Chapter 1: How We Got Here
Steve Forbes’s Explanation of the Housing Bubble and Federal Reserve Policies
Many reasons led to the housing bubble, but Forbes points out a few basic ones. First, the author says that in modern society, many people have more access to funds, which means better opportunities to buy real estate. A large number of buyers and growing demand have greatly influenced property prices, which began to rise. In addition, the developers themselves can create an additional artificial real estate dispute (Alexander, 2019). Another factor that significantly contributed to the real estate bubble was the declining real estate market yields, which led to the exit of investors.
However, when the Federal Reserve decided to increase the discount rates as the demand was too high, the effect of a weak dollar resulted in the market’s collapse. The weak dollar was made worse by the Federal Reserve pushing for subprime mortgages. Such significant changes and the formation of a real estate bubble could not affect the Federal Reserve Bank. The federal system issues the dollar and controls its issue, respectively. The Reserve Bank also determines the interest rates. This means that the real estate bubble and its causes can lead to an inflation of the national currency.
The Meaning and Consequences of a Weak Dollar
A weak dollar means that its value is falling relative to how many goods it can buy. The value of the dollar can also be tracked against foreign currencies. A weak dollar has various effects on the economy; for example, if any of a country’s trading partners are in financial difficulty, it can create prices in the market that are lower than what it costs to produce goods. Such cases can lead to the bankruptcy of enterprises.
The Gold Standard: A Standout Idea in Chapter 1
Another idea that can be highlighted in Chapter 1 is the gold standard. It appeared during World War II when the Allies agreed to link the dollar directly to the price of gold. The level was billed at $35 per ounce (Forbes & Ames, 2014). This meant that other countries could value their currencies against the dollar, which they still do today.
Chapter 2: What Is Money
The Importance of Monetary Stability
Money plays a crucial role in the economy of all countries. They primarily evaluate the products and services sold (Forbes & Ames, 2014). In addition, currency is a tool that allows people to conduct transactions between different people or organizations in different parts of the world. For people to trust the existing monetary concept, it must be stable. Otherwise, if the exchange rate constantly changes, it will be impossible to set standard prices for products and services on the market. If a certain amount of money a person keeps will constantly lose in value, then, in the end, this will force him not to use this currency.
Steve Forbes’s Prediction Regarding Bitcoin
Digital currency appeared recently compared to the usual one. However, it has already managed to reach certain heights. The blockchain system has its pros and cons. On the one hand, this is anonymity and the ability to quickly transfer money; on the other hand, it is poor security.
The most popular cryptocurrency on the market today is Bitcoin. The author does not believe that Bitcoin is an excellent way to keep money since its exchange rate changes dramatically all the time. The price level of bitcoin tends to constantly sharply fall and rise (Forbes & Ames, 2014). The authors do not give any accurate predictions about whether a cryptocurrency will rise or fall in the future.
Interpretation of “Money Measures Wealth, but It Does Not Create It”
Money is only a system that measures wealth. For example, height is measured in feet, but the word foot itself has no specific meaning. In addition, money can be used to measure income or loss. Money by itself does not create wealth; it is only the result and ultimate goal of human activity. As stated earlier, they measure financial success, but they don’t come out of nowhere.
Chapter 3: Money and Trade
Nixon’s Removal of the Gold Standard and Its Effects
Historically, gold has been the standard of value for the dollar, meaning each dollar is pegged to a certain amount of gold. President Nixon ended the gold standard in 1971 (Forbes & Ames, 2014). This was done to stabilize the dollar and remove it from the international monetary system. As a result, countries began to print money actively, and the dollar weakened.
Forbes’s Perspective on Trade Deficits: Insight and Evaluation
The trade deficit shows the excess of imports concerning exports. That means the country consumes more foreign goods than it exports. However, its indicators do not say anything significant about the economy. Advanced economies may have high deficit rates, while low economies may not have deficits at all (Forbes & Ames, 2014). Thus, the authors conclude that the trade balance deficit does not lead to severe consequences. His vision is positive because the trade deficit does not determine how successful any economy is.
