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Seems like a simple question, doesn’t it? The almighty dollar… a “buck”, a “fin”, a “C-note”, a “Benjamin”… Those that have a bunch of them have a lot of moolah, some serious dough…a stash. But have you ever stopped to consider exactly what it is?

Well, it’s a somewhat complicated question, but basically, a dollar is considered a unit of currency… something of value. You can use it to purchase things and settle debts. You can save it, invest it in stocks & bonds or put it in your mattress. You can lend it, save it for a rainy day or blow it on a vacation. Either way, our sense is that this dollar thing really has value. But, wait, what is it really and where does that “value” come from?

The dollar is a piece of paper authorized by the US Treasury, printed and distributed by the Federal Reserve through its’ system of Federal Reserve Banks; a simple piece of paper and nothing else. It is “fiat” currency, given value only by a law that says it must be accepted as “legal tender for all debts, public and private”. It is a piece of paper that conveys a promise; a “Federal Reserve Note” that says that the Federal Reserve (which, by the way is about as “Federal” as Federal Express…but that’s a topic for another article…) and, in turn, the United States of America will back it and provide you with the value it carries to pay your debts. OK, is there a problem with that? Continue reading, please…

Our Founding Fathers recognized the problem with paper currency having watched the Continental dollar get crushed by brutal hyperinflation during the Revolutionary War. They recognized that the currency needed to be backed by something tangible, something that had historically maintained real value…gold or silver. In fact, Thomas Jefferson often warned against the creation and use of paper currency. In a letter to Edward Carrington in 1788 he said: “Paper is poverty,… it is only the ghost of money, and not money itself.” So, the US Constitution, Article I, Section 8 says that the US Congress (and ONLY the US Congress) has the ability “To coin money, regulate the value thereof,… and fix the standard of weights and measures;” and then in Section 10 states that “No state shall… coin money;… make any thing but gold and silver coin a tender in payment of debts…” So for years the currency was gold and silver coins. Even as paper currency came into being, it was issued only if the equivalent amount of gold or silver was in the US Treasury to back it. In fact, the currency actually stated that it was a “gold certificate” or “silver certificate” and could be exchanged at the bank for the actual gold or silver it represented.

OK so far, but what happened? Some would say that the birth of the Federal Reserve in 1913 was the beginning of the end of real money. With the birth of the Fed, the US Treasury gave away the money printing press to a private bank which has been playing with it ever since. Our dollar became a “Federal Reserve Note” instead of a “Silver Certificate”, a “Gold Certificate” or even a “United States Note”. This was a banker’s dream and a politician’s best friend. It was our worst nightmare. Since its creation, our central bank with its’ virtually limitless ability to print money has created and then deflated one asset bubble after another. They (and the bankers behind them) have made money on both sides of these bubbles and utilized them to create new rules along the way that further consolidated their power. For example, in 1933, gold and silver certificates were no longer allowed to be exchanged for the real metal except by foreigners and the US government essentially prevented US citizens from owning gold. In 1971, then President Nixon completed the cycle by taking us off of the gold standard. Our currency officially became nothing more than a paper promise.

Today, that paper promise is in grave danger. The value of the dollar has fallen substantially around the world to the point where world leaders are openly questioning its’ role as the world’s reserve currency. The Fed is printing trillions of these pieces of paper to fund a dizzying array of bailouts, stimulus programs and ballooning government deficits. We all know that this cannot be sustained. Yet, there is no end in sight!

So, what is a dollar???

Hmmmm…it makes a pretty cool paper starship:

Finally, I will leave you on a serious note with yet another Jefferson quote…a warning that is appropriate today as it was then. This was from a letter to John Taylor on May 28, 1816: “I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”

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