Global Money Supply - This essay makes comparisons between the money supply of 25 selected economic areas and discusses...	Who Do We Owe and How Much? - The national debt (also known as public debt) is money owed by the federal government.
America's Forgotten War Against the Central Banks - Many prominent Americans such as Benjamin Franklin, Thomas Jefferson, and Andrew Jackson have argued...	Gold and Economic Freedom - An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense - perhaps more...

Subscribe to the DollarDaze RSS Feed:      

  

Paper Money in Asia

The first well-documented widespread use of paper money was in China during the Tang (618-907 A.D.) dynasty around 800 A.D.[1] Paper money spread to the city of Tabriz, Persia in 1294 and to parts of India and Japan between 1319 to 1331. However, its use was very short-lived in these regions. In Persia, the merchants refused to recognize the new money, thus bringing trade to a standstill.

Figure 1. This Kuan note is the oldest known banknote in the world. It was made in China circa 1380.

By 1455, after over 600 years, the Chinese abandoned paper money due to numerous problems of over issuance and hyperinflation. An in-depth description of China's first experience with money can be found here.

Paper Money in Europe

The first instance of paper money in Europe allegedly occurred in Spain in 1438 during a Moorish invasion. A Spanish military leader issued paper notes to his soldiers that circulated around the city. No known notes have survived.

In 1574, the Dutch city of Leyden issued cardboard coins made from the cover of prayer books while Holland was trying to regain its independence from the invading Spanish.

The Italian city of Candia later issued paper money of different denominations until a shipment of coins arrived from Venice. All notes were fully reimbursed.

In 1633, the earliest known English goldsmith certificates were being used not only as receipts for reclaiming deposits but also as evidence of ability to pay.

In 1656, the Bank of Sweden was founded with a charter that authorized it to accept deposits, grant loans and mortgages, and issue bills of credit.

By 1660, the English Goldsmiths' receipts became a convenient alternative to handling coins or bullion. The realisation by goldsmiths that borrowers would find them just as convenient as depositors marks the start of the use of banknotes in England.

In 1661, the Bank of Sweden became the first chartered bank in Europe to issues notes known as the paper daler.

Figure 2. A 50-Daler note from the Bank of Sweden issued in 1666.

By the 1680's, the use of paper money began to take place in other European countries and the New World. Circulated notes on playing cards were used in the French colony of Lower Canada. Other colonies soon developed their own paper notes.

Existing Currencies in Circulation

At present there are 177 currencies in circulation in the world. Not all currencies are widely used and accepted, such as the various unofficial banknotes of the crown dependencies (Isle of Man and the Balliwicks of Jersey and Guernsey).

The median age for all existing currencies in circulation is only 39 years and at least one, the Zimbabwe dollar, is in the throes of hyperinflation. The twenty longest running currencies are listed below.

Below are charts showing the declining value of the two longest running currencies - the British pound sterling and the United States dollar, considered to be the most successful paper currencies of all time.

The British Pound originally represented one troy pound of sterling silver back in 1560. Sterling silver is 92.5% pure silver and there are 12 troy ounces in a troy pound. Elizabeth I and her advisor Sir Thomas Gresham (of Gresham's Law fame) established the new currency to bring about order created by the "Great Debasement" of 1543-51 when Henry VIII sought to finance his costly wars with both France and Scotland.

Paper banknotes were issued shortly after the establishment of the Bank of England in 1694.

As of Feb 23, 2007 it now takes 86.2 GBP to purchase that same troy pound of sterling silver - a loss of 98.8%!

Under the US Mint Act of 1792, the dollar was pegged at 24.75 grains of gold. There are 480 grains in a troy ounce. Thus it took 19.4 US dollars to purchase a single troy ounce of gold. As of Feb 23, 2007 it takes nearly 863 US dollar to purchase that same troy ounce of gold, representing a 97.8% drop in value!

Currencies No Longer in Circulation

This analysis includes 599 currencies that are no longer in circulation. The median age for these currencies is only fifteen years![2]

The following table below groups the fates of these currencies.

The Second World War saw at least 95 currencies vanish as nations were conquered and liberated.

