GENTRY — I’m not exactly sure why it is that I spend so much time thinking about the U.S. economy and the value of the dollar. Economics 101 was not a favorite class of mine in college. And it’s not like I have a lot to lose if the dollar fails. I don’t have much of anything set aside in savings or invested in markets. In fact, if the dollar decreases in value or becomes totally worthless, my bottom line, because of my indebtedness, may actually look better. But I think about it, nonetheless, and read about it, too.
I keep reading and hearing the phrase, “confidence in the dollar.” Bankers and investors look at consumer confidence in the dollar and Washington politicians are trying to do all they can to bolster that confidence.
But what does all this mean? Here’s my take on it, for what it’s worth.
That phrase, “confidence in the dollar,” means that the dollar’s value is directly related to the confidence that consumers and investors have in it. In other words, if I believe the dollar is worth a lot and am willing to trade my goods and services for it, the dollar has value. If I doubt its value, think it will be shrinking in value due to inflation, debt and current economic policies, I won’t trade as much in goods and services for a dollar. If I lose all confidence in the dollar, I wouldn’t tradefor it or even accept it in payment for goods and services.
Of course, the value of a dollar is not determined by one person - and that may be good, especially considering my confidence in it. If I alone doubt its value and decide to demand more of them or some other form of payment for goods and services, the dollar’s value won’t suffer much. On the other hand, if a large number of consumers and investors begin to doubt the dollar’s value because of the huge national debt and the never-ending flow of them from government printing presses, the dollar will be worth less and could even fail.
That’s why the federal government so fears the efforts of some to barter with gold and silver coins and medallions rather than with the U.S. dollar. Of course, there are the tax collection issues, too.
I’m neither a math student nor an economist, butthis is the equation I would use to explain the dollar’s value: The dollar’s true value (v) equals its purchasing power (p) which also equals its perceived value (c). There you have it, math from a language student: v = p = c. Somehow, that doesn’t look very intelligent, but all it’s saying is that the dollar is worth what people think it’s worth. It has no intrinsic value, only perceived value. After all, what could you do with a hundred dollar bills if the stores and merchants counted them worthless? They probably wouldn’t even make good toilet paper, though I can’t say I’ve ever tried them.
When the dollar was backed with gold and silver, my equation didn’t apply because gold and silver have uses and intrinsic value whether coined or not. That is not to say values did not fluctuate - they did. If the dollar were tied to a fixed amount of something of intrinsic value - whether to an ounce of silver, a fraction of an ounce of platinum or gold or to some other fixed amount of a real commodity - we wouldn’t be hearing that “confidence” phrase so much. We wouldn’t have to fear the dollar could become worth less than toilet paper - toilet paper at least has a use.
Another factor in this whole “confidence in the dollar” issue aside from the national debt and the fact that the dollar has no intrinsic value is a supply and demand issue. When the U.S. Government and the Federal Reserve produce more and more dollars and pump them into the U.S. economy, what does that do to the valueof dollars we’ve saved, invested or are earning each week? You guessed it. They become worth less. We call it inflation because prices go up, but it’s really deflation of the dollar because its value goes down.
For those with salariesfrozen, devalued dollars mean pay cuts in purchasing power even if the dollar amounts remain the same. Salary freezes wouldn’t be so bad if the dollar’s value was fixed, but since it isn’t and is very likely to go down because of the national debt, the rolling of the printing presses at the U.S. Mint and, yes, a lack of confidence in the dollar, more belt tightening is probably in order.
If I were a politician in Washington, I probably wouldn’t be telling you all this and further eroding your confidence in the dollar. I’d be saying current economic policy is working and signs of recovery are in the air. But it’s like I said, I’m a newspaperreporter and don’t have all that much to lose if I tell the truth.
Randy Moll is the managing editor of the Decatur Herald and the Gentry Courier-Journal. He may be reached by e-mail at randym @ nwanews .com
For The Record, Pages 5 on 03/03/2010