Suggested Answers to the First Short Quiz

[johnkarls]

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Suggested Answers to the First Short Quiz – The Gold Standard vs. The Greater Fool

Question 1

What is bartering?

Answer 1

Bartering is swapping directly for what you want, rather than using a temporary intermediate/artificial substance such as money.

Question 2

If a cave man swapped one of his hard-working females with his next-cave cave-man neighbor for one of the latter’s good-looking females, would this be an example of bartering (or swapping)?

Answer 2

Yes.

Question 3

Is currency nothing more than swapping something for an intermediate something that can usually be used to swap for something else? In other words, a means of separating the time element of a swap and/or a means of making a three-way swap?

Answer 3

Yes and Yes.

Question 4

Throughout history, was gold most usually used as currency?

Answer 4

Yes.

Question 5

What is the British currency called? Does “British Pound” actually mean, historically, “one pound of Sterling Silver”?

Answer 5

Yes and Yes.

Question 6

Is it any surprise that a nation that drives on the wrong side of the road would use silver rather than gold as its currency?

Answer 6

No surprise - but please note that Britain (and most countries that were part of the old British Empire) think we drive on the wrong side of the road.

However, it is strange that a sea-going nation ("Rule Britannia, Britannia Rules The Waves! Britons Never, Never, Never Shall Be Slaves, et seq." - Britain's favorite patriotic song) which knows that when encountering another ship on the high seas, a port-to-port passage (passing on the right) is standard - NEVERTHELESS SPECIFIES A STARBOARD-TO-STARBOARD PASSAGE FOR AUTOMOBILES!!!

Question 7

If you are swapping something for gold, isn’t it a nuisance each time you sell something to have to take the gold to an expert to have its purity and weight verified?

Answer 7

Yes.

Question 8

Were early coins around the world pieces of gold that were stamped with a seal of the expert who was attesting to its purity and weight so that you could avoid the nuisance of having its purity and weight verified?

Answer 8

Yes.

Question 9

Did governments typically create standard pieces of gold and stamp them with the government’s seal?

Answer 9

Yes.

Question 10

BTW, just because you are offered something that appears to be gold and appears to have a government’s seal, do you risk being fooled by a counterfeit piece of worthless metal?

Answer 10

Of course!!!

Question 11

Is this why in old movies, a seller would often heft a coin in her/his hand to judge whether it had the proper weight for that volume of gold, and sometimes even bite to see whether it was solid gold or simply some gold paint covering a combination of worthless metals averaging to the same weight as pure gold?

Answer 11

Yes.

Question 12

Did governments then begin to print paper certificates purporting to represent a specified amount of gold or silver that the government claimed was being kept safe somewhere? Did this used to be Fort Knox in the case of the U.S. Government as a result of which characters in old movies would say “I wouldn’t do (whatever) for all the gold in Fort Knox” (or, if it was a British movie, “for all the tea in China”)?

Answer 12

Yes and Yes.

Question 13

In the case of the U.S., did these paper certificates resemble our current currency except they featured a small symbol indicating they could be redeemed for a specified amount of gold?

Answer 13

Yes.

Question 14

Were these paper certificates also subject to counterfeiting?

Answer 14

Of course!!!

Question 15

Does “Bretton Woods” refer to the international agreement in 1944 among all 44 WW-II allied nations at Bretton Woods (New Hampshire) providing for fixed exchange rates between any two of their currencies in order to facilitate international transactions?

Answer 15

Yes.

Question 16

Did this system of “pegged exchange rates” require each nation to maintain the value of its currency within 1% of its specified exchange rate by tying the currency’s value to gold?

Answer 16

Yes.

Question 17

Did this mean that any country that failed to do so would be confronted by other countries demanding it redeem its currency with gold, which would then be physically transported from the offending country to the demanding countries?

Answer 17

Absolutely!!!

Question 18

Was the U.S. so profligate by 1971 that President Nixon took the U.S. off the gold standard, effectively ending the Bretton Woods Agreement and ushering in the new age of floating exchange rates for national currencies?

