Sam Sez

Date: Tuesday, September 21, 2010

Question: "Full Faith and Credit?"

Answer: There is ongoing erosion in faith that impacts credit.

The United States and other countries abandoned the gold standard years ago. This abandonment allowed monetary authorities to print quantities of money without a connection to a standardized unit for commerce and finance. Similarly, fiscal authorities could spend money that was not tied to such units. This eliminated many checks and balances or financial constraints. These actions also spurred imbalances and inefficiencies.

Arcane terms are often tossed about with little transparency or clear explanations as to actuality. For example, fractional reserve lending and monetary series sounds profound but it is another way of stating a leveraged financial system for both money and credit. Likewise, monetary multipliers magnify the impacts of good or bad decisions.

A simple example of the erosion in faith and credit is the metallurgical reduction of copper in a penny or one-cent coin. If one cannot preserve the value of a penny, how can it be expected to maintain the value of a dollar, pound, and euro etcetera? A classic case of long-term reduction is the British Pound Sterling. At the beginning a pound was a pound of sterling, now it is not even an ounce or 1/10th of an ounce of silver.

While some say that it is “only” a penny others would point out that it is an elemental and scalar unit for the higher denominations. In other words, if the basic unit is impaired the rest of the structure is too. This connects to integrity, faith, trust and credit. To paraphrase wisdom, if a one cannot be trusted in matters small then how can one be trusted in matters large.

There will be more on this later.

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