A Check is a
personal Paper Note that you can give someone for value which they can exchange for paper
notes at the bank. These Paper Notes at the bank are certified by government as a means of
exchange that holds value while the Personal Note is certified by you. Both notes today have no
intrincic value other than the fact they are ink on paper. Fundamentally both are the same except
one represents the fact that you have to work to create that value and the other represents the
fact that government certifies its value as a means of legal tender.
Legal tender used to be an assurance of stable
value by a neutral third party 'Government'. As in our Archimedes Eureka
Story the significance of
his discovery was that he found a way to prevent the money exchangers from debasing the value
of gold as means of exchange by adding base metals to it. Likewise
certified legal tender was your insurance by government that the means of exchange was not
counterfeit or artificially created and thus would maintain its buying power in the market
Today since currency is no longer a certificate
of exchange for gold or silver we can assume that 'all currency' in circulation represents 'all
value' in society.
This begs the question what happens if the
government doubles the amount of currency presently in circulation? It stands to reason that the
currency will eventually devalue to 50% of its current value. If you double the amount of paper
that represents all value you half its unit value.
Traditionally the rate of the devaluation of the
money supply is known as inflation. And if you use the rule of 72 you can determine how fast your
buying power decreases. Let say for example the rate of inflation is 6%, then by using the rule of
72 divide 6 into it and you get 12. Folks at a rate of 6% inflation the buying power of your money
will depreciate by 50% in 12 years.
This suggests that Government by expanding the
money supply as it has during the recent bailouts [Quantative Easing] has recklessly
abandoned its citizens by not maintaining the value of their means of
This is easily illustrated by the rising cost of
gas. The value of the gallon of gas you put in your car has not changed but the value your money
represents certainly has.
Typically there is a 6 month lag period before
the full impact of a dramatic change in the money supply is felt by society - so hang on to your
hat with all the recent bailouts happening we are just at the beginning of a slipperly slide
as the full impact has not yet hit us.
The purpose of legal tender is to esure the
money system maintains a constanct exchange of value. Without this insurance society can not
make long range contracts as there is no assurance the currencies value will remain
Today the US dollar buys less than 4% of what it
did in 1913, the year the federal reserve system was introduced. The next piece hints as to
why that is and suggests that we have a rude awakening before
Next GO TO - How money is