Answer 18

Yes.

Question 19

Was there GRAVE CONCERN in the Nixon Administration whether divorcing the U.S. dollar from gold or anything else (e.g., silver) would cause its value to collapse because the U.S. public would no longer accept U.S. currency in their financial transactions?

Answer 19

Absolutely!!!

Question 20

Is “fiat currency” a term typically used to describe a governmental currency that is not backed by anything and has value ONLY BECAUSE the government asserts that it has value?

Answer 20

Yes.

Question 21

Was the Nixon Administration pleasantly surprised by the fact that Americans continued to conduct their commercial transactions in dollars WITHOUT A HITCH as if a “Barnum & Bailey” conjurer had suddenly caused the dollar to float in mid-air, unsupported by anything?

Answer 21

Yes.

Question 22

Is this a good example of “THE GREATER FOOL THEORY”?

Answer 22

Absolutely!!!

Question 23

Does “The Greater Fool Theory” posit that you will have no trouble accepting something with no value as having great value, because you will have no trouble in finding a GREATER FOOL who will accept your worthless something as having the same or greater value than you originally accorded it?

Answer 23

Yes.

Question 24

Do national currencies occasionally fail despite The Greater Fool Theory, because “greater fools” vanish?

Answer 24

Yes.

Question 25

For example, following World War I did German inflation cause its paper currency to become so worthless by 1924 that housewives had to bring bushel baskets of the currency to buy even the cheapest grocery item? And to lead to the observation that the German currency was worth more as wall paper than as a medium of exchange?

Answer 25

Yes and Yes.

Question 26

Did the German economy run on the British Pound Sterling during this period when the German currency was worthless?

Answer 26

Yes.

Question 27

And as another example, was the political collapse of the Soviet Union in 1991 primarily an economic collapse?

Answer 27

Yes.

Question 28

And during the 1990’s with the value of the Russian Ruble “in the toilet,” did the Russian economy run on the U.S. dollar as the common medium of exchange?

Answer 28

Yes.

Question 29

If both Germany and Russia (among many other historical examples) were humbled by seeing their currencies become worthless, is there any reason why this couldn’t happen to the U.S.?

Answer 29

It would be foolish to think it couldn’t happen to us!!!

Especially when both political parties don’t seem to “give an (expletive deleted)”!!!

Question 30

In other words, isn’t “In God We Trust” emblazoned on our currency a bit blasphemous? Wouldn’t it be more appropriate to emblazon our currency with something like “In Magic We Trust”?

Answer 30

So it would appear and so it would appear!!!

Question 31

Getting down to basics, hasn’t the U.S. Federal Reserve had for many decades as its OVER-ARCHING GOAL engineering 2% inflation/year?

Answer 31

Yes.

Question 32

Did inflation get out of control during President Carter’s reign causing the Federal Reserve to rein in the 11.3% inflation for 1979 and 13.5% inflation for 1980 with a “Prime Rate” (the interest rate banks charge their most-credit-worthy customers) that reached 20.00% on 4/2/1980?

Answer 32

Yes.

Question 33

Would the U.S. dollar have become worthless if the Federal Reserve had failed to do so?

Answer 33

You bet “your bottom dollar”!!!

Question 34

Will the Second Short Quiz examine “Modern Monetary Theory” (aka “MMT” as preached by liberals such as our author) as really nothing more than advocating larger annual governmental deficits that are accommodated by “quantitative easing” (Washington-speak for printing more money to paper over deficits) while letting the inflation caused by “quantitative easing” balloon wildly (since even the U.S. dollar is subject to the law of “supply and demand”) AND WHILE INCURRING THE RISK THAT “GREATER FOOLS” WILL SUDDENLY VANISH AND THAT THE VALUE OF THE DOLLAR WILL COLLAPSE? After all, isn’t inflation a partial collapse of the value of the currency and who knows where the point is for a complete collapse???

Answer 34

Yes and Yes.