Second only to war, hyperinflation is the greatest calamity to strike a nation.[3] This devastating process has destroyed currencies in the United States, France, Germany, and many others.

Notes

1 The very first historical use of paper money is believed to have occurred in 140 A.D., shortly after the Chinese discovery of paper in 105 A.D. How this money came to an end is not known.

2 Many of the early paper currencies (likely to number in the many hundreds) of medieval Asia (China, India, Japan, Korea and Persia) as well as the majority of paper currencies that existed in China until 1935 are not included due to lack of historical information.

3 It should be noted that many of the curencies listed as being destroyed by war in this article also underwent hyperinflation.

Published on DollarDaze.org - Jan 7, 2009.

_____

© 2009 DollarDaze

ABOUT THE AUTHOR

Mike Hewitt is the editor of DollarDaze.org, a website pertaining to commentary on the instability of the global fiat monetary system and investment strategies on mining companies. His website also provides a no-cost market data feed service with up-to-date quotes on currency exchange rates, commodity prices and major indices.

Bettertrade offers a wide range of useful and interesting information to those who want to advance their trading skills. Track and analyze your trades with Extreme charts.

add to technorati  | reddit  | add to del.icio.us  | add to furl  | stumble it!

This article has been favorited 1 time on DollarDaze.org | Make this your favorite article

Posted in History, Mike Hewitt

  

The numbers for 2008 are in. Gold has done it again. Gold is up for the eighth year in a row against the US dollar. Here are gold's rates of appreciation in terms of several major currencies.

The appreciation gold has achieved over the past eight years is remarkable. Without any doubt, gold's 16.3% average annual change against the US dollar has made it one of the world's best performing asset classes this decade, but oddly, gold continues to be ignored by many. I expect this inattention to change in the year ahead.

The outlook for the US dollar continues to worsen as the Federal Reserve balloons its balance sheet. What's more, the Fed's zero interest rate policy removes any incentive to hold dollars in an environment where counterparty risk remains an intractable problem and where rapid money growth portends a surge in inflation in the weeks and months ahead.

M3, which measures the total quantity of dollars in circulation, grew by about 10% in 2008, near record highs. Two of its components, M2 and M1, increased over the past year by about 10% and 17% respectively. These rates of growth in the quantity of dollar currency are highly inflationary.

Credit continues to contract, and as a consequence is destroying a large amount of wealth as overvalued assets that were buoyed by easy credit are now being marked down in price to realistic levels that more accurately reflects their actual worth. It is important to note, however, that we are measuring the price decline in these overvalued assets with a currency that is being ever-inflated. Though the Consumer Price Index has dropped a little over the past couple of months principally because of the lower crude oil price, the CPI continues to rise on an annualized basis, even by the federal government's own calculations, which understate the true rate of dollar debasement.

More inflation and more dollar debasement can be expected. The Federal Reserve has thrown away the rule book. It is ignoring three hundred years of central bank practices and putting the dollar on an untried path in an attempt to avoid the consequences of the inevitable bust that always follows the boom created by easy credit. The Federal Reserve's grandiose experiment will I expect eventually destroy the dollar, and I don't hold out much hope for any other national currency. To explain why, take a close look again at the above table.

We can see that gold is rising against every national currency. The reason for this phenomenon is that the dollar is the world's reserve currency, and because of this role, it is held as a reserve by central banks around the world. The dollar provides part of the base upon which other currencies are created. Therefore, as the dollar is debased, other national currencies are also being debased along with it. In other words, the US dollar is now going down a 'black-hole', and its gravitational pull is dragging every other currency down with it as evidenced by the rising gold price this decade in all currencies.

There is one other unique aspect apparent in the above table. The average annual rates of appreciation that gold has achieved against the nine currencies in this table is remarkably consistent. Gold appreciated 13.3% to 13.6% on average for eight years in terms of four of the currencies. Gold gained from 10.6% and 10.8% against the two best currencies, the euro and Swiss franc. The euro and the Swiss franc are the 'best' in the sense that less of their purchasing power has been inflated away compared to the other seven currencies. Against the three worst currencies that have lost the most purchasing power from inflation, the US dollar, Indian rupee and British pound, gold appreciated from 16.3% to 17.1%. Then contrast this consistency in gold's average annual rates of change to gold's annual change against these currencies in any year.

