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Join Date: Dec 2007
Posts: 4,032
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The Fed: Will They Continue To Fight Inflation? "Not Worth A Continental!”
When I was an elementary-school-aged student, our history text-book mentioned an expression: “Not Worth a Continental!” I would ask my father what that meant. He would tell me that during our Revolutionary War the American soldiers were paid in "Continental" currency. He explained that because we were then a developing country, yet to gain our independence, our currency was backed by very little; more a hope than anything of substance. The "Continental" currency that was paid George Washington's troops was virtually worthless.
A few years later, in the mid-1950's, I started to collect stamps. I noticed that the German (Deutches Reich) stamps that I had in my collection had values that were in the millions (I should mention that at this time, 1954, our 1st class postage stamps cost three-cents).
As I had with "Not Worth a Continental," I asked my father about why German postage stamps were so expensive. He told me that after WWI the country of Germany had to pay other countries vast sums of money (“reparations”) for Germany's part in starting “The Great War.” Those after-war payments would, in turn, lead to an inflated German currency.
As it relates to paper money (fiat currency), that brings me to the present.
I would first like to touch on "Grisham's Law." "Grisham's Law" states that “bad money drives out good money.” In that vein, I recently read that people are currently hoarding nickels (“coinflation”) because the nickel
as to its metal content is worth about 20% more than the nominal face of the coin.
Moreover, those of you who go back a few decades may remember when silver in dimes, quarters and half-dollars was drastically reduced with baser metals, i.e., copper. I remember, at the time, the mid-1960's, putting away every pure (I don't believe they were totally pure) silver coins I could find. I was also saving silver certificates. I didn’t become a millionaire, but I did make a few dollars for my efforts.
At this juncture, I attest that I’m not an alarmist. I’m just trying to delve into possible scenarios, should such scenarios play out.
Further, I may be off on a tangent, but I remember my first job, the summer of 1958, I was then a drugstore clerk making .90 cents an hour. I was happy to get it. I sometimes thought, "Wow, I’m making a penny and one-half every minute. i then think that in a few minutes I will have earned enough to buy myself a five-cent candy bar.
As I think back, it wasn’t long after that I got a raise to $1 an hour. When I was in college I worked one summer as a porter in a Boston department store called Gilchrists. I made 1.20 cents an hour. Later, I made a little over $2 an hour working as library page at Boston University’s Chenery Library. When I graduated from college, I started out as a substitute teacher. I received $20 per diem. Then, in 1965, when I was hired, provisionally, to teach math in a Boston high school, I made $5,000. I thought, at the time, that was “good" money.
Currently, the minimum wage is $15 an hour. Years ago, if I had made that kind of money, I would have considered myself "a millionaire."
In the final analysis, it’s not what your making, it's what you can buy with what you're making. To put it simply, it's all relative. As an example, you may be making $15 an hour, but the cost of your food-bill to feed a family of four is easily over $200 per week, not tho mention possible rent, mortgage payments, utilities, possible car payments etc. What do you have left?
That brings us to this week's all-important upcoming Fed meeting and their concomitant decision as to interest-rate policy. As I see it, it's like a high-wire act, with no net. Does the Fed dare raise by 50 points. It would seem highly unlikely when you take into account the recent bank failures here, i.e, SVB, and the Credit Suisse problems in Europe,. How many banks are on the threshold of insolvency? 25 points is more reasonable, yet even that might push some banks "over the edge." However, if the Fed chooses a "stand pat" approach, will some question the Fed’s ardor in controlling inflation?
Finally, there are those who say: "It Can’t Happen Here" as it did, years ago, in Germany and later in countries in Africa and in South America. Looking back, the last time I remember reading about worthless currency in America would take us back some 250 years. Two centuries and a half ago when our country was fighting for its independence, the expression was: "Not Worth a Continental!"
__________________
Walt (Teach)
"Walt, make a 'mental bet' and lose your mind." R.N.S.
"The important thing is what I think of myself."
"David and Lisa" (1962)
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