and sound monetary system can create economic stability and public trust. Forbes also gives insights on how federal policies have an impact on the U.S. economy. Therefore it is important that a country has a sound monetary system with a stable currency for any economic growth to be experienced.

 

 

Reference

Forbes, S. (2014).Money: How the Destruction of the Dollar Threatens the Global Economy? and What We Can Do About It. McGraw-Hill Education.

 

 

 

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