Currency Manipulation: A Standout Concept in Chapter 3
An interesting theory from Chapter 3 can be presented as currency manipulation. This is a topical issue that is important to study in order to understand the state’s monetary operations. Some countries can pressure others to make money on the exchange rate difference. For example, the authors recall when the US asked China to revalue its currency (Forbes & Ames, 2014). After that, the value of the Yuan against the dollar increased. This is an exciting way for a country to earn on the rate of its currency.
Chapter 4: Money Versus Wealth & Chapter 5: Money and Morality
The Effects of Increasing the Money Supply
The interest rate on loans and mortgages may decrease during an increase in the money supply. In addition, the authors point out that this also influences people to want to invest more (Forbes & Ames, 2014). A low reserve amount will also allow banks to hold less currency as a reserve.
Monetary Policy as a Communication System
The Federal Reserve may lower the discount rate during a recession to increase the money supply in the economic system. With inflation, the reverse process occurs to withdraw excess money from circulation. When the reserve system lowers the discount rate, it signals to banks and the public that it wants everyone to increase their investment and borrow more to stimulate the economy (Forbes & Ames, 2014). Thus, communication takes place with the help of monetary policy.
The Relationship Between Money and Trust
Money and trust are directly related to each other. People have confidence in stocks or real estate when they decide to invest in them. They believe that the company will be successful and invest in it to make a profit.
A Standout Concept in Chapters 4 and 5
The concept is that the government can use inflation to dilute the population’s money in order to spend extra money or pay off its debts. The government keeps interest rates low so that more money can be spent instead of paying an additional $500 billion in interest (Forbes & Ames, 2014). This is an exciting concept of using inflation for the benefit of the government. Thus, the state can work together with its citizens to enrich itself and, therefore, help those who helped it in this. This concept is beneficial for all participants in such a system since the more financially stable the state is, the more profitable it is for its residents.
Chapter 6: The Gold Standard
Explanation of the Gold Standard and Its Potential Application in the U.S.
The gold standard is the dollar peg to gold at a specific value. This allows other countries’ currencies to be valued against the dollar (Forbes & Ames, 2014). Currencies under such a system could freely turn into gold, and unhindered import and export of gold were also allowed. In settlements between countries using the gold standard, a fixed exchange rate was established – it was calculated based on the ratio of these currencies to a unit mass of gold.
The convertibility of the currency of each of the countries into gold was ensured both inside and outside national borders. Countries that adhered to the gold standard were required to regulate the ratio between the available reserves of gold and the amount of money that was in circulation, as well as the export and import of gold. Such a system makes it possible to establish stable and functional monetary circulation worldwide. In the US, this system could work in such a way that the price of the dollar is fixed on a certain amount of gold, which allows the government to fix the exchange rate and avoid inflation.
Steve Forbes’s Argument for Reviving the Gold Standard
The gold standard was introduced to avoid inflation in the US. However, after this innovation did not bring the desired results, it was canceled and was never used again. Steve Forbes believes that the gold standard should be returned because it provides flexibility and stability to the economic system (Forbes & Ames, 2014). The advantage of the gold standard system was that it provided stability in both domestic and foreign economic policy. Transnational flows of gold stabilized exchange rates and created favorable conditions for the growth and development of international trade.
Overall Reflection on Steve Forbes’s View of Money
Forbes believes that money does not measure the value of things. In his opinion, money is a measure of trust and exchange relations in society. In fact, money is an exchange of trust between a company and an investor. People believe that buying real estate or company shares will increase in value, so they make investments. All these factors increase people’s credibility with the currency if they make a profit from it. Sound money systems are an important component in effective public administration because money flows directly determine the stability of the state.
References
Alexander, S. (2019). In money we trust? A Steve Forbes documentary [Video]. YouTube. Web.
Forbes, S. & Ames, E. (2014). Money how the destruction of the dollar threatens the global economy: And what we can do about It. McGraw-Hill Education.