Let’s face it: money has always been a bit of a scam. In the earliest days of commerce, the barter system worked as a method to trade something one person had, say available labor, for something another person had, like food. You do this work for me and I’ll give this much food to you. While the valuation of the labor and food would shift depending on location and circumstances, the direct trade of known items worked nicely.
As soon as humans began to attach abstract value to items like coins and the early forms of paper money, this direct correlation began to erode. It can be argued, and there is some merit to the argument, that money backed by other forms of payment (such as the Gold Standard) was simply a matter of convenience and conveyance. Carrying around gold bars was much more cumbersome than bank-notes that guaranteed the bearer the equivalent value in gold if one wished to turn in the note.
Of course, the days of backed currencies are long gone. Now, the entire system is based on a balance of faith and risk. Just about everybody is prepared to trade actual items of value (inventory, food, and services) for a piece of paper (or credit card proxy) that is guaranteed by governments (not just the US). By the way, these governments consistently fail to demonstrate an ability to keep its own books in order.
Entering into the current stream of events, we have two major factors that should give everybody, and I do mean everybody, concern about where money is going.
The first item is the significant rise of non-state controlled virtual currencies. While BitCoin gets most of the attention, and some rather significant investments, it is hardly the only player in this game. Virtual currencies come with all the conveyance benefits of traditional money. Currently, the convenience factor is lacking, but more and more merchants are adding virtual currencies to the list of acceptable payments every day. My consulting firm, Full Potential Associations, is working on accepting BitCoin as payment as I’m writing this piece.
The second item is the absurd way that U.S. Federal Government is treating its responsibility to manage the confidence-based currency called the U.S. dollar. The core idea behind the Federal Reserve’s QE policy is to have the U.S. Government print money in order to buy things from… the U.S. Government. If I came to you with a business plan like that, you would throw me out in two seconds flat.
So we have the world’s largest economy just moving money around from itself to itself in an effort to stave off a collapse of confidence in its currency. At the same time, we have a worldwide, group of markets that are expanding trade in a virtual currency each and every day.
The reality: a long time standard has changed and new options are on the table. It is time we all consider that money, as we know it, has come to an end.