Visiting a currency crisis

In my time trading forex, I never really stopped to consider the physicality of it all. We're dealing with real money here. Most of it is paper mind you, but it's physical nonetheless. And it's being exchanged for goods and services. People are collecting it, spending it, or simply wishing for it. In general more people understand and are involved in the stock markets, but honestly the currency markets play a much more vital role in there lives.

Now despite the dollar gloom and doom, we're in luck that our currency is one of many fiat currencies trending to zero. Since the rates change at any time, we're not always winning that race (here's to hoping the dollar comes in last, cheers). We can look to our European friends to find several examples of failed currencies, not only within my lifetime, but also my trading lifetime. The Turkish lira, and the Icelandic krona to name a couple. I remember watching the bid price on kronas blow up live. What a crazy day that was! However, I was not in Iceland at the time, nor invested in the currency. What happened on the ground when the paper became worthless? What did people do?

This past week I got to experience the fragile beginnings of such an event. Visiting Hungary let me see and touch the bills that may one day be worthless or otherwise replaced. Hungary has never quite recovered from the 2008 financial crisis and the pain is getting worse. Having accepted one IMF bailout, they find themselves asking for another.

So what did the country look like? The bars certainly seemed full. The streets still busy and the restaurants still serving food. Yet there were rallies and protests in front of the parliament building, and whispers on the streets. Currency was leaving the country and locals talked of moving money to nearby Austria and other foreign banks. The feeling in the air was a nervous laughter, ripe with anticipation of knowing what must come, while still hoping it wouldn't.

So what does the collapse of the dollar look like? What will history say? I can imagine a similar story when the time comes.

Really, what is money?

So we've talked about money, attempted a definition, and left ourselves still wondering and asking questions. After all, what is it really? Does it represent stuff, or happiness perhaps? I am going to attempt a broader view of money here. Simply put,

$ = Δt

Money is a derivative of time. "Time is money". Indeed. Defined as such, money then is simply a resource.

What is money?

Given all this talk about meeting needs and becoming a capitalist, I would be remiss if we didn't attempt at least a cursory definition of money.

Money at it's heart is a store of value. In our perfect world, one could suppose it represented a stable store of value. Reality tells us otherwise. In our world today, most would pick up a dollar or euro and consider it money. This is fiat currency - meaning it's value has been declared by some authority. In the case of the dollar or euro, it's been declared by the central government. These bills represents debt. US Dollars are really IOU's - not by the US government, but by you. Promises that you will (or more specifically your children) pay back what has been borrowed. Modern finance revolves around a world of so-called experts, central banks, and government authority. It's really a fragile and thin system based ultimately on trust. You do trust your government don't you? Remember the power is always from the people. Someday, the US Dollar will be worthless. It will go the way of all the fiat currencies have gone before. I don't think I've unearthed any big surprises here for most readers.

Step 2 - Meeting your needs

Ok, so our time is all our own now. Hurray! There is nothing like the feeling of quitting your job. Suddenly you are free to do as you wish, at least for the moment. The world lies before you, and the feelings of youth and invincibility overwhelm you again. Being afraid of commitment had its upsides. Who wants to exchange 30 years of there life for a shelter, aka home? I think I missed the memo on that one. But I'm getting ahead of myself.

I still have needs to be met. My body will need food soon, and water for that matter. It will also need shelter; clothing and a place to sleep. This are but the most basic of needs. And like most Americans I'm paying someone to meet those needs for me. As I enjoy living, I still need a way to meet those needs without being a wage slave.

Meeting them myself is a feasible option. Indeed, my choice is simply the method I chose. I was already meeting my needs. Thus far I have been exchanging my time for money. I then exchanged this money for my needs. Becoming a capitalist would mean I value my time. Exchanging such a valuable resource for what indirectly results in my most basic needs isn't a good return on my assets.

Let us reconsider how to meet those needs. I could chose to exchange my time for food, and shelter directly. This would seem to be a better exchange, although it would still utilize my finite resource of time. The pitfall here is placing myself in a situation not unlike slavery. If I am unable to give my time (aka work), I don't eat. For example, say I pursued this strategy by buying a bit of land and building a garden upon it. That garden will not bring forth a harvest without work. That investment of time needs to be considered.

Indeed, if time was to be valued most I could cease 'working' now; in the sense of the modern day, 9-5 job. Living in a field with a tent and dependent on nature for food would meet all my needs and cost me very little of my time to setup. However, this is not a desirable arrangement ₁. Freeing up all of one's time is futile.

1. Ecc. 2:24 There is nothing better for people than to eat and drink, and to find enjoyment in their work.