The meaning of money/value of the dollar

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Well-known member
Sep 11, 2018
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The value of a particular currency depends on a shaded myth. A dollar or a pound or an ounce of gold has no intrinsic value except in its own terms, as when a governmental obligation (e.g. a tax) is required to be paid in dollars (or pounds or gold) or a contract (e.g. mortgage) is required to be paid in that currency. In 1923, the world (and the German population) lost faith in the myth of the German Mark (e.g. one trillion Marks to one dollar) but someone who got a mortgage in 1921 for a house priced in Marks got the house almost for free with correct timing; the value of the house (as a dwelling) was as great in 1923 as it was in 1921 while value of the number of Marks paid (i.e. the price of the house) was not. Even in severe inflation, there are winners and losers; the 1921 house buyer was a winner and the 1921 house seller was a loser.

Inflation does not require a currency, as this MIT paper discusses. Ignoring the mathematics in the paper, let us consider the illustration in the paper.
Consider two agents, A and B, and two goods, also labeled A and B (e.g., Apples and Bananas). Each period, agents have an endowment of their respective good—A owns A, B owns B. We normalize the endowment to one. Goods are perishable and must be consumed within each period. There are no storage technologies or capital. Prices are set in a staggered fashion and remain
unchanged for two periods: agent A sets prices in even periods and agent B in odd periods. Formally, prices are simply numbers expressed in a common numeraire. Informally, prices are best thought of as nominal prices quoted in a unit of account that can be a
currency (e.g., dollars). However, we assume agents have no access to physical currencies, nor for that matter do they have access to any durable good or record keeping devices. That is, there is no money, no commodity money, no storage, and no way to save or borrow. Trade takes place through barter using as terms of trade the ratio of the last two posted prices. Quantities are determined by a take-it-or-leave-it offer by one of the agents which we call a buyer; we call the agent contemplating the take it or leave it offer a seller.

As commentary from Rabobank’s Michael Every notes:
Simply, if the two take turns to set the relative price of their goods (i.e., the apples to bananas ratio), then they can say: “1”, “1”, “1”, “1”, and we have zero inflation. Or, the pattern can be “1”, “1.1”, “Ah, so 1.1 back at you!”, “Ah ha, so 1.2 to you!”, “Really? How do you like 1.3?!” and an escalatory cycle. Note this is absent money, interest rates, supply-side shocks, profits or nominal or real wage growth, some of which the paper slots in later — and all of which are extremely pertinent at the moment.
You might have a spare "moment" to consider the value of money and how you are positioned; are you positioned to be a winner ("house buyer" in 1923) or loser ("house seller" in 1923)? The Chinese Yuan is "supposed to" replace the US Dollar as the international reserve currency someday and the US Dollar is "supposed to" lose value, at least if you listen to Luiz Inácio Lula da Silva, Xi and the BRICS nations. I think this idea is BS but it made me consider how I am positioned. Am I positioned to deal with inflation, deflation, US Federal default (debt ceiling impasse & no social security benefits), nuclear war, Cascadia earthquake, Yellowstone (super)eruption, etc.? A vehicle, large supply of food, supply of water, source of energy (solar?), an appropriate location, etc. might be wise.
Talked to an acquaintance today that bought a 2 wheel drive, bottom line standard cab, 6’ bed Toyota truck and added a cab height topper. He has always liked to backpack alone, for several years he was a back country ranger for National Park Service but has worked several different jobs most seasonal so he has time to hike. He was 23 years old when he bought the truck and started sleeping in the bed but still living out of his backpack and truck even when he wasn’t on the trail. He is 58 years old now and the truck had over 400,000 miles years ago when the odometer quit working. Only thing that has changed is he trades work at a hostel during the really cold months for a room and has to fluff his goose down sleeping bag at a laundromat every so often for a little creature comfort. He owns some real estate that he hasn’t seen in years he’ll sell someday when the truck finally dies to get another, maybe. He’s like me in that he just can’t seem to retire and needs to keep working even though people can and do live off ground squirrels and water pocket water but by working you don’t have to sweat spending a few quarters at the laundromat! Lol!!! Having a few investments and living simple a healthy lifestyle has worked really well for him. His biggest worry is whether a remote canyon is passable without having to risk repelling which he doesn’t do anymore. If the financial money markets bottomed tomorrow I would hate to be the one that had to go find him to tell him his 40 lb pack just became very valuable! Lol!!!