Gold's worst annual performance was the -14.9% it lost this past year against the Japanese yen. It's best annual performance was also achieved this year with gold's 44.3% appreciation in terms of the British pound. Here's my point.

Gold shows remarkable consistency when viewed over the long-term. Thus, it is national currencies that are volatile, not gold. Annual changes in gold are a result of currency fluctuations, not anything inherent to gold itself, and this point is proven by the consistency of gold's average annual appreciation this decade, which smoothes out the annual volatility.

We are in a world of freely floating exchange rates where currencies bob up and down relative to one another. But in reality these currencies are not 'floating'. They are actually sinking when compared to gold. The purchasing power of every national currency is being eroded, but this erosion is sometimes difficult to see when currencies are viewed only against each other. But the true picture clearly emerges when all of the world's currencies are compared to gold.

In an environment where the purchasing power of national currencies is being constantly eroded by bad central bank policies, which has been the case throughout this decade, own gold. Importantly, ignore the month-to-month and even the year-to-year fluctuations in the gold price. These fluctuations are not important from a long-term point of view, and in any case occur from factors that cannot be predicted.

For example, who forecast a year ago the extraordinary strength in the yen this year from the unwinding of the carry trade? It nevertheless happened, and consequently, gold declined -14.9% in terms of yen this year even while gold soared against the British pound. But for the past eight years, gold remarkably is up 13.6% on average in yen and 17.3% in British pounds, which is the important point.

Therefore, continue to follow the same strategy that I have been recommending this entire decade. Continue to accumulate gold using a dollar-cost averaging plan. Some months and even some years you will be accumulating gold at a higher price, and at other times a lower price. But over the long-term your consistent accumulation of gold will be averaged in at a good price.

When you accumulate gold this way, you are saving sound money, which is the prudent thing to do in a world where the purchasing power of all national currencies is being eroded by bad central bank policy. The same conclusion is also true for silver, if you are inclined to take the additional risk that comes with silver because it is more volatile than gold.

The following table presents silver's annual rates of appreciation for the same nine major currencies.

Silver too has appreciated in terms of each of the above currencies, but its annual changes show much greater volatility than gold. These changes range from -38.8% to 49.3%.

To conclude, gold and silver will probably appreciate in 2009. There is no reason to think otherwise, given the path chosen by central banks in general and the Federal Reserve in particular. After all, who wants to own any national currency when the interest income one can receive is less than the inflation rate? Who wants to own any national currency when counterparty risk makes repayment uncertain? In short, the interest income available today on any national currency does not fully compensate for the risks one takes when holding that currency.

So why lose sleep from worrying about holding national currency and what the Federal Reserve or some other central bank will do to that currency? Own the precious metals instead. But as I repeatedly emphasize, own physical gold and physical silver. Own the real thing, and do not accept paper substitutes.

_____

© 2009 James Turk

ABOUT THE AUTHOR

James Turk is the Founder & Chairman of GoldMoney.com. He is the co-author of The Coming Collapse of the Dollar. Mr. Turk has specialized in international banking, finance and investments since graduating in 1969 from George Washington University with a B.A. degree in International Economics. His business career began at The Chase Manhattan Bank (now JP Morgan Chase Bank), which included assignments in Thailand, the Philippines and Hong Kong. He subsequently joined the investment and trading company of a prominent precious metals trader based in Greenwich, Connecticut. He moved to the United Arab Emirates in December 1983 to be appointed Manager of the Commodity Department of the Abu Dhabi Investment Authority, a position he held until resigning in 1987.

Find the best rewards credit cards at Credit-Land.

add to technorati  | reddit  | add to del.icio.us  | add to furl  | stumble it!

This article has been favorited 0 times on DollarDaze.org | Make this your favorite article

Posted in Guest Commentary, Gold, James Turk

  

The Oregonian front page article "Easy Money Magnified Real Estate Crash" never mentions the source of the easy money or the root cause of not only the crash but the original bubble. This exemplifies the lack of understanding we have of the workings of our economy and the great lengths the controllers of the economy have gone to hide a few simple facts.

