The Strange Reality of Money! | What is the monetary system?
What is the monetary system?
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| What is the monetary system? |
The Crazy History of Money
The current monetary
system is unsustainable. Its fundamental flaws are considered too obvious to
discuss. Examples include massive amounts of money spent to meet artificially
low interest rates, how banking is the primary way to maintain current currency,
and those banks are not necessarily efficient traders. In fact, more often than
not, banks end up lending more money than they have to invest and end up
creating nothing but derivative debt.
Rising interest rates and
monetary inflation is the obvious solution. It's that simple, right? In a
complex system, as complexity increases, the ability of it to maintain
stability decreases. Like the Internet, it's too complex. However, the internet
itself has completely broken the system of trust and data integrity. I wouldn't
wish the current monetary system to be broken, but to a certain extent it is,
and fixing it is a necessity. But fixing it is difficult, and without global
cooperation and a lot of luck and good timing, it could take decades to be
resolved.
Some say that the system
of fractional reserve banking is a systemic weakness of the global economy.
This could potentially lead to social instability and the downfall of the
financial system. So, let's explore this question, because if this is the case,
it is important to know how. A question that you must ask yourself is, what was
the monetary system that brought about this financial crisis and did it bring
it about from ignorance?
At the end of the 19th
century, the world had a global monetary system based on gold, but eventually
it was broken. During the early 20th century, countries were really interested
in expanding the monetary system and taking power. Those nations that had a
currency based on the gold standard had a huge advantage of increasing their
power through the use of capital, but a disadvantage of very low monetary
inflation. For example, as gold was inflationary.
Andrew
Malcomson Business Economics:
Japanese bonds may be
used as the reference point as the yen rose about 20 per cent against the
dollar over the past month. The European bond market suffered, but the US bond
market, which has been relatively well insulated by declining interest rates,
suffered more as it was seen as a source of value in a changeover to higher
inflation and weaker currencies.
The Japanese yen is
closely correlated with inflation expectations and looks cheap, but if the rise
in inflation is more linked to the removal of stimulus than the weakening in
monetary policy that has just taken place in Japan, the dollar could strengthen
even if the US economic data stumbles, especially with the US economy still
taking up most of the attention in the global economy.
The Japanese yen is on
course to breach the 100 yen to the dollar threshold which was last breached in
2003.
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Why The
Dollar Could Still Be A Buy:
The dollar has been on a
tear since the beginning of the year, surging past the 100 yen mark in
mid-January and extending its gains to more than 12 per cent since then. The
dollar has been rising sharply over recent months, but at just $103, it is
still cheap and still earns a decent yield against some of the low yielding
foreign currencies.
The recent uptick in
inflation and rate expectations across most major economies has triggered
capital outflows, pushing down the US dollar and pushing up the price of gold,
and this can drive the dollar higher still, if the investors continue to sell
gold and take profits in the dollar as a safe haven.
On the other hand, if
inflation cools and interest rates come off the floor, investors can decide not
to sell gold in exchange for the dollar and start buying more gold. This is the
reason why gold prices have been ticking up this month despite the rise in
interest rates and inflation expectations in the US and Europe.
Why The Euro
Could Still Be A Buy:
As I see it, the
long-term outlook for the US dollar is to head towards the 1.20 dollar mark
with the European currency settling around parity with the US dollar. This is
also the price at which the European central bank began buying gold in 2008,
which caused the euro to rise sharply in that year and it has continued to
increase in line with gold’s rise since then. This is likely to be the price
which the US dollar is going to reach in the short term too and if so, the US
currency would have a massive head start over the euro.
Another significant move
which would mean the US dollar was going to hit parity with the euro would be a
policy change by the European Central Bank. Such a change would be an
acceleration of the quantitative
easing (QE) program.
Currency
Reliability in the Financial Markets:
One of the basic
principles of currency management is that currencies are only useful for
trading and they can lose their value against gold as well as other assets. The
US dollar is likely to lose its credibility and credibility means its value
against gold. But it is unlikely to gain credibility since its reputation is in
tatters, even if the US dollar can regain some of its currency value.
Many investors and
traders who see their wealth dwindling are likely to start looking for more
reliable and safe places to store their assets and the US dollar is going to be
relegated to the bottom of that list.
Why Gold
Should Be A Long-Term Investment:
Gold are often an honest
investment asset to possess as a part of a balanced portfolio. Gold boasts a
number of the very best liquidity within the trade goods markets and has a lot
of typically than not increased in rate over time. If we were to take a
position rupees 10,000/- into gold 30 years ago, it's since then increased by
over five hundred percent.
Conclusion:
Today, a good Power's
arsenal extends well on the far side the military, grasp soft power and
conjointly currency power. The dollar dominates the worldwide economy, utilized
in sinking trade and investment deals however conjointly control in reserve in
immense quantities by central banks just in case of a payments crisis. SUBSCRIBE Million-$-Knowledge for regular updates.
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