Days of Change

Digging an Economic Hole to China | August 24, 2015

Currency started so that people didn’t have to carry around pieces of gold to do business. In the old days, money existed as a substitute for actual valuable tender, such as precious metals. This became difficult, as keeping metal in a vault made it unusable to make things. Most countries instead use the “full faith and credit” of their treasury. We call this fiat currency. It exists because we say it does.

China often finds that their currency inflates to the point where other countries (mostly the US) pay more for their products than they could spend domestically. China’s response is to change the value of their money once in a while. This works, but it takes a lot of the faith out of their fiat currency. This is part of what we saw in the stock market today.

Even if this is like 2008, we won’t avoid a recession. Pulling out of Chinese currency would lead to a depression immediately. 1000 points is a drop in the bucket by comparison. The long-term policy is to stabilize currency, but that fiscal soundness will always look dumb compared to traders riding high on financial speculation.

So buy bonds instead of stocks. Buy gold instead of bonds. Buy goods instead of gold. I suggest shotguns and toilet paper.

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1 Comment

  1. I suggest shotguns and toilet paper.

    I’m smiling, but wryly.

    Comment by Mary — August 25, 2015 @ 1:09 am


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