The most obvious fact we can distill from the recent downturn is the fact that housing prices went to a level that far exceeded their value. Although we have tried to blame everything and everyone else the real cause has rarely if ever been brought to light. The actions of the Federal Reserve and the Treasury, the same folks that have ask for upwards of a trillion dollars to fix the problem, are the fundamental reason we are experiencing this so-called crisis.

The Federal Reserve makes decisions every day on monetary policy. To put it simply, what this means is that they decide how much money to "create" or to "borrow" to add to the already existing monetary supply. They can also decide to "withdraw" money by selling securities and then keeping the money they receive in their bank which keeps it out of circulation. They have basically decided over most of the last thirty years and especially the last 15 years to keep adding more and more funds to the economy.

The also have control over interest rates. They have also kept interest rates artificially low. Both of these actions are the legacy of the policies of Alan Greenspan. It should be added that in a truly "free market" economy, rather than the directed and managed subsidized corporate economy we have, both interest rates and monetary levels can be established naturally. But it is more important to know that there was and is too much money and at too low of interest rates.

An overly simple example is to picture 10 apples in a store with 10 purchasers. They each have a dollar. The price will be determined by what they will pay. Now what if someone mysteriously placed an extra fifty cents in each of their pockets? Would the prices change and which direction? Can we expect them to be prudent and careful with the extra fifty cents? Has the amount of apples, representing goods produced in the economy, changed? This is in effect what the Federal Reserve does day in and day out.

The Treasury on the other hand, is responsible for carrying out the budget of the United States. The Bush administration achieved the largest budget deficits in the history of our country. When this happens, the Treasury must issue securities to cover the difference between tax revenues and the total budget. When this happens, money is borrowed by our government, lately from foreign sources, and injected into the economy through government spending.

In a sense, this is another form of money creation, as new money enters the economy without any underlying increase in production. The same number of goods but more dollars.

In fact, the money supply was so bountiful and the rates so low that banks were able to basically give away mortgages, and especially the riskier subprime mortgages. Combine this with the newfound security, the "Mortgage Backed Security". First marketed by Henry Paulson's former employer, Goldman Sachs, these securities "bundled" multiples of mortgages, hiding the riskier short term, below market rate mortgages in with the standard, healthier mortgages. Banks no longer were interested in carrying these loans, thereby eliminating the need to screen applicants, as bundles of these mortgages could be sold at will moments after the final papers were signed. The perfect recipe for disaster formulated by the very people entrusted to caretake the economy.

These actions were taken not because these people lack the brains to do the right thing, but because there is so much money to be made doing the wrong thing. It fits right into their playbook when average folks go around blaming average folks for the problem, just as this article did. There were plenty of mistakes and ensuing tragedies but the truth is you can't misspend money that doesn't exist.

Until we let the production of our economy determine the amount of money that circulates rather than trying to produce by permitting our government to create money out of nowhere, we will continue to experience these extremely damaging boom-bust cycles. The true "easy money" was made at the federal level not in the hands of "mom 'n' pop" or some "opportunist schemer". We all try to "earn" or "make" money, but only the Federal Reserve can "create" it out of nothing.

_____

© 2009 Gene Denardo

ABOUT THE AUTHOR

Get payday loans from the only online lender that has 24/7 customer service, for answers day or night. Get cash advance the next business day.

add to technorati  | reddit  | add to del.icio.us  | add to furl  | stumble it!

This article has been favorited 0 times on DollarDaze.org | Make this your favorite article

Posted in Monetary Commentary, Guest Commentary, Peter Schiff

  

Now that the Fed and the Treasury Department have clumsily come to the rescue of the financial titans of Wall Street, it is politically dangerous to resist similar pleas from just about everybody else.

Populism is emerging as a dominant theme in this election year and, with so much largesse showered on Bear Stearns and JPMorgan Chase, politicians are demanding even more generous terms for consumers.

In Washington, it seems that two wrongs apparently make a right.

Another downside to corporate bailouts is that they provide the critics of free-market capitalism with plenty of excuses to weigh down American economic vitality with even more unnecessary regulation.

Let me explain...

As Federal Reserve Artificially Stimulates Economy Financial Markets Take on a Carnival Atmosphere

As a loyal Money and Markets reader, you're probably already aware that the current mess did not result from a failure of the free-market economy, but from too much government interference.

The real estate bubble, and the shaky securitized products it spawned, resulted from the Fed artificially setting interest rates too low. Had interest rates been allowed to find their market levels rather than be set by government decree, the real estate bubble never would have been inflated in the first place.

In a nation short on savings and heavy with debt, the free market would naturally set interest rates quite high. With lots of demand for credit, but a limited supply of savings, the risk of lending, and therefore the price of credit (interest rates), would be high.

Although onerous to borrowers, high rates would have both encouraged saving and discouraged borrowing. In the end, these market forces would reduce interest rates and produce a more stable balance between savings and consumption.

But the Fed did not want American consumers to be subjected to free market discipline that might otherwise reign in their non-stop spending.

After all, reckless consumption was falsely believed to be the engine of our prosperity!

So the Fed fixed the price of credit (interest rates) well below the rate that would have been set by the free market. This sent false economic signals to the market that more savings were available than actually existed, leading to an over-investment in housing.

Also, by keeping the rate of interest below the rate of inflation, rampant speculation was encouraged and the foundation was laid for the very type of mortgage financing that has now come back to bite us.

Government Intervention Debilitates The U.S. Free-Market System

No one on Wall Street should be bailed out. The effects of the bursting of the housing bubble should be dealt with by the market, despite the fact that the underlying bubble itself was a byproduct of government intervention.

Apart from the problems created by interfering with the market's attempts to restore balance and reallocate resources, bailouts create all sorts of moral hazards.

After all, why should bailouts be limited to investment banks or overstretched homeowners? What about renters who also borrowed too much money? What about those behind on their credit cards, auto or student loans? Why shouldn't they get bailed out? How about small entrepreneurs whose start-up businesses failed -- should they get bailed out as well?

At this point, I think you might be inclined to agree with me when I say...

It's Time for a Reality Check!

In market economies all sorts of people lose money, sometimes as a result of circumstances entirely beyond their control. While this is clearly not the case for most homeowners and mortgage lenders, some would obviously fall within that category.

However, it is not up to the government to rescue them. Even if some borrowers and lenders were led astray by the false economic signals sent by the Fed, they are nevertheless responsible for any losses they might have incurred as a result of following them.

Bottom line: The real danger is that while government interference is actually at fault, it's the free-market that ends up taking the blame.

So don't wait for reality to set in! Protect your wealth and preserve your purchasing power before it's too late.

_____

© 2009 Peter Schiff

ABOUT THE AUTHOR

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkley in 1987. A financial professional for seventeen years he joined Euro Pacific Capital in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, he is a highly recommended broker by many of the nation's financial newsletters and advisory services.

add to technorati  | reddit  | add to del.icio.us  | add to furl  | stumble it!

This article has been favorited 1 time on DollarDaze.org | Make this your favorite article

Posted in Guest Commentary, Government Policy, Peter Schiff

  

The following charts are made from data compiled at the London Metal Exchange.

The year 2008 has seen large price drops in all six major commodity metals traded on the London Metal Exchange (LME). Lead suffered the largest price decline of 63% from US$1.15 a pound at the end of 2007 to US$0.43 at the end of 2008. This is somewhat interesting as the LME inventory for lead did not increase as measured at year's end. By comparison, the LME inventory of zinc soared 184% in 2008.

_____

© 2009 DollarDaze

ABOUT THE AUTHOR

Mike Hewitt is the editor of DollarDaze.org, a website pertaining to commentary on the instability of the global fiat monetary system and investment strategies on mining companies. His website also provides a no-cost market data feed service with up-to-date quotes on currency exchange rates, commodity prices and major indices.

add to technorati  | reddit  | add to del.icio.us  | add to furl  | stumble it!

This article has been favorited 3 times on DollarDaze.org | Make this your favorite article

Posted in Metals & Mining, Mike